<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 1, 1997
-----------------
BANKERS TRUST NEW YORK CORPORATION
- -------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK
- --------------------------------------------------------
(State or other jurisdiction of incorporation)
1-5920 13-6180473
- ---------------------------- ---------------------------------
(Commission file number) (IRS employer identification no.)
130 LIBERTY STREET, NEW YORK, NEW YORK 10006
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 250-2500
--------------
<PAGE>
Item 2. Acquisition or Disposition of Assets
- --------------------------------------------
On September 1, 1997, Alex. Brown Incorporated ("ABI") merged into BT
Alex. Brown Holdings Incorporated (formerly Voyager Merger Corporation), a
wholly owned subsidiary of Bankers Trust New York Corporation (the
"Corporation"). The merger agreement provided that each ABI common share will be
exchanged for 0.83 shares of the Corporation's common stock on a tax free basis.
The Corporation received an opinion of BT Wolfensohn, its indirect wholly owned
subsidiary, that the exchange ratio was fair from a financial point of view to
the Corporation. Attached as Exhibit 99.1 is a copy of a press release of the
Corporation announcing the effectiveness of the merger. The Corporation's
Registration Statement on Form S-4 (File No. 333-13061), which was declared
effective on July 11, 1997, sets forth additional information regarding the
merger, the Corporation and Alex. Brown Incorporated.
Item 7. Financial Statements and Exhibits
- ------------------------------------------
C. Exhibits
23.1 Consent of KPMG Peat Marwick LLP.
99.1 Press Release dated September 2, 1997.
99.2 The audited consolidated statements of financial condition of Alex.
Brown Incorporated as of December 31, 1996 and December 31, 1995 and the
related consolidated statements of earnings, cash flows and
stockholders' equity for each of the years in the three-year period
ended December 31, 1996.
99.3 Pro Forma Combined Financial Statements as of March 31, 1997, for the
three months ended March 31, 1997 and 1996 and for the three years ended
December 31, 1996. (This document is incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997).
99.4 Pro Forma Combined Financial Statements as of June 30, 1997, and for the
six months ended June 30, 1997 and 1996. (This document is incorporated
by reference to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
<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 hereunto duly authorized.
BANKERS TRUST NEW YORK CORPORATION
By /s/ Gordon S. Calder, Jr.
---------------------------
Gordon S. Calder, Jr.
Assistant Secretary
September 4, 1997
<PAGE>
INDEX TO EXHIBITS
Item 7. Financial Statements and Exhibits
- ------------------------------------------
C. Exhibits
23.1 Consent of KPMG Peat Marwick LLP.
99.1 Press Release dated September 2, 1997.
99.2 The audited consolidated statements of financial condition of Alex.
Brown Incorporated as of December 31, 1996 and December 31, 1995 and the
related consolidated statements of earnings, cash flows and
stockholders' equity for each of the years in the three-year period
ended December 31, 1996.
99.3 Pro Forma Combined Financial Statements as of March 31, 1997, for the
three months ended March 31, 1997 and 1996 and for the three years ended
December 31, 1996. (This document is incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997).
99.4 Pro Forma Combined Financial Statements as of June 30, 1997, and for the
six months ended June 30, 1997 and 1996. (This document is incorporated
by reference to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
-------------------------------
The Board of Directors
Alex. Brown Incorporated:
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-27498, 33-45699, 33-58340, 33-50395, 33-51615, 33-65301,
333-08549, 333-15089, 333-15089-01 through -04, 333-32909, Form S-4 Nos.
333-22733, 333-22733-01, 333-31061 and Form S-8 Nos. 2-67517, 2-97972, 33-20693,
33-21564, 33-41014, 33-52329, 33-54971, 333-12181, 333-19963, 333-31061 and
333-34371) of our report dated January 20, 1997, with respect to the
consolidated statements of financial condition of Alex. Brown Incorporated and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996, which report appears
in the Form 8-K of Bankers Trust New York Corporation.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Baltimore, Maryland
August 29, 1997
<PAGE>
EXHIBIT 99.1
[LETTERHEAD OF BANKERS TRUST NEW YORK CORPORATION]
BANKERS TRUST NEW YORK CORPORATION
- ------------------------------------------------------------------------------
NEWS RELEASE
For Release: IMMEDIATE
MERGER OF BANKERS TRUST AND ALEX. BROWN BECOMES EFFECTIVE
COMPLETION MARKS FORMATION OF BT ALEX. BROWN AS INTEGRATED PROVIDER
OF FULL RANGE OF INVESTMENT BANKING SERVICES
New York, September 2, 1997 -- The merger of Bankers Trust New York
Corporation and Alex. Brown Incorporated became effective at 12:01 a.m. Monday,
September 1, Frank Newman, chairman of the board of directors and chief
executive officer of Bankers Trust, announced.
The completion of the merger also marks the formation of BT Alex. Brown
Incorporated, the subsidiary through which Bankers Trust will conduct its U.S.
investment banking activities. BT Alex. Brown succeeds BT Securities
Corporation as the U.S. broker-dealer subsidiary of Bankers Trust New York
Corporation and combines the operations of BT Securities with those of Alex.
Brown & Sons Incorporated, the U.S. broker-dealer subsidiary of Alex. Brown
Incorporated.
"While this union has been referred to by some as a landmark event, its
greatest significance is that it creates the first firm to offer clients the
powerful synergies of truly integrated financial capabilities," Mr. Newman said
in a statement. "Alex. Brown's skills in equity underwriting, research and
distribution, based on its industry-focused approach, combine with the proven
high-yield bond and leveraged loan expertise of Bankers Trust. Alex. Brown's
merger and acquisition advisory capabilities, which leverage its industry
knowledge, complement Bankers Trust's existing strengths in risk management
advisory services and BT Wolfensohn's expertise in global M&A.
-more-
<PAGE>
"The union also creates an exceptional range of services and products for
private investors by combining Alex. Brown's highly respected network of
registered representatives with Bankers Trust's global network of innovative
private bankers in our newly formed Private Client Services Group," Mr. Newman
added.
Bankers Trust New York Corporation is the seventh largest U.S. bank holding
company, with assets of $130 billion and offices in more than 50 countries. In
addition to providing a full array of investment banking services, Bankers Trust
is one of the world's largest investment managers, with more than $270 billion
under management, and is a leading provider of securities-processing services,
with $2 trillion in global assets under custody.
-30-
For additional information, contact William McBride, Bankers Trust,
(212)250-7961.
This and other press releases are available at
http://www.bankerstrust.com/press.
<PAGE>
EXHIBIT 99.2
ALEX. BROWN INCORPORATED AND SUBSIDIARIES
Index to Financial Statements
Page
----
Financial Statements:
Consolidated Statements of Earnings 2
Consolidated Statements of Financial Condition 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-16
Report of Independent Auditors 17
1
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
Alex. Brown Incorporated
<TABLE>
<CAPTION>
Years Ended December 31
- ---------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Commissions $ 201,896 $ 173,471 $ 140,026
Investment banking 414,891 293,375 197,494
Principal transactions (note 5) 167,815 139,383 120,119
Interest and dividends 142,307 103,190 66,485
Advisory and other 132,512 99,975 81,364
- ---------------------------------------------------------------------------------------------------
Total revenues 1,059,421 809,394 605,488
- ---------------------------------------------------------------------------------------------------
Operating expenses:
Compensation and benefits 554,711 432,880 329,516
Communications 38,388 33,934 28,160
Occupancy and equipment 38,504 39,758 31,671
Interest 50,668 36,204 21,920
Floor brokerage, exchange and clearing fees 20,755 18,646 16,230
Other operating expenses 97,013 89,797 59,710
- ---------------------------------------------------------------------------------------------------
Total operating expenses 800,039 651,219 487,207
- ---------------------------------------------------------------------------------------------------
Earnings before income taxes 259,382 158,175 118,281
Income taxes (note 12) 105,237 62,620 47,410
- ---------------------------------------------------------------------------------------------------
Net earnings $ 154,145 $ 95,555 $ 70,871
===================================================================================================
Earnings per share:
Primary $ 6.28 $ 4.11 $ 3.06
===================================================================================================
Fully diluted $ 5.51 $ 3.60 $ 2.70
===================================================================================================
Weighted average number of shares outstanding:
Primary 24,563 23,267 23,124
===================================================================================================
Fully diluted 28,470 27,192 26,982
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
page 2
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Alex. Brown Incorporated
<TABLE>
<CAPTION>
December 31
-------------------------------
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 109,800 $ 62,103
Receivables:
Customers (note 2) 1,487,041 1,277,869
Brokers, dealers and clearing organizations (note 3) 368,099 416,449
Current state income taxes 17,429 --
Other 59,097 62,056
Firm trading securities (note 4) 210,412 110,564
Securities purchased under agreements to resell 15,510 34,865
Deferred income taxes (note 12) 46,433 27,813
Memberships in exchanges, at cost (market $3,597 and $2,864) 323 323
Office equipment and leasehold improvements, at cost
less accumulated depreciation and amortization of
$44,580 and $40,483 (note 7) 48,079 41,189
Investment securities (note 6) 56,889 50,294
Loans to employees to purchase convertible subordinated
debentures (note 13) 54,454 48,320
Other assets 69,009 64,662
- ----------------------------------------------------------------------------------------------
$2,542,575 $2,196,507
==============================================================================================
Liabilities and Stockholders' Equity:
Bank loans (note 7) $ 29,900 $ 120,008
Payables:
Cash management facility 83,733 70,338
Customers, including free credit balances 676,734 506,993
Brokers, dealers and clearing organizations (note 3) 495,947 480,621
Current federal and state income taxes 1,840 5,032
Other 378,981 294,643
Securities sold, not yet purchased (note 8) 48,223 54,276
Securities sold under repurchase agreements -- 2,460
7 5/8% Senior notes (note 7) 109,475 109,414
5 3/4% Convertible subordinated debentures (note 7) 11,797 11,851
Employee convertible subordinated debentures (note 13) 62,043 51,584
Commitments and contingencies (note 10)
Stockholders' equity (note 13):
Common stock of $.10 par value
Authorized 50,000,000 shares
Issued 24,030,822 shares in 1996
and 23,299,044 in 1995 2,403 2,330
Additional paid-in capital 125,882 113,234
Loans to employees to purchase common stock (10,320) (12,470)
Retained earnings 525,937 386,193
- ----------------------------------------------------------------------------------------------
Total stockholders' equity 643,902 489,287
- ----------------------------------------------------------------------------------------------
$2,542,575 $2,196,507
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
page 3
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Alex. Brown Incorporated
<TABLE>
<CAPTION>
Years Ended December 31, 1994, 1995 and 1996
------------------------------------------------------------------
Loans To
Employees
Additional To Purchase Total
Common Paid-in Common Retained Stockholders'
(in thousands) Stock Capital Stock Earnings Equity
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993,
as previously reported $1,536 $114,014 $(10,902) $241,017 $345,665
Three-for-two stock split 768 (768) -- -- --
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1993,
as restated 2,304 113,246 (10,902) 241,017 345,665
Net earnings -- -- -- 70,871 70,871
Issuance of 707,608 shares
of common stock 71 7,934 (484) -- 7,521
Payments on employee loans -- -- 375 -- 375
Repurchase and retirement
of 2,609,889 shares of
common stock (261) (46,048) -- -- (46,309)
Compensation payable
in common stock 30 5,195 -- -- 5,225
Dividends paid -- -- -- (9,920) (9,920)
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 2,144 80,327 (11,011) 301,968 373,428
Net earnings -- -- -- 95,555 95,555
Issuance of 1,703,812 shares
of common stock 170 29,665 (2,465) -- 27,370
Payments on employee loans -- -- 1,006 -- 1,006
Repurchase and retirement
of 44,401 shares of
common stock (4) (1,214) -- -- (1,218)
Compensation payable
in common stock 20 4,456 -- -- 4,476
Dividends paid -- -- -- (11,330) (11,330)
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 2,330 113,234 (12,470) 386,193 489,287
Net earnings -- -- -- 154,145 154,145
Issuance of 918,676 shares
of common stock 92 18,995 -- -- 19,087
Payments on employee loans -- -- 2,150 -- 2,150
Repurchase and retirement
of 517,448 shares of
common stock (52) (16,023) -- -- (16,075)
Compensation payable
in common stock 33 9,676 -- -- 9,709
Dividends paid -- -- -- (14,401) (14,401)
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $2,403 $125,882 $(10,320) $525,937 $643,902
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
page 4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Alex. Brown Incorporated
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 154,145 $ 95,555 $ 70,871
Reconciliation of net earnings to net cash
provided by (used for) operating activities:
Depreciation and amortization 12,921 13,158 10,263
Non-cash compensation expense 12,656 7,096 5,225
Gain on investment securities (18,386) (17,006) (15,576)
Other (201) 289 7
(Increase) decrease in assets:
Receivables (171,755) (677,989) (63,368)
Firm trading securities (99,848) (17,212) (14,345)
Securities purchased under agreements to resell 19,355 (34,865) --
Deferred income taxes (18,620) (10,138) (10,696)
Other assets (5,390) (28,349) (18,595)
Increase (decrease) in liabilities:
Payables 266,213 534,725 33,166
Securities sold, not yet purchased (6,053) 28,434 (1,560)
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 145,037 (106,302) (4,608)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds (payments):
Short-term loans (86,000) 54,321 622
Cash management facility 13,395 8,042 (6,541)
Securities sold under repurchase agreements (2,460) 2,460 --
Proceeds from term loans -- -- 15,000
Payments on term loans (4,108) (7,256) (8,652)
Proceeds from senior notes -- 109,392 --
Issuance of common stock 19,286 14,656 6,973
Repurchase of common stock (16,075) (1,218) (46,309)
Dividends paid to stockholders (14,401) (11,330) (9,920)
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (90,363) 169,067 (48,827)
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of office equipment and leasehold
improvements (18,768) (24,233) (15,190)
Purchase of investment securities (21,181) (14,964) (18,242)
Sale of investment securities 32,972 14,511 53,886
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (6,977) (24,686) 20,454
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 47,697 38,079 (32,981)
Cash and cash equivalents at beginning of year 62,103 24,024 57,005
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 109,800 $ 62,103 $ 24,024
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
page 5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
1) Description of Business and Significant Accounting Policies
The accompanying consolidated financial statements include the activities of
Alex. Brown Incorporated and subsidiaries in which it owns a controlling
financial interest (the Company). Its principal subsidiary is Alex. Brown & Sons
Incorporated (Alex. Brown), which is wholly owned.
The Company is primarily engaged in a single line of business as a securities
broker dealer, which includes several types of services, such as principal and
agency transactions, underwriting and other investment banking advisory, asset
management and correspondent clearing. 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
All material intercompany transactions and balances have been eliminated. The
equity method of accounting is used for investments in entities in which the
Company holds a noncontrolling financial interest of 20% to 50%.
Securities transactions and the related revenues and expenses are reflected
in the financial statements on a settlement date basis, which is generally three
business days after trade date. Revenues and expenses on a trade date basis are
not materially different from revenues and expenses on a settlement date basis.
Firm trading and investment securities and securities sold, not yet purchased
are carried at market value, and unrealized gains and losses relating thereto
are reflected in revenues. Market values are generally based on quoted market
prices. If quoted market prices are not available, market values are determined
based on other relevant factors, including quoted market prices for similar
securities. Investments made in connection with merchant banking transactions
are recorded at their initial cost. The carrying values of such investments are
adjusted when the market values are supported by quoted market prices, adjusted
for liquidity and other relevant factors. In addition, the carrying values are
reduced when the Company determines that the estimated realizable value is less
than the carrying value based on financial and market information relevant to
the investment.
Securities purchased under agreements to resell and securities sold under
repurchase agreements are accounted for as financing transactions. Such
securities consist of obligations of the United States government or one of its
agencies. The Company's practice is to maintain collateral sufficient to secure
amounts receivable pursuant to securities purchased under agreements to resell.
Depreciation of office equipment is determined using the straight line method
over useful lives ranging from 2.5 to 10 years. Leasehold improvements are
amortized on the straight line method over the lesser of the estimated economic
useful life of the improvements or the remaining term of the lease.
Deferred tax assets and liabilities represent the expected future tax
consequences of the differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. The effects
of changes in tax rates on deferred tax assets and liabilities are recognized in
the period that includes the enactment date.
The Company classifies all short-term investments with maturities at dates of
purchase of three months or less as cash equivalents except for short-term
investments carried in trading accounts.
Cash management facility payable represents the excess of outstanding checks
written on certain banks over amounts on deposit at such banks.
page 6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
Primary and fully diluted earnings per share are based on the weighted
average number of shares outstanding and assume the exercise of outstanding
dilutive options to purchase common stock. Fully diluted earnings per share
further assumes the conversion into common stock of convertible subordinated
debentures, if dilutive.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, and has
elected to continue to apply the intrinsic value method under Accounting
Principles Board ("APB") No. 25, Accounting for Stock Issued to Employees to
account for stock-based employee compensation. Under this method, compensation
cost is recognized for awards of shares of common stock to employees under
compensatory plans only if the quoted market price of the stock at the grant
date (or other measurement date, if later) is greater than the amount the
employee must pay to acquire the stock. SFAS No. 123 permits companies to adopt
a new fair value based method to account for stock-based employee compensation
plans or to continue using the intrinsic value method. If the intrinsic value
method is used, information concerning the pro forma effects on net earnings and
earnings per share of adopting the fair value based method for stock-based
employee compensation grants made in 1995 and subsequent years is required to be
presented in the notes to the financial statements. The pro forma disclosures
are presented in note 13 to the consolidated financial statements.
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued in June 1996 and, effective January
1, 1997, establishes new criteria for determining whether a transfer of
financial assets in exchange for cash or other consideration should be accounted
for as a sale or as a pledge of collateral in a secured borrowing. SFAS No. 125
also establishes new accounting requirements for pledged collateral. In December
1996, SFAS No. 127 was issued which deferred the effective date of certain
provisions of SFAS No. 125 until January 1, 1998 related to repurchase
agreements, securities lending and similar transactions. The Company expects
that there will be no material effect upon implementing SFAS No. 125 on its
financial position or results of operations.
Certain amounts in prior periods have been reclassified to conform to the
1996 presentation. Per share information and shares outstanding have been
adjusted to reflect a three-for-two stock split paid on January 15, 1997.
2) Receivables from Customers
Receivables from customers include amounts due on uncompleted transactions and
margin balances. Securities owned by customers and held as collateral for these
receivables are not reflected in the financial statements.
3) Receivables from and Payables to Brokers, Dealers and Clearing Organizations
Receivables from and payables to brokers, dealers and clearing organizations
consisted of the following (in thousands):
1996 1995
- --------------------------------------------------------------------------------
Securities failed to deliver $ 9,392 $ 16,107
Deposits paid for securities borrowed 329,134 357,365
Other 29,573 42,977
- --------------------------------------------------------------------------------
Total receivables $368,099 $416,449
================================================================================
Securities failed to receive $ 13,610 $ 15,146
Deposits received for securities loaned 454,109 433,808
Other 28,228 31,667
- --------------------------------------------------------------------------------
Total payables $495,947 $480,621
================================================================================
page 7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
Payables to brokers, dealers and clearing organizations include amounts which
are due upon delivery of securities to Alex. Brown. In the event the
counterparty does not fulfill its contractual obligation to deliver these
securities, Alex. Brown may be required to purchase the securities at prevailing
market prices to satisfy its obligations.
4) Firm Trading Securities
Firm trading securities consisted of the following (in thousands):
1996 1995
- ------------------------------------------------------------------------------
United States government and agencies thereof $ 6,440 $ 9,315
Asset/Mortgage-backed 30,913 1
States and municipalities 97,306 36,607
Corporate debt 22,810 42,945
Equities and convertible securities 52,943 21,696
- --------------------------------------------------------------------------------
$210,412 $110,564
================================================================================
5) Principal Transactions Revenue
The components of principal transactions revenue were as follows (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
Equity trading $139,146 $107,820 $ 72,876
Equity derivatives (278) (921) 328
Fixed income trading 29,125 32,952 46,149
Fixed income derivatives (178) (468) 766
- --------------------------------------------------------------------------------
$167,815 $139,383 $120,119
================================================================================
The Company's equity trading operations include trading in over the counter
equities, listed equities, convertible securities and non-investment grade (high
yield) corporate debt. The Company's fixed income trading activities include
trading in U.S. government and government agency obligations, asset-backed and
mortgage-backed securities, state and municipal obligations and investment grade
corporate debt. The Company sells short S&P 500 Index futures contracts to hedge
its equity inventories and Treasury Bond and Municipal Bond Index futures
contracts to hedge its fixed income inventories. The futures contracts involve
off-balance-sheet risk since the cost to close out the contracts may exceed the
amounts recognized in the Consolidated Statements of Financial Condition. The
contracts are listed on regulated exchanges and are marked to market daily with
the resulting gain or loss reflected in revenue. The exchanges guarantee
performance of counterparties; therefore, credit risk is limited to a default by
the exchange. The notional amounts and fair values of these contracts at
December 31, 1996 and average fair values during 1996 and 1995 were not
material. There were no open futures contracts at December 31, 1995.
6) Investment Securities
Investment securities consisted of the following (in thousands):
1996 1995
- --------------------------------------------------------------------------------
Merchant banking investments $24,457 $23,546
Investment partnerships 18,940 17,703
Mutual funds 6,700 3,359
U.S. government obligations 4,477 650
Equities 2,315 5,036
- --------------------------------------------------------------------------------
$56,889 $50,294
================================================================================
page 8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
7) Borrowings
BANK LOANS
Bank loans were collateralized as follows (in thousands):
1996 1995
- --------------------------------------------------------------------------------
Customers' margin securities $14,000 $100,000
Office equipment and leasehold improvements -- 1,308
Unsecured 15,900 18,700
- --------------------------------------------------------------------------------
$29,900 $120,008
================================================================================
The Company obtains bank loans which are collateralized by securities owned by
the Company and customers' margin securities. Such loans are payable on demand
and bear interest based on the federal funds rate (6.3% at December 31, 1996).
The weighted average interest rate on these loans was 6.8% at December 31, 1996.
The average balances of such loans outstanding were $156,139,000 during 1996 at
a weighted average interest rate of 5.7% and $120,507,000 during 1995 at a
weighted average interest rate of 6.4%.
A term loan of $4,100,000 and $5,300,000 at December 31, 1996 and 1995,
respectively, is unsecured and bears interest at a variable rate based on the
London Interbank Offered Rate (5.5% at December 31, 1996). The weighted average
interest rates were 6.1% during 1996 and 6.9% during 1995. The loan matures as
follows: $2,350,000 in 1997 and $1,750,000 in 1998.
A term loan of $11,800,000 and $13,400,000 at December 31, 1996 and 1995,
respectively, is unsecured and bears interest at a variable rate based on the
federal funds rate. The weighted average interest rates were 5.9% during 1996
and 6.6% during 1995. The loan matures as follows: $2,400,000 in each of 1997
and 1998 and $7,000,000 in 1999.
SENIOR NOTES
In August 1995, the Company issued $110,000,000 senior notes due August 2005
which bear interest at 7 5/8%. The notes were sold at a discount to yield
7.705%.
CONVERTIBLE SUBORDINATED DEBENTURES
The Company issued $25,000,000 convertible subordinated debentures in June 1986.
The debentures are due June 2001, bear interest at 5 3/4% and are convertible
into the Company's common stock at the rate of one share of common stock for
each $17.35 of principal amount of debentures. The debentures are redeemable at
the option of the Company at 100.5% through June 11, 1997 and at par thereafter.
During 1996 and 1995, $75,000 and $13,040,000 par value, respectively, of the
debentures were converted into 4,320 and 751,428 shares, respectively, of the
Company's common stock.
CREDIT FACILITIES
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 March 1997 and March 1999. 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 outstanding borrowings under the
Credit Facilities at December 31, 1996. The Company and Alex. Brown were in
compliance with all restrictive covenants contained in the Credit Facilities and
term loans at December 31, 1996.
page 9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
INTEREST PAYMENTS
Interest payments, including interest payments on repurchase agreements,
securities loaned, senior notes and convertible subordinated debentures, were
$49,810,000, $32,210,000 and $20,381,000 during 1996, 1995 and 1994,
respectively.
8) Securities Sold, Not Yet Purchased
Securities sold, not yet purchased consisted of the following (in thousands):
1996 1995
- --------------------------------------------------------------------------------
United States government and agencies $16,126 $34,958
States and municipalities 379 67
Corporate debt 7,310 5,593
Equities and convertible securities 24,408 13,658
- --------------------------------------------------------------------------------
$48,223 $54,276
================================================================================
Securities sold, not yet purchased represent obligations to purchase securities
at prevailing market prices. These transactions result in off-balance-sheet risk
since Alex. Brown's ultimate cost to satisfy the obligations is dependent upon
future prices of the securities and may exceed the amounts recognized in the
Consolidated Statements of Financial Condition.
9) Net Capital Requirements
Alex. Brown is required to comply with the net capital rule of the Securities
and Exchange Commission. The rule may limit the Company's ability to withdraw
capital from Alex. Brown. Alex. Brown has consistently exceeded the minimum net
capital requirements under the rule. At December 31, 1996, Alex. Brown's net
capital was $394,821,000 which exceeded net capital rule requirements by
$362,705,000. Alex. Brown has two London-based subsidiaries which are subject to
the capital requirements of the Securities and Futures Authority (SFA). At
December 31, 1996, these subsidiaries were in compliance with the SFA capital
adequacy requirements.
10) Commitments and Contingencies
LEASES
The Company's subsidiaries are obligated under operating leases for office
facilities and equipment expiring at various dates to 2013. The approximate
annual minimum rentals under the leases as of December 31, 1996 were as follows
(in thousands):
Years Ending December 31
- --------------------------------------------------------------------------------
1997 $ 14,630
1998 14,557
1999 15,085
2000 14,655
2001 13,863
2002 and thereafter 112,858
- --------------------------------------------------------------------------------
Rent expense, including equipment rentals, was $18,848,000, $20,720,000, and
$16,096,000 including $2,474,000, $2,450,000 and $2,445,000 to related parties,
for 1996, 1995 and 1994, respectively.
page 10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
LETTERS OF CREDIT
At December 31, 1996, Alex. Brown was contingently liable for up to $55,979,000
under unsecured letters of credit used to satisfy required margin deposits at
five securities clearing corporations.
INVESTMENT COMMITMENTS
At December 31, 1996, the Company had committed to invest up to $72.6 million in
certain investment partnerships, including $52.4 million in two merchant banking
partnerships.
LITIGATION
In the course of its investment banking and securities brokerage business, Alex.
Brown 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.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Alex. Brown executes, settles and finances securities transactions in connection
with its customer and correspondent clearing activities ("customers"). These
activities may expose the Company to off-balance-sheet risk in the event a
counterparty is unable to fulfill its contractual obligations.
In accordance with industry practice, customers and other brokers are not
required to deliver cash or securities to Alex. Brown pursuant to securities
transactions until settlement date, which is generally three business days after
trade date. The Company is exposed to risk of loss should any counterparty to a
securities transaction fail to fulfill its contractual obligations, and Alex.
Brown is required to buy or sell securities at prevailing market prices.
Alex. Brown's customers may sell securities not yet purchased or write option
contracts ("short sales"). Regulatory and internal margin requirements determine
the collateral value that customers who execute short sales must have in their
accounts in the form of cash or securities. Customer short sales may expose the
Company to risk of loss in the event that collateral held by Alex. Brown is not
sufficient to cover losses which customers may incur. In the event a customer
fails to fulfill its obligations, Alex. Brown may be required to buy or sell
securities at prevailing market prices.
The Company seeks to minimize the above risks through a variety of reporting
and control procedures. Customers and other brokers are required to maintain
collateral in compliance with regulatory and internal requirements. The adequacy
of collateral is reviewed daily and customers may be required to deposit
additional collateral or reduce short positions when necessary. Alex. Brown sets
credit limits for customers executing transactions on margin and monitors
compliance with such limits on a daily basis. Alex. Brown establishes credit
limits for brokers with which it conducts stock loan, stock borrow and
repurchase and reverse repurchase transactions. Alex. Brown monitors compliance
with and the appropriateness of such limits.
page 11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
As a securities broker, Alex. Brown engages in various securities trading and
brokerage activities with other brokers and institutional and individual
customers. In connection with these activities, Alex. Brown enters into reverse
repurchase and repurchase agreements which are collateralized by U.S. government
and agency securities and securities lending arrangements which may result in
credit exposure in the event the counterparty fails to fulfill its contractual
obligations. A substantial portion of Alex. Brown's transactions are executed
with and on behalf of other brokers and dealers and institutional investors,
including commercial banks, insurance companies, pension plans, mutual funds and
other financial institutions. The Company's exposure to credit risk can be
directly impacted by volatile securities markets which may impair the ability of
counterparties to satisfy their contractual obligations.
The Company seeks to control its credit risk through the use of a variety of
reporting and control procedures described in the preceding discussion of
financial instruments with off-balance-sheet risk. Substantially all of Alex.
Brown's receivables are collateralized by securities which are generally in
physical possession, at depositories or due from other parties.
11) Fair Value of Financial Instruments
RECEIVABLES
Receivables from customers and brokers, dealers and clearing organizations
include margin loans which are payable on demand, amounts due on open
transactions which usually settle within a few days and cash deposits made in
connection with securities borrowed transactions which normally can be closed
out within a few days. The carrying amounts of these receivables, which are
generally secured by marketable securities, and other receivables approximate
fair value.
FIRM TRADING AND INVESTMENT SECURITIES (LONG AND SHORT)
Firm trading and investment securities are carried in the consolidated financial
statements at market value (see notes 1, 4, 6 and 8).
BANK LOANS
The principal balance of bank loans which are payable on demand is considered to
be the fair value of such loans. The carrying values of the term loans
approximated fair values at December 31, 1996 and 1995 based on borrowing rates
currently available to the Company for loans with similar terms and remaining
maturities.
PAYABLES
Payables to customers and brokers, dealers and clearing organizations include
free credit balances which are payable on demand, amounts due on open
transactions which usually settle within a few days, and cash deposits received
in connection with customer short sales and securities loaned transactions which
normally can be closed out within a few days. Other payables include expense
accruals and amounts due to other brokers resulting from securities
underwritings. The carrying amount of payables approximates fair value.
page 12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
REPURCHASE AGREEMENTS
The carrying amounts of securities sold under repurchase agreements and
securities purchased under agreements to resell are considered to be the fair
values of such transactions.
SENIOR NOTES AND CONVERTIBLE SUBORDINATED DEBENTURES
The fair values of the senior notes and convertible subordinated debentures were
as follows (in thousands):
1996 1995
- --------------------------------------------------------------------------------
7 5/8% Senior notes $110,715 $117,469
5 3/4% Convertible subordinated debentures 33,105 19,413
The fair values are based on quoted market prices. At December 31, 1996, the
convertible subordinated debentures were callable at the Company's option at
$11,944,000.
12) Income Taxes
The components of income tax expense were as follows (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
Federal $ 86,108 $ 51,153 $ 38,649
State and local 19,129 11,467 8,761
- --------------------------------------------------------------------------------
$105,237 $ 62,620 $ 47,410
================================================================================
Current $123,857 $ 72,758 $ 58,106
Deferred (18,620) (10,138) (10,696)
- --------------------------------------------------------------------------------
$105,237 $ 62,620 $ 47,410
================================================================================
Income tax expense is reconciled to amounts computed by applying the federal
corporate tax rate to earnings before income taxes as follows (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
Tax at federal statutory rate $ 90,784 $ 55,361 $ 41,398
State and local income taxes, net of
federal income tax benefit 13,899 7,454 5,695
Other, net 554 (195) 317
- --------------------------------------------------------------------------------
$105,237 $ 62,620 $ 47,410
================================================================================
The components of the net deferred income tax asset were as follows (in
thousands):
1996 1995
- --------------------------------------------------------------------------------
Deferred income tax assets:
Unrealized loss-- Firm securities $ 1,866 $ 3,584
Accrued expenses 47,779 28,585
Depreciation 3,346 3,892
Other 2,866 1,371
- --------------------------------------------------------------------------------
Total deferred income tax assets 55,857 37,432
- --------------------------------------------------------------------------------
Deferred income tax liabilities:
Unrealized profit--Firm securities 4,506 4,667
Other investments 2,017 1,852
Depreciation 1,365 1,426
Other 1,536 1,674
- --------------------------------------------------------------------------------
Total deferred income tax liabilities 9,424 9,619
- --------------------------------------------------------------------------------
Net deferred income tax asset $ 46,433 $ 27,813
================================================================================
page 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
There was no valuation allowance relating to deferred income tax assets at
December 31, 1996 and 1995. Income tax payments were $138,759,000, $64,903,000
and $69,438,000 during 1996, 1995 and 1994, respectively.
13) Employee Benefit Plans
EQUITY INCENTIVE PLAN
Pursuant to the 1991 Equity Incentive Plan (the "Plan"), the Company may make
stock based awards, including stock options, convertible debentures and
restricted stock awards, to key employees in any calendar year in respect of a
maximum of 7.5% of the total shares of common stock of the Company outstanding
on the first day of such year. During 1995 and 1994, the Company sold 87,324 and
27,375 shares of common stock, respectively, at market to certain employees
pursuant to the Plan. The Company has also sold convertible subordinated
debentures to certain employees pursuant to the Plan. The debentures are
generally convertible into the Company's common stock three years after the date
issued or in stages beginning four years after the date issued. The debentures
may be redeemed at par if the employee terminates employment with the Company.
The Company made loans to the employees to finance the entire purchase price of
the stock and debentures. The Company has agreed to forgive certain loans over
six years if the Company's return on equity exceeds certain targets during the
period and may forgive portions of other loans on a discretionary basis. Loan
forgiveness resulted in compensation expense of $9,287,000, $3,952,000 and
$3,054,000 in 1996, 1995 and 1994, respectively. Information related to
debentures outstanding at December 31, 1996 and issued in January 1997 was as
follows:
Weighted average
Principal amount Weighted average conversion
of debentures interest rate Due date price/share
- --------------------------------------------------------------------------------
$ 356,000 8.125% 1997 $ 5.67
1,578,000 6.750% 1998 17.00
1,900,000 6.375% 1999 15.33
3,725,000 5.375% 2000 19.22
26,867,000 5.858% 2001 17.16
15,544,000 6.106% 2002 32.57
25,555,000 6.313% 2003 42.19
STOCK OPTIONS
The Company has granted nonqualified stock options to certain employees and
directors. Payment for the shares may be made in cash, shares of the Company's
common stock or a combination thereof. Options granted since January 1993 are
generally exercisable in six equal installments beginning one year from the date
of grant and expire after ten years. The exercise price for these options is 25%
greater than the lesser of the average market value of the Company's common
stock 30 days prior to the date of grant or the market value on the date of
grant. Options previously granted are generally exercisable in five equal
installments beginning one year from the date of grant and expire after five
years.
page 14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
The following table sets forth activity relating to the number of shares and
weighted average exercise prices of stock options (options granted include
amounts granted through January of the following year) (number of shares in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------
<S> <C>
Beginning of period 3,227 $21.22 3,292 $16.42 3,162 $13.79
Granted 682 55.83 660 33.18 619 24.26
Exercised (593) 11.38 (657) 9.40 (374) 7.01
Forfeited (125) 24.71 (68) 18.55 (115) 16.99
- ----------------------------------------------------------------------------------------------------
End of period 3,191 $30.31 3,227 $21.22 3,292 $16.42
Exercisable at end of period 1,261 $20.30 1,339 $15.49 1,422 $12.27
====================================================================================================
</TABLE>
The following table sets forth information about stock options outstanding at
December 31, 1996 and granted through January 1997 (number of shares in
thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ---------------------------
Weighted Average Weighted Average Weighted Average
Range of Number of Remaining Exercise Number of Exercise
Exercise Prices Shares Contractual Life Price Shares Price
- -------------------------------------------------------------------------------------------------
<S> <C>
$11.63-$17.92 902 3.1 years $17.19 747 $17.04
$20.89-$25.65 995 8.7 $22.86 395 $22.58
$32.24-$43.41 641 9.1 $33.37 119 $33.25
$56.80 653 10.2 $56.80 -- --
- -------------------------------------------------------------------------------------------------
3,191 7.2 $30.31 1,261 $20.30
- -------------------------------------------------------------------------------------------------
</TABLE>
The Company applies the intrinsic value method in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its options in the
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123, the
Company's net earnings would have been the pro forma amounts indicated below:
1996 1995
- --------------------------------------------------------------------------------
Net earnings As reported $154,145 $95,555
Pro forma $153,589 $95,330
Primary earnings per share As reported $6.28 $4.11
Pro forma $6.28 $4.11
Fully diluted earnings per share As reported $5.51 $3.60
Pro forma $5.54 $3.61
Pursuant to SFAS No. 123, pro forma net earnings reflect only options granted in
1996 and 1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the options'
vesting periods and compensation cost for options granted prior to January 1,
1995 is not considered.
The weighted average fair values of options granted during 1996 and 1995 were
$3,318,000 and $2,244,000, respectively, on the dates of grant. The fair values
of options granted were calculated using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 1996 and
1995, respectively: risk-free interest rate of 5.7% and 7.8%; expected
volatility of 41% in both years; dividend yield of 1.9% and 2.3%; expected
dividend growth rate of 26.4% and 27.1%; and expected lives of eight years and
expected forfeitures of 18% for both years.
page 15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alex. Brown Incorporated
RETIREMENT PLANS
The Company maintains a 401(k) deferred compensation and profit sharing plan
(the "Plan"). Employees are permitted within limitations imposed by tax law to
make pretax contributions to the Plan pursuant to salary reduction agreements.
The Company may make discretionary matching and profit sharing contributions to
the Plan and may make additional contributions to preserve the Plan's tax exempt
status. The Company also has retirement plans for certain employees in foreign
offices not covered by the Plan. Compensation expense for the Company's
contributions to retirement plans was $12,500,000, $9,600,000 and $5,000,000 for
1996, 1995 and 1994, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an employee stock purchase plan pursuant to which
employees may purchase shares of the Company's common stock through payroll
deductions, subject to certain limitations, at a price equal to 85% of the fair
market value of the stock on four quarterly investment dates. The plan provides
for the issuance of up to 1,500,000 shares. A total of 1,139,478 shares have
been issued under the plan, including 152,662 shares in 1996.
EQUITY COMPENSATION PLAN
During 1996, 1995 and 1994, certain key employees had a portion of cash
compensation withheld and replaced by restricted common stock of the Company at
a 15% discount from market and interests in investment accounts through which
the employees can direct investments in selected Company-sponsored investment
vehicles. Compensation expense is recorded currently based on the value of the
stock and interests in the investment accounts on the award date. The restricted
stock cannot be sold and funds cannot be withdrawn from the investment accounts
for three years (five years if employment terminates during the initial three
year period). The Company may allow participants to extend the deferral period.
These restrictions are removed in the event of death, disability or retirement.
Pursuant to the Equity Compensation Plan, $18,240,000, $11,102,000, and
$7,080,000 of cash compensation was withheld and replaced by 240,942, 244,733
and 195,087 shares of the Company's common stock and interests in investment
accounts for 1996, 1995 and 1994, respectively.
DEFERRED COMPENSATION PLAN
The Company maintains a deferred compensation plan for Private Client investment
representatives. Eligible participants can direct the investment of their
deferred compensation amounts by selecting among various Company-sponsored
investment vehicles and the common stock of the Company at a 15% discount from
market. The employees vest in the deferred compensation accounts after four
years. The deferred compensation is forfeited if the employee terminates
employment with the Company during the vesting period except for termination due
to death, disability or retirement. The Company may allow participants to extend
the deferral period after vesting. The amount of deferred compensation,
including any stock discounts, is being amortized over the periods in which the
employees are providing the related services (compensation expense of $1,305,000
for 2000, $2,325,000 for 1999, $2,956,000 for 1998, $3,640,000 for 1997,
$3,498,000 for 1996, $2,414,000 for 1995 and $1,413,000 for 1994).
page 16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Alex. Brown Incorporated
Board of Directors
Alex. Brown Incorporated:
We have audited the accompanying consolidated statements of financial condition
of Alex. Brown Incorporated and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Alex. Brown
Incorporated and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
January 20, 1997
page 17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Alex. Brown Incorporated
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------------------------
(in thousands, except per share amounts) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues $ 1,059,421 $ 809,394 $ 605,488 $ 628,203 $ 455,724
Operating expenses 800,039 651,219 487,207 479,868 360,340
Earnings before income
taxes 259,382 158,175 118,281 148,335 95,384
Income taxes 105,237 62,620 47,410 59,109 36,773
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 154,145 $ 95,555 $ 70,871 $ 89,226 $ 58,611
=====================================================================================================================
Earnings per share:
Primary $ 6.28 $ 4.11 $ 3.06 $ 3.74 $ 2.48
Fully diluted $ 5.51 $ 3.60 $ 2.70 $ 3.40 $ 2.33
Cash dividends per share $ .637 $ .516 $ .450 $ .383 $ .300
Weighted average shares
outstanding:
Primary 24,563 23,267 23,124 23,873 23,613
Fully diluted 28,470 27,192 26,982 26,713 25,596
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31
- -----------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Condition:
Total assets $2,542,575 $2,196,507 $1,346,433 $1,283,423 $1,085,034
Long-term debt $ 11,150 $ 15,900 $ 20,009 $ 13,336 $ 15,160
Senior notes $ 109,475 $ 109,414 -- -- --
Convertible subordinated
debentures $ 73,840 $ 63,435 $ 59,360 $ 56,148 $ 28,723
Total stockholders' equity $ 643,902 $ 489,287 $ 373,428 $ 345,665 $ 274,395
=====================================================================================================
</TABLE>
Per share information and shares outstanding have been adjusted to reflect a
three-for-two stock split paid on January 15, 1997.
page 18
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Alex. Brown Incorporated
<TABLE>
<CAPTION>
Quarters Ended 1996
-------------------------------------------------------
(in thousands, except per share amounts) December 31 September 30 June 30 March 31
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 264,372 $213,973 $310,235 $ 270,840
Operating expenses 200,609 169,002 226,853 203,574
- ---------------------------------------------------------------------------------------------------
Earnings before income taxes 63,763 44,971 83,382 67,266
Income taxes 26,462 18,664 33,541 26,570
- ---------------------------------------------------------------------------------------------------
Net earnings $ 37,301 $ 26,307 $ 49,841 $ 40,696
===================================================================================================
Earnings per share:
Primary $ 1.51 $ 1.07 $ 2.01 $ 1.67
===================================================================================================
Fully diluted $ 1.34 $ 0.95 $ 1.77 $ 1.48
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended 1995
- -----------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) December 31 September 30 June 30 March 31
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $246,665 $210,278 $201,115 $151,336
Operating expenses 192,380 172,041 162,799 123,999
- -----------------------------------------------------------------------------------------------------
Earnings before income taxes 54,285 38,237 38,316 27,337
Income taxes 21,064 15,295 15,326 10,935
- -----------------------------------------------------------------------------------------------------
Net earnings $ 33,221 $ 22,942 $ 22,990 $ 16,402
=====================================================================================================
Earnings per share:
Primary $ 1.39 $ 0.96 $ 1.00 $ 0.73
=====================================================================================================
Fully diluted $ 1.23 $ 0.86 $ 0.88 $ 0.64
</TABLE>
Per share information has been adjusted to reflect a three-for-two stock split
paid on January 15, 1997.
page 19
