<PAGE>
UNITED STATES
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 Quarterly Period Ended June 30, 1997
Commission file number 0-14199
ALEX. BROWN INCORPORATED
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Maryland 52-1434118
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One South Street, Baltimore, MD
21202
________________________________________________________________________________
(Address of principal executive offices)
(Zip code)
(410) 727-1700
________________________________________________________________________________
(Registrant's telephone number, including area code)
________________________________________________________________________________
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.10 par value 25,456,450
- - --------------------------------------------------------------------------------
(Class) (Outstanding at August 1, 1997)
</PAGE>
<PAGE>
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
INDEX
Page
Part I - Financial Information
Consolidated Statements of Earnings (Unaudited) for the
three months and six months ended June 30, 1997 and 1996 1
Consolidated Statements of Financial Condition as of
June 30, 1997 (Unaudited) and December 31, 1996 2-3
Consolidated Statements of Stockholders' Equity (Unaudited)
for the six months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-11
Part II - Other Information 12
Signatures 13
Exhibit -
(11) Calculation of Earnings Per Share (Unaudited) 14
</PAGE>
<PAGE>
<TABLE>
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Earnings
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Commissions $ 56,979 $ 54,352 $115,201 $106,357
Investment banking 95,495 133,662 170,366 235,501
Principal transactions 33,291 49,243 65,285 101,751
Interest and dividends 36,439 36,228 72,092 69,137
Advisory and other 38,959 36,750 71,738 68,330
-------- -------- -------- --------
Total revenues 261,163 310,235 494,682 581,076
-------- -------- -------- --------
Operating expenses:
Compensation and benefits 137,904 162,754 260,338 308,328
Communications 12,073 9,810 22,777 18,452
Occupancy and equipment 11,659 9,263 20,803 18,026
Interest 12,174 13,075 24,482 25,261
Floor brokerage, exchange
and clearing fees 6,462 5,460 12,291 10,403
Other operating expenses (Note 6) 28,539 26,491 50,136 49,958
-------- -------- -------- ---------
Total operating expenses 208,811 226,853 390,827 430,428
-------- -------- -------- ---------
Earnings before income taxes 52,352 83,382 103,855 150,648
Income taxes 20,679 33,541 41,023 60,111
-------- -------- -------- ---------
Net earnings $ 31,673 $ 49,841 $ 62,832 $ 90,537
======== ======== ======== =========
Earnings per share:
Primary $ 1.23 $ 2.01 $ 2.46 $ 3.69
======== ======== ======== =========
Fully diluted $ 1.09 $ 1.77 $ 2.19 $ 3.25
======== ======== ======== =========
Weighted average number of
shares outstanding:
Primary 25,749 24,783 25,523 24,549
======== ======== ======== =========
Fully diluted 29,503 28,483 29,396 28,285
======== ======== ======== =========
Cash dividends declared per share $ 0.17 $ 0.167 $ 0.34 $ 0.30
======== ======== ======== =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(in thousands)
ASSETS
<CAPTION>
June 30, December 31,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C> <C>
Cash and cash equivalents $ 26,357 $ 109,800
Receivables:
Customers 1,502,942 1,487,041
Brokers, dealers and clearing organizations 565,266 368,099
Current state and federal income taxes 2,979 17,429
Other 66,582 59,097
Firm trading securities (Note 2) 119,124 210,412
Securities purchased under agreements to resell 3,941 15,510
Deferred income taxes 53,094 46,433
Memberships in exchanges, at cost
(market $3,939 and $3,597) 323 323
Office equipment and leasehold improvements,
at cost less accumulated depreciation and
amortization of $48,385 and $44,580 59,839 48,079
Investment securities (Note 4) 61,485 56,889
Loans to employees to purchase convertible
subordinated debentures (Note 5) 60,657 54,454
Other assets 92,696 69,009
---------- ----------
$2,615,285 $2,542,575
========== ==========
</TABLE>
(continued)
</PAGE>
<PAGE>
<TABLE>
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Financial Condition (continued)
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30, December 31,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C> <C>
Bank loans $ 143,100 $ 29,900
Payables:
Cash management facility 74,139 83,733
Customers, including free credit balances 666,555 676,734
Brokers, dealers and clearing organizations 487,387 495,947
Current state income taxes 2,852 1,840
Other 276,787 378,981
Securities sold, not yet purchased (Note 2) 38,019 48,223
7 5/8% Senior notes 109,505 109,475
5 3/4% Convertible subordinated debentures 3,889 11,797
Employee convertible subordinated debentures (Note 5) 72,601 62,043
Commitments and contingencies (Note 8)
Stockholders' equity (Note 5):
Common stock of $.10 par value
Authorized 50,000,000 shares
Issued and outstanding 25,434,822 shares in 1997
and 24,030,822 shares in 1996 2,543 2,403
Additional paid-in capital 166,474 125,882
Loans to employees to purchase common stock (8,921) (10,320)
Retained earnings 580,355 525,937
---------- ----------
Total stockholders' equity 740,451 643,902
---------- ----------
$2,615,285 $2,542,575
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(in thousands)
(Unaudited)
<CAPTION>
Loans To
Employees Total
Additional To Purchase Stock-
Common Paid-in Common Retained holders'
Stock Capital Stock Earnings Equity
------ -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 1997
Balance at December 31, 1996 $2,403 $125,882 $(10,320) $525,937 $643,902
Net earnings - - - 62,832 62,832
Issuance of 1,196,395 shares of
common stock 120 30,712 - - 30,832
Payments on employee loans - - 991 - 991
Repurchase and retirement of
58,383 shares of common stock (6) (3,582) - - (3,588)
Compensation payable
in common stock 26 13,462 - - 13,488
Loan forgiveness - - 408 - 408
Dividends paid - - - (8,414) (8,414)
------ -------- -------- -------- --------
Balance at June 30, 1997 $2,543 $166,474 $ (8,921) $580,355 $740,451
====== ======== ======== ======== ========
Six months ended June 30, 1996
Balance at December 31, 1995 $2,330 $113,234 $(12,470) $386,193 $489,287
Net earnings - - - 90,537 90,537
Issuance of 748,180 shares of
common stock 75 13,903 - - 13,978
Payments on employee loans - - 1,879 - 1,879
Repurchase and retirement of
22,879 shares of common stock (2) (715) - - (717)
Compensation payable
in common stock 27 7,257 - - 7,284
Loan forgiveness - - 52 - 52
Dividends paid - - - (6,401) (6,401)
------ -------- -------- -------- --------
Balance at June 30, 1996 $2,430 $133,679 $(10,539) $470,329 $595,899
====== ======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 62,832 $ 90,537
Reconciliation of net earnings to net cash
used for operating activities:
Depreciation and amortization 6,721 6,257
Non-cash compensation awards 19,405 10,343
Gain on investment securities (4,721) (13,877)
Other (252) (83)
(Increase) decrease in assets:
Receivables (206,103) (299,448)
Firm trading securities 91,288 (99,530)
Deferred income taxes (6,661) (3,207)
Securities purchased under agreements to resell 11,569 5,693
Other assets (24,263) (29,017)
Increase (decrease) in liabilities:
Payables (119,921) 177,810
Securities sold, not yet purchased (10,204) 11,813
--------- ---------
Net cash used for operating activities (180,310) (142,709)
--------- ---------
Cash flows from financing activities:
Net proceeds (payments):
Short-term loans 115,000 89,000
Securities sold under repurchase agreements 0 (2,460)
Cash management facility (9,594) 10,473
Payments on term loans (1,800) (2,642)
Issuance of common stock 23,043 13,846
Repurchase of common stock (3,588) (717)
Dividends paid to stockholders (8,414) (6,401)
-------- ---------
Net cash provided by financing activities 114,647 101,099
-------- ---------
Cash flows from investing activities:
Purchase of office equipment and leasehold improvements (17,905) (3,224)
Purchase of investment securities (17,929) (10,614)
Sale of investment securities 18,054 20,315
--------- ---------
Net cash provided by (used for) investing activities (17,780) 6,477
--------- ---------
Net decrease in cash and cash equivalents (83,443) (35,133)
Cash and cash equivalents at beginning of period 109,800 62,103
--------- ---------
Cash and cash equivalents at end of period $ 26,357 $ 26,970
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
</PAGE>
<PAGE>
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
(1) The accompanying consolidated financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles. In the opinion of management, all adjustments considered
necessary to fairly reflect Alex. Brown Incorporated's (the "Company")
financial position and results of operations, consisting of normal
recurring adjustments, have been included. Certain revenue items in
1996 have been reclassified to conform to the current year presentation.
(2) Firm trading securities and securities sold, not yet purchased
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Long Short
06/30/97 12/31/96 06/30/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
United States government
and agencies $ 13,322 $ 6,440 $ 9,006 $16,126
Mortgage-backed 726 30,913 - -
States and municipalities 54,587 97,306 318 379
Corporate debt 2,518 22,810 202 7,310
Equities and convertible debt 47,971 52,943 28,493 24,408
-------- -------- ------- -------
$119,124 $210,412 $38,019 $48,223
======== ======== ======= =======
</TABLE>
(3) On July 22, 1997, the Company declared a $0.17 per share quarterly cash
dividend payable August 12, 1997 to stockholders of record on August 1,
1997.
(4) Investment securities at June 30, 1997 and December 31, 1996 included $28.7
million and $24.5 million, respectively, of merchant banking investments.
(5) Convertible subordinated debentures issued to certain employees pursuant to
the 1991 Equity Incentive Plan are convertible into the Company's Common
Stock. The Company made loans to employees to fund the purchases of the
debentures. During the first six months of 1997, employees converted
$0.7 million convertible subordinated debentures, which were issued in
prior years, into 84,037 shares of the Company's common stock.
(6) On May 5, 1997, Alex. Brown announced the reorganization of its fixed income
operations. Included in other expenses for the three months and six months
ended June 30, 1997 is a charge of $7.7 million relating to severance
costs incurred in connection with the reorganization.
(7) On April 6, 1997, Bankers Trust New York Corporation and Alex. Brown
Incorporated announced the signing of a definitive agreement to merge.
Under terms of the agreement approved unanimously by both boards of
directors, each Alex. Brown common share will be exchanged for 0.83 shares
of Bankers Trust common stock. The merger, which is expected to be
completed by the fourth quarter of 1997, is subject to customary closing
conditions, including certain regulatory and shareholder approvals. The
transaction is expected to be tax-free to shareholders and accounted for on
a pooling-of-interests basis. A Special Meeting of Stockholders of Alex.
Brown Incorporated is scheduled to be held at the Company's headquarters in
Baltimore, Maryland on Wednesday, August 13, 1997 at 4:30 p.m. for
stockholders of record on the close of business on July 2, 1997. This
meeting is to consider a proposal to approve and adopt the agreement and
plan of merger by and between Alex. Brown Incorporated, Bankers Trust
New York Corporation and its wholly-owned subsidiary, Voyager Merger
Corporation.
</PAGE>
<PAGE>
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 1997
(Unaudited)
(8) COMMITMENTS AND CONTINGENCIES
Letters of Credit
At June 30, 1997, the Company's principal subsidiary, Alex. Brown & Sons
Incorporated, was contingently liable for up to $69.5 million under
unsecured letters of credit used to satisfy required margin deposits at
five securities clearing corporations.
Litigation
In the course of its investment banking and securities brokerage business,
Alex. Brown & Sons Incorporated has been named a defendant in a number of
lawsuits and may be required to contribute to final settlements in
actions, in which it has not been named a defendant, arising out of
its participation in the underwritings of certain issues. A substantial
settlement or judgment in any of these cases could have a material
adverse effect on the Company. Although the ultimate outcome of such
litigation is not subject to determination at present, in the opinion of
management, after consultation with counsel, the resolution of these
matters will not have a material adverse effect on the Company's
consolidated financial statements.
(9) Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share, was issued in February 1997 and, effective for financial statements
issued for periods ending after December 15, 1997, establishes standards
for computing and presenting earnings per share ("EPS"). SFAS No. 128
replaces the presentation of primary EPS with a presentation of basic EPS.
It also requires dual presentation of basic and diluted EPS on the face of
the consolidated statement of earnings and requires the reconciliation
of the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. Earlier
application is not permitted, but disclosure of pro forma EPS amounts
computed using the standards established by SFAS No. 128 is permitted in
the notes to financial statements for periods ending prior to the effective
date. Pro forma EPS for the three and six month periods ended June 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Basic $1.27 $2.06 $2.53 $3.77
Diluted $1.10 $1.78 $2.20 $3.26
</TABLE>
</PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Alex. Brown Incorporated (the "Company") is a holding company whose
primary subsidiary is Alex. Brown & Sons Incorporated ("Alex.
Brown"), a major investment banking and securities brokerage firm.
The Company, like other securities firms, is directly affected by
general economic and market conditions, including fluctuations in
volume and price levels of securities, changes in interest rates and
demand for investment banking and securities brokerage services, all
of which have an impact on the Company's revenues, operating results
and financial condition as well as its liquidity. Substantial
fluctuations can occur in the Company's revenues and net earnings due
to these and other factors.
In periods of reduced market activity, profitability is likely to be
adversely affected because certain expenses, consisting primarily of
salaries and benefits, communications and occupancy expenses, remain
relatively fixed. Accordingly, net earnings for any period should
not be considered representative of any other period.
In the following discussion, all share and per share information have
been adjusted to reflect a three-for-two stock split paid on January
15, 1997.
RESULTS OF OPERATIONS
Second Quarter 1997 Compared to Second Quarter 1996
Revenues totaled $261.2 million, a 16% decrease as compared to $310.2
million in the second quarter of 1996. Commission revenues increased
5% to $57.0 million for the second quarter, primarily as a result of
an increase in institutional listed and private client mutual funds
commission revenues. Investment banking revenues decreased 29% to
$95.5 million, due to a 50% decrease in corporate underwriting
revenues. Partially offsetting this decline was a 66% increase in
merger and advisory revenues to $38.8 million. Principal transaction
revenues decreased 32% to $33.3 million, primarily due to decreases
in equity trading. Interest and dividend revenues increased 1% to
$36.4 million, primarily as a result of interest earned on higher
margin loan balances. Advisory and other revenues increased 6% to
$39.0 million. This increase was primarily attributable to a 39%
increase in advisory revenues to $25.8 million. Partially offsetting
this increase were lower gains from investments which totaled $4.0
million in the second quarter as compared to $8.5 million in the
second quarter of the prior year and an 18% reduction in fees from
correspondent services to $6.6 million. Assets under management
totaled approximately $13.9 billion at June 30, 1997.
Expenses totaled $208.8 million, an 8% decrease as compared to $226.9
million in the second quarter of 1996. Compensation and benefits
decreased 15% to $137.9 million from $162.8 million, as a result of
decreased incentive and commission expenses. Communications expense
increased 23% to $12.1 million due to higher costs for quote services
and an increase in postage and printing costs. Occupancy and
equipment expenses increased 26% to $11.7 million, primarily as a
result of additional space occupied in connection with the relocation
to the new Baltimore headquarters. Interest expense decreased 7%
to $12.2 million from $13.1 million primarily due to a decrease in
overnight bank loans as financing needs decreased corresponding with
a reduction in average inventory levels. Floor brokerage, exchange
and clearing fees increased 18% to $6.5 million, primarily due to
costs associated with the increase in shares traded on the New York
Stock Exchange. Other operating expenses increased 8% to $28.5
million, primarily due to severance costs of $7.7 million related to
the reorganization of our fixed income operations.
The Company's effective tax rate for the quarter was 39.5% compared
to 40.2% for the second quarter of the prior year.
</PAGE>
<PAGE>
As a result of the above, net earnings decreased 36% to $31.7 million
from $49.8 million in the second quarter of 1996. Primary and fully
diluted earnings per share were $1.23 and $1.09, respectively, as
compared to $2.01 and $1.77 for the same period in the prior year.
Six Months 1997 Compared to Six Months 1996
Revenues totaled $494.7 million, a 15% decrease as compared to $581.1
million in the first six months of 1996. Commission revenues
increased 8% to $115.2 million for the first six months of 1997,
primarily as a result of an increase in institutional listed and
private client mutual fund commission revenues. Investment banking
revenues decreased 28% to $170.4 million, due to a 38% decrease in
corporate underwriting revenues and merger and advisory fees were
essentially unchanged from the prior period. Principal transaction
revenues decreased 36% to $65.3 million, primarily due to decreases
in equity trading. Interest and dividend revenues increased 4% to
$72.1 million, primarily as a result of interest earned on higher
margin loan balances. Advisory and other revenues increased 5% to
$71.7 million. This increase was primarily attributable to a 38%
increase in advisory revenues to $48.6 million. Partially offsetting
this increase were lower gains from investments which totaled $4.7
million in the first six months as compared to $13.9 million in the
first six months of the prior year, and a 13% reduction in fees from
correspondent services to $13.4 million.
Expenses totaled $390.8 million, a 9% decrease as compared to $430.4
million in the first six months of 1996. Compensation and benefits
decreased 16% to $260.3 million from $308.3 million, as a result of
decreased incentive and commission expenses. Communications expense
increased 23% to $22.8 million due to higher costs for quote
services, an increase in communications expense associated with the
Baltimore headquarters relocation and postage and printing costs.
Occupancy and equipment expenses increased 15% to $20.8 million,
primarily as a result of additional space occupied in connection with
the relocation to the new Baltimore headquarters. Interest expense
decreased 3% to $24.5 million from $25.3 million, primarily due to
a decrease in overnight bank loans as financing needs decreased
corresponding with a reduction in average inventory levels. Floor
brokerage, exchange and clearing fees increased 18% to $12.3 million,
primarily due to costs associated with the increase in shares traded
on the New York Stock Exchange. Other operating expenses totaled
$50.1 million for the first six months of 1997, including severance
costs of $7.7 million related to the reorganization of our fixed
income operations, reflecting less than a 1% increase from the prior
year.
The Company's effective tax rate for the first six months was 39.5%
compared to 39.9% for the first six months of 1996.
As a result of the above, net earnings decreased 31% to $62.8 million
from $90.5 million in the first six months of 1996. Primary and
fully diluted earnings per share were $2.46 and $2.19, respectively,
as compared to $3.69 and $3.25 for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated statement of financial condition reflects
a liquid financial position. The majority of the securities (both
long and short) in Alex. Brown's trading accounts are readily
marketable and actively traded. Customer receivables include margin
balances and amounts due on uncompleted transactions. Receivables
from other brokers and dealers generally represent either current
open transactions, which usually settle within a few days, or
securities borrowed transactions which normally can be closed out
within a few days. Most of the Company's receivables are secured by
marketable securities. The Company also has investments in fixed assets
and illiquid securities but such investments are not a significant
portion of the Company's total assets.
</PAGE>
<PAGE>
High yield securities, also referred to as "junk" bonds, are non-
investment grade debt securities which are rated by Standard & Poor's
as lower than BBB- and by Moody's Investors Service as lower than
Baa3. The market for high yield securities can be extremely volatile
and many experienced significant declines in the past several years.
At June 30, 1997, as a result of the reorganization of its fixed
income business, Alex. Brown reduced its high yield long inventory to
$0.1 million as compared to $9.4 million of long inventory and $6.5
million of short inventory at year-end 1996.
As of June 30, 1997, the carrying value of the Company's merchant
banking investments was $28.7 million, compared to $24.5 million at
year-end 1996. There was a net gain related to merchant banking
investments of $1.9 million for the first six months of 1997. It is
anticipated that merchant banking investments will generally have a
holding period of three years or more and will be funded with
existing sources of working capital. The Company has no outstanding
bridge loans.
From time to time the Company makes subordinated loans to correspondents
as part of its Correspondent Services business. These loans may be secured
or unsecured and are funded through general working capital sources. At
June 30, 1997, $3.0 million of such loans were outstanding.
The Company finances its business through a number of sources,
consisting primarily of paid-in capital, funds generated from
operations, free credit balances in customers' accounts, deposits
received on securities loaned, repurchase agreements and bank loans,
as well as through the issuance of debt and equity securities.
The Company borrows from banks on a short-term basis both on an
unsecured basis and under arrangements pursuant to which the amount
of funds available is based on the value of the securities owned by
the Company and customers' margin securities pledged as collateral.
In addition, the Company has borrowed on a long-term basis from banks
on an unsecured basis ("term loans"). The Company historically has been
able to obtain necessary bank borrowings and believes that it will
continue to be able to do so in the future. The Company and Alex.
Brown have $450 million of unused committed lines of credit under
revolving credit agreements (the "Credit Facilities") with various
banks. The Credit Facilities expire between August 1997 and
February 2000. The Credit Facilities and term loans contain various
restrictive financial covenants, the most significant of which
require the maintenance of minimum levels of net worth by both the
Company and Alex. Brown and minimum levels of net capital by Alex.
Brown. There were no borrowings under the Credit Facilities at
June 30, 1997. The Company and Alex. Brown were in compliance with
all restrictive covenants contained in the Credit Facilities and term
loans at June 30, 1997.
Alex. Brown is required to comply with the net capital rule of the
Securities and Exchange Commission. The Company's ability to
withdraw capital from Alex. Brown may be limited by the rule. Alex.
Brown has consistently exceeded minimum net capital requirements
under the rule. At June 30, 1997, Alex. Brown had aggregate net
capital of $438.1 million, which exceeded its minimum net capital
requirement by $402.8 million.
During the first six months of 1997, the Company repurchased a total
of 58,383 shares of its Common Stock at a cost of $3.6 million. As
of June 30, 1997, the Company had a remaining repurchase authorization
of approximately 1.5 million shares.
Management of the Company believes that existing capital and credit
facilities, when combined with funds generated from operations, will
provide the Company with sufficient resources to meet its present and
reasonably foreseeable cash and capital needs.
</PAGE>
<PAGE>
RISK MANAGEMENT
The Company records securities transactions on a settlement date
basis, generally the third business day following the trade
execution. The risk of loss on unsettled transactions relates to
customers' or brokers' inability or refusal to meet the terms of
their contracts. The Company monitors its exposure to market and
counterparty risk through a variety of financial, position and credit
exposure reporting and control procedures. The Risk Management,
Credit and Investment Committees, each of which meets on a regular
basis, include members of senior management. Each trading department
is subject to internal position limits established by the Risk
Management Committee which also reviews positions and results of the
trading departments. Alex. Brown's Credit Committee establishes and
reviews appropriate credit limits for customers and brokers seeking
margin, repurchase and reverse repurchase agreement facilities and
securities borrowed and securities loaned arrangements. The
Investment Committee approves investment purchases and sales and
reviews holdings.
INFLATION
Because the Company's assets are, to a large extent, liquid in nature,
they are not significantly affected by inflation. However, the rate
of inflation affects the Company's expenses such as employee
compensation, office space leasing costs and communication charges,
and increases therein may not be readily recoverable in the price of
services offered by the Company. To the extent inflation results in
rising interest rates and has other adverse effects upon the securities
markets and on the value of securities owned by the Company, it may
adversely affect the Company's financial position and results of
operations.
</PAGE>
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None.
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of Alex. Brown Incorporated on
April 22, 1997, the following persons were elected as directors of the Company
to hold office until the next Annual Meeting of Stockholders or until their
successors are duly elected and qualified:
<TABLE>
<CAPTION>
Name For Withheld*
----------------- ---------- ---------
<S> <C> <S> <C> <C>
Lee A. Ault III 22,117,456 24,789
Neil R. Austrian 20,533,612 1,608,633
Thomas C. Barry 22,118,806 23,439
Kenneth D. Brody 22,106,636 35,609
Benjamin H. Griswold IV 22,081,419 60,826
A. B. Krongard 22,112,076 30,169
Frank E. Richardson 22,118,716 23,529
Mayo A. Shattuck III 22,112,391 29,854
John J. F. Sherrerd 20,531,126 1,611,119
<FN>
* Including abstentions and broker non-votes
</TABLE>
The stockholders voted in favor of the proposal to amend the
Alex. Brown Incorporated 1988 Employee Stock Purchase Plan.
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
---------- -------- ------- ---------
<S> <C> <C> <C> <C>
Approval to amend the
Alex. Brown Incorporated
1988 Employee Stock
Purchase Plan 17,789,914 614,509 38,139 6,405,781
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re: Calculation of Earnings Per Share
(b) A Form 8-K was filed on April 7, 1997 to report announcement of
the signing of a definitive agreement to merge Bankers Trust New York
Corporation and Alex. Brown Incorporated. Included as part of that
filing was an exhibit of the April 6, 1997 press release announcing
the merger.
</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.
ALEX. BROWN INCORPORATED
(Registrant)
Date: August 8, 1997 A. B. KRONGARD
------------------------------------
A. B. Krongard
Chairman and Chief Executive Officer
Date: August 8, 1997 BEVERLY L. WRIGHT
------------------------------------
Beverly L. Wright
Principal Financial Officer
</PAGE>
<PAGE>
<TABLE>
Exhibit 11
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
Calculation of Earnings Per Share
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ -----------------
Fully Fully
Primary Diluted Primary Diluted
------- -------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares outstanding:
Common stock 25,001 25,001 24,219 24,219
Stock options 748 814 564 625
Convertible subordinated debentures - 3,688 - 3,639
------- ------- ------- -------
25,749 29,503 24,783 28,483
======= ======= ======= =======
Net earnings for calculating earnings per share:
Net earnings $31,673 $31,673 $49,841 $49,841
Interest expense on convertible
subordinated debentures, net of tax - 766 - 658
------- ------- ------- -------
$31,673 $32,439 $49,841 $50,499
======= ======= ======= =======
Earnings per share $ 1.23 $ 1.09 $ 2.01 $ 1.77
======= ======= ======= =======
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
------------------ -----------------
Fully Fully
Primary Diluted Primary Diluted
------- -------- ------- -------
Weighted average shares outstanding:
Common stock 24,805 24,805 23,989 23,989
Stock options 718 856 560 672
Convertible subordinated debentures - 3,735 - 3,624
------- ------- ------- -------
25,523 29,396 24,549 28,285
======= ======= ======= =======
Net earnings for calculating earnings per share:
Net earnings $62,832 $62,832 $90,537 $90,537
Interest expense on convertible
subordinated debentures, net of tax - 1,530 - 1,284
------- ------- ------- -------
$62,832 $64,362 $90,537 $91,821
======= ======= ======= =======
Earnings per share $ 2.46 $ 2.19 $ 3.69 $ 3.25
======= ======= ======= =======
</TABLE>
</PAGE>
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1000
<C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $26,357
<RECEIVABLES> $2,137,769
<SECURITIES-RESALE> $3,941
<SECURITIES-BORROWED> $0<F1>
<INSTRUMENTS-OWNED> $180,609
<PP&E> $59,839
<TOTAL-ASSETS> $2,615,285
<SHORT-TERM> $134,900
<PAYABLES> $1,507,720
<REPOS-SOLD> $0
<SECURITIES-LOANED> $0<F2>
<INSTRUMENTS-SOLD> $38,019
<LONG-TERM> $194,195
<COMMON> $2,543
$0
$0
<OTHER-SE> $737,908
<TOTAL-LIABILITY-AND-EQUITY> $2,615,285
<TRADING-REVENUE> $65,285
<INTEREST-DIVIDENDS> $72,092
<COMMISSIONS> $115,201
<INVESTMENT-BANKING-REVENUES> $170,366
<FEE-REVENUE> $71,738
<INTEREST-EXPENSE> $24,482
<COMPENSATION> $260,338
<INCOME-PRETAX> $103,855
<INCOME-PRE-EXTRAORDINARY> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $62,832
<EPS-PRIMARY> $2.46
<EPS-DILUTED> $2.19
<FN>
<F1>Included as part of receivables.
<F2>Included as part of payables.
</FN>
