SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1995
COMMISSION FILE NO. 1-9015
MORGAN KEEGAN, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-1153850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Fifty Front Street
Memphis, Tennessee
38103
Registrant's telephone number, including area code: (901) 524-4100
Title of each class Name of each exchange on which
registered
Common Stock, $.625 par value New York Stock Exchange,
Inc.
Securities registered pursuant to Section 12 (g) of the Art
Common Stock, par value $.625 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for at least the past 90
days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
references in Part III of this Form 10-K or any amendment to this Form
10-K.
At October 2, 1995, the Registrant had approximately 20,168,703 shares
of Common Stock outstanding. The aggregate market value of Common Stock
held by non-affiliates was approximately $242,024,448.
DOCUMENTS INCORPORATED HEREIN BY REFERENCE:
Portions of the Registrant's Annual Report to Shareholders for the
year ended July 31, 1995, which has been furnished to the Commission
pursuant to Regulation 240.14a(3) (c), are incorporated by reference
into Parts I and II of this Report on Form 10-K. Portions of the Proxy
Statement to be used in connection with the solicitation of proxies to
be voted at the Registrant's annual meeting of shareholders to be held
November 21, 1995, which will be filed with the Commission pursuant to
Regulation 240.14a(6)(c) prior to October 18, 1995, are incorporated by
reference into Part III and Part IV of this Report on Form 10-K.
PAGE
PART I
Item 1. BUSINESS
General
Morgan Keegan, Inc. (Registrant) is a holding company whose principal
subsidiary, Morgan Keegan & Company, Inc. (M.K. & Co.) is a regional
securities broker/dealer serving retail customers in the southeastern
United States and institutional clients throughout the United States and
abroad. The Registrant has very few operations and substantially all of
the Registrant's consolidated revenues are generated through the
broker/dealer subsidiary. The subsidiary is a trader, broker and
underwriter of fixed income and equity securities and provides related
financial services in support of its broker/dealer activities. Products
offered by M.K. & Co. include stocks; corporate and tax-exempt bonds;
U.S. Government, agency and guaranteed securities; tax advantaged
investments; options; investment and advisory services; a money market
fund; and a regional mutual fund managed by Morgan Asset Management.
M.K. & Co. also produces capital raising services for corporate and
government clients, margin credit for individual customers, research,
and economic and business analysis of financial and stock market data
for its customers. The percentage (%) of total revenues derived from
the various business areas is as follows:
Year Ended July 31
1995 1994 1993
Institutional clients 26 31 32
Retail customers 44 41 41
Investment banking fees, interest and
other activities 30 28 27
Total 100 100 100
M.K. & Co. is a two seat member of the New York Stock Exchange, Inc.
("NYSE"), owns seats on the American Stock Exchange, Inc. ("AMEX"); the
New York Financial Futures Exchange, Inc. ("NYFE"); the Philadelphia
Stock Exchange, Inc. ("PHLX"); the Chicago Board of Options Exchange,
Inc. ("CBOE") and the Chicago Stock Exchange ("CSE"). Certain seats are
leased to third parties under agreements which may be canceled by either
party on 30 days' notice. M.K. & Co. is a member of the National
Association of Securities Dealers ("NASD"), the Securities Industry
Association, and the Securities Investor Protection Corporation
("SIPC"). SIPC provides protection for customers up to $500,000 each,
with a limitation of $100,000 for claims for cash balances.
PAGE
M.K. & Co. has thirty-one offices in twelve states. The following
table reflects the number of account executives in each office as of
July 31, 1995:
Account Account
Office Executives Office Executives
Birmingham, Alabama 32 New Orleans, Louisiana 21
Decatur, Alabama 5 Shreveport, Louisiana 13
Fairhope, Alabama 2 Boston, Massachusetts 3
Huntsville, Alabama 12 Jackson, Mississippi 27
Mobile, Alabama 17 New York, New York 5
Montgomery, Alabama 20 Durham, North Carolina 10
Little Rock, Arkansas 49 Wilmington, North Carolina 3
Ft. Lauderdale, Florida 7 Jackson, Tennessee 7
Pensacola, Florida 7 Knoxville, Tennessee 21
Athens, Georgia 1 Memphis, Tennessee
Atlanta, Georgia 23 Headquarters 108
Bowling Green, Kentucky 5 Suburban Office 33
Lexington, Kentucky 6 Nashville, Tennessee 26
Louisville, Kentucky 19 Austin, Texas 19
Baton Rouge, Louisiana 14 Dallas, Texas 7
Lafayette, Louisiana 7 Houston, Texas 22
TOTAL 551
Revenues by Source
The following table sets forth the Registrant's consolidated revenues
indicated in dollars and as a percentage of total revenues for the
periods:
(Dollars in Thousands)
Year Ended July 31
1995 1994 1993
Amount % Amount % Amount %
REVENUES
Commissions
Listed securities $21,246 9.32 $22,748 9.81 $20,457 9.78
Over-the-counter
securities 12,624 5.54 10,076 4.35 10,159 4.86
Options 2,631 1.15 1,990 0.86 1,927 0.92
Other 9,661 4.24 11,723 5.06 11,196 5.35
TOTAL 46,162 20.25 46,537 20.08 43,739 20.91
Principal transactions
Corporate securities 36,724 16.10 33,541 14.47 34,404 16.44
Municipal securities 16,404 7.19 14,135 6.10 17,432 8.33
U.S. Government
obligations 33,982 14.90 41,746 18.02 51,297 24.52
TOTAL 87,110 38.19 89,422 38.59 103,133 49.29
Investment banking
Corporate securities 25,009 10.97 32,850 14.18 15,760 7.53
Municipal securities 1,926 0.84 4,059 1.75 3,947 1.89
Underwriting, management
and other fees 18,259 8.01 18,923 8.17 9,571 4.58
TOTAL 45,194 19.82 55,832 24.10 29,278 14.00
Interest
Interest on margin
balances 17,519 7.68 10,824 4.67 7,047 3.37
Interest on securities
owned 20,261 8.88 14,070 6.07 12,627 6.04
TOTAL 37,780 16.56 24,894 10.74 19,674 9.41
Other Income 11,826 5.18 15,035 6.49 13,371 6.39
TOTAL REVENUES $228,072 100.0 $231,720 100.0 $209,195 100.0
Because of the interdependence of various activities and departments
of the Registrant's business, and the arbitrary assumptions involved in
allocating overhead, including administrative, communications and
securities processing expenses, it is not possible to state the
percentage contribution to net income of each aspect of the Registrant's
operation.
Institutional Business
During the three years ended July 31, 1995, approximately 30% of the
Registrant's total consolidated revenues were derived from institutional
clients. M.K. & Co.'s institutional clients include mutual funds,
commercial banks, thrift institutions, insurance companies, pension
funds and private money managers. Most of these clients are located in
the United States; however, some are located abroad, principally in the
United Kingdom and Canada. In the fiscal year ended July 31, 1995, no
single institutional client accounted for more than 2% of the
Registrant's total revenues. M.K. & Co.'s institutional clients
purchase or sell fixed income and equity securities primarily in large
dollar amounts; transactions in these securities are usually executed
for these clients on a principal basis. See PRINCIPAL TRANSACTIONS.
M.K. & Co. also provides other services, including research, to its
institutional clients.
For the fiscal years ended July 31, 1995, 1994, and 1993,
institutional revenues and percentages of total consolidated revenues
were $60,097,000 (26%), $72,774,000 (31%) and $66,748,000 (32%)
respectively.
Retail Business
During each of the three years ended July 31, 1995, approximately 42%
of the Registrant's total revenues were derived from transactions with
retail (individual) customers. For the fiscal years ended July 31,
1995, 1994, and 1993, such revenues of total consolidated revenues were
$100,239,000, $95,576,000, and $86,001,000 respectively.
Retail commissions are charged on both exchange and over-the-counter
transactions in accordance with a schedule which M.K. & Co. has
formulated. In certain cases, discounts from the schedule are granted
to retail customers, generally on large trades or to active customers.
In addition to acting as a broker/dealer for its retail customers, M.K.
& Co. supplies them with equity and fixed income research, conducts
seminars and makes available personal financial planning services.
Transactions in securities may be executed on either a cash or margin
basis. As a service to its retail customers, M.K. & Co. provides margin
accounts which allow the customer to pay less than the full cost of a
security purchased, the balance of the purchase price being provided by
M.K. & Co. as a loan secured by the securities purchased. The amount of
the loan is subject to the margin requirements (Regulation T) of the
Board of Governors of the Federal Reserve System, NYSE margin
requirements, and M.K. & Co. internal policies, which in some instances
are more stringent than Regulation T or exchange requirements. In
permitting customers to purchase securities on margin, M.K. & Co. bears
the risk of a market decline which could reduce the value of its
collateral below the customers' indebtedness. Interest charged on
customer margin accounts represented approximately 7.7% of total
revenues in fiscal 1995.
Principal Transactions
M.K. & Co. trades for its own account in corporate and tax-exempt
securities and U.S. government, agency and guaranteed securities. Most
of these transactions are entered into in order to facilitate the
execution of customers' orders to buy or sell these securities. In
addition, it trades certain equity securities in order to "make a
market" in these securities. As of July 31, 1995, the Registrant made
a market in common stock or other equity securities of approximately 117
corporations, the majority of which are stocks followed by its research
department.
M.K. & Co.'s trading activities require the commitment of capital.
All principal transactions place the Registrant's capital at risk.
Profits and losses are dependent upon the skills of employees and market
fluctuations. The following table sets forth for the year ended July
31, 1995, the highest, lowest and average month-end inventories
(including the aggregate of both long and short positions) for the types
of securities in which M.K. & Co. acts as principal:
Highest Lowest Average
Inventory Inventory Inventory
Common stocks $ 33,841,283 $ 14,085,815 $24,817,100
Corporate debt securities 51,756,649 8,285,749 22,706,952
Tax-exempt securities 78,312,467 36,471,525 54,273,456
U.S. government, agency,
and guaranteed securities 211,146,186 100,308,520 146,680,073
The following table sets for the composition of revenues from principal
transactions:
Year Ended July 31
1995 1994 1993
Amount % Amount % Amount %
Common stocks $31,123,000 36 $27,055,067 30 $27,272,840 26
Corporate debt
securities 5,601,396 6 6,486,202 7 7,131,304 7
Tax-exempt securities 16,404,132 19 14,135,366 16 17,432,459 17
U.S. government, agency,
and guaranteed
securities 33,981,688 39 41,746,006 47 51,296,548 50
Total $87,110,216 100 $89,422,641 100 $103,133,151 100
M.K. & Co. participates in selling groups organized to distribute new
issues of securities of the Federal Home Loan Bank, the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Federal Farm Credit Bank and the Student Loan Mortgage Association. The
following table sets forth selling group participation of M.K. & Co. in
distributions of agency securities:
Year Ended Number Amount of
July 31 Issues Participation
1995 52 $382,075,000
1994 70 566,630,000
1993 90 690,705,000
1992 99 963,215,000
1991 102 707,850,000
Repurchase Transactions
M.K. & Co. engages in repurchase transactions primarily to facilitate
the sale of U.S. government, agency and guaranteed securities. A
repurchase transaction is the sale of a security coupled with an
agreement by the seller to repurchase the security at the sale price.
A reverse repurchase transaction is the purchase of the security with an
agreement to resell it. M.K. & Co.'s repurchase transactions are
generally matched in order to minimize the risk of loss due to
fluctuation in the underlying securities prices. In a matched
repurchase transaction, M.K. & Co. will simultaneously engage in a
repurchase transaction and a reverse repurchase transaction covering the
same security. The other party to a matched repurchase agreement looks
to M.K. & Co. for delivery of the securities or repurchase of the
securities, as the case may be. M.K. & Co. takes a risk that it will be
obligated to perform whether or not the other party performs. M.K. &
Co. attempts to minimize this risk by dealing with those deemed credit
worthy.
Although repurchase transactions are structured as sales, courts
recently have treated them as financing transactions, that is, loans
collateralized by securities. Because of this uncertain nature of the
transaction, it is M.K. & Co.'s practice to take steps to perfect a
security interest in the securities to protect itself if a transaction
were deemed a loan. In repurchase transactions M.K. & Co. bears the
risk that the other party to the transaction will fail to perform its
obligation to repurchase the securities (repay the loan) or to deliver
the securities purchased (return the collateral). In such event, M.K.
& Co. could incur a loss equal to the difference between the price to be
paid for the securities and their market value at the repurchase date.
If the transaction is deemed to be a loan and should M.K. & Co. fail to
take possession of the securities acquired by it in such a transaction,
or otherwise fail to perfect a security interest in them, the loss could
be equal to the full repurchase price.
Concentrations of Credit Risk
As a securities broker/dealer, M.K. & Co. is engaged in various
securities trading and brokerage activities servicing a diverse group of
domestic and foreign corporations, governments, institutional and retail
(individual) investors. A substantial portion of M.K. & Co.'s
transactions are collateralized and are executed with and on behalf of
institutional investors including other broker/dealers, commercial
banks, insurance companies, pension plans, mutual funds and other
financial institutions. M.K. & Co.'s exposure to credit risk associated
with the non-performance of these customers in fulfilling their
contractual obligations pursuant to securities and commodities
transactions, can be directly impacted by volatile trading markets which
may impair the customers' ability to perform. M.K. & Co.'s principal
activities are also subject to the risk of counterpart non-performance.
In connection with these activities, particularly in U.S. government
and agency securities, M.K. & Co. enters into collateralized reverse
repurchase and repurchase agreements, securities lending arrangements
and certain other secured transactions which may result in significant
credit exposure in the event the counterparty to the transaction was
unable to fulfill their contractual obligations. In accordance with
industry practice, repurchase agreements and securities borrowing
arrangements are generally collateralized by cash or securities with a
market value in excess of the obligation under the contract. M.K. & Co.
attempts to minimize credit risk associated with these activities by
monitoring customer credit exposure and collateral values on a daily
basis and requiring additional collateral to be deposited when
necessary. M.K. & Co. participates in the trading of some derivative
securities for its customers which is not a major portion of its
business.
Investment Banking
M.K. & Co. participates in corporate and tax-exempt securities
distributions as a member of an underwriting syndicate or a member of a
selling group. Tax-exempt securities are obligations issued by state
and municipal governments, hospitals, public utility systems and
industrial development authorities. M.K. & Co.'s underwriting
activities, together with its selling group participation, are important
as a source of securities for sale to its customers. The following
table sets forth corporate and tax-exempt underwriting syndicate
participation of the subsidiary:
CORPORATE TAX-EXEMPT
Year Ended Number of Amount of Number of Amount
July 31 Issues Participation Issues Participation
1995 195 $867,514,389 104 $349,005,000
1994 330 774,651,373 159 312,056,000
1993 307 596,588,928 168 430,272,000
1992 245 547,846,000 162 341,310,000
1991 126 214,325,000 149 195,578,000
Participation in an underwriting syndicate or a selling group involves
both economic and regulatory risks. A participant may incur losses if
it is unable to resell the securities it has committed to purchase, or
if it is forced to liquidate its commitment at less than the agreed
purchase price. In addition, under federal securities laws, other
statutes and court decisions, a participant may be subject to
substantial liability for material misstatements or omissions in
prospectuses and other communications with respect to such offerings.
Further, underwriting commitments involve a charge against net capital
and the ability to make underwriting commitments may be limited by the
requirement that it must at all times be in compliance with the net
capital rule. See Note 10 - Regulatory Requirements - on page 21 of the
1995 Annual Report to Shareholders.
In addition to its underwriting and selling group activities, M.K. & Co.
engages in structuring, managing and marketing private offerings of
corporate and tax-exempt securities, and assists in arranging mergers,
acquisitions, divestitures and venture capital financing. M.K. & Co.
provides valuation and financial consulting services for gift and estate
tax purposes, employee stock ownership trusts, mergers, acquisitions,
stock purchase agreements and other corporate purposes, as well as
valuations for private companies in the process of going public. Other
services include long-range financial planning, financial public
relations and cash management services. The Registrant's subsidiary,
Merchant Banking, Inc. which serves as a general partner in a limited
partnership, Morgan Keegan Merchant Banking Fund Limited Partnership,
which currently has approximately $5,000,000 in assets and is engaged in
merchant banking activities. A second Merchant Banking Fund with more
assets is anticipated during the next fiscal year.
Other Products
M.K. & Co. offers special products, including insurance products and
interests in various tax advantaged investments. Such tax advantaged
investments are generally in the form of limited partnership interests
in real estate, oil drilling, or similar ventures. Neither the
Registrant nor the broker/dealer acts as the general partner for such
partnerships. Morgan Keegan Managed Futures, Inc., a wholly-owner
subsidiary of the Registrant, act as general partner to the Southern
Capital Enhanced Equity Fund Limited Partnership, (the "FUND"), an
investment limited partnership. The Fund seeks substantial capital
appreciation through investing approximately 80% of its assets in growth
stocks and the remaining assets in a stock index futures trading
program.
M.K. & Co. is a distributor of shares of Bedford Money Market Fund, a
money market mutual fund whose shares are sold without a sales charge.
The fund is managed by Provident Institutional Management Corporation.
M.K. & Co. also sells shares in unit investment trusts which hold
portfolios of tax-exempt bonds, and as a service to its customers,
offers shares of various mutual funds including those of Southern
Capital Fund. This fund, which invests primarily in equity securities
of companies located in the southern United States, is a mutual fund
managed by Morgan Asset Management, Inc., a subsidiary of the
Registrant, and is solely distributed by M.K. & Co. Also, M.K. & Co.
acts as a broker in the purchase and sale of put and call options on the
CBOE, AMEX and other exchanges.
Research Services
M.K. & Co.'s research services include the review and analysis of the
economy, general market conditions, industries and specific companies;
recommendation of specific action with regard to industries and specific
companies; review of customer portfolios; furnishing of information to
retail and institutional customers; and responses to inquiries from
customers and account executives. These services are made available
generally without charge to customers.
Administration and Operations
Administrative and operations personnel are responsible for the
execution of orders; processing of securities transactions; receipt,
identification and delivery of funds and securities; internal financial
control; accounting functions; office services; custody of customers'
securities; and compliance with regulatory requirements.
There is considerable fluctuation in the volume of transactions which
a securities firm must handle. In the past, when the volume of trading
in securities reached record levels, the securities industry experienced
serious operating problems. M.K. & Co. has never experienced any
significant operating difficulties, even during periods of exceptionally
heavy trading. There is, however, no assurance that heavy trading
volume in the future will not result in clearing and processing
difficulties.
The following table sets forth high, low and average monthly purchase
and sale transactions processed by M.K. & Co:
Year Ended Number of Transactions
July 31 High Low Average
1995 57,362 41,414 47,875
1994 56,859 38,457 43,340
1993 43,544 28,358 36,584
1992 40,019 24,847 31,344
1991 29,898 15,925 22,894
M.K. & Co. uses its own electronic data processing equipment to
process orders and floor reports, transmit execution reports to its
branches, and record all data pertinent to trades. It also clears its
own securities transactions.
M.K. & Co. believes that its internal controls and safeguards against
securities theft, including use of depositories and periodic securities
counts, are adequate. As required by the NYSE and certain other
authorities, M.K. & Co. carries fidelity bonds covering any loss or
theft of securities, as well as embezzlement and forgery. The amount of
such bonds, which provide total coverage of $20,000,000 (with $500,000
deductible provision per incident) is considered adequate.
M.K. & Co. posts its books and records daily and believes they are
accurate. Periodic reviews of certain controls are conducted, and
administrative and operations personnel meet frequently with management
to review operational conditions in the firm. Operations personnel
monitor day to day operations to assure compliance with applicable laws,
rules and regulations. During 1995, the SEC changed regular way
settlements from 5 days after trade date to three days after trade date.
The change did not materially impact M.K. & Co.'s operations.
Employees
As of July 31, 1995, M.K. & Co. had 1,335 employees, 551 of whom were
account executives, 569 of whom were engaged in other service areas,
including trading, research and investment banking, and 215 of whom were
employed in accounting, clearing and processing, management and other
activities.
In large part, the Registrant's future success is dependent upon its
subsidiary's continuing ability to hire, train and retain qualified
account executives. During the fiscal year ended July 31, 1995, M.K. &
Co. hired 143 account executives for a net increase of 58 over the
beginning of the fiscal year. M.K. & Co. trains new account executives
who are required to take examinations given by the NYSE, the NASD and
certain state securities regulators in order to be registered and
qualified. M.K. & Co. also provides continuing training programs for
account executives. Competition is intense among securities firms for
account executives with good sales production records.
M.K. & Co. considers its employee relations to be good and considers
compensation and employee benefits offered which includes medical, life
and disability insurance, 401-K retirement plan and a discounted stock
purchase plan, to be competitive with those offered by other securities
firms.
Regulation
The securities industry in the United States is subject to extensive
regulation under federal and state laws. The SEC is the federal agency
charged with administration of the federal securities laws. Much of the
regulation of broker/dealers, however, has been delegated to self-
regulatory organizations, principally the NASD and the national
securities exchanges. These self-regulatory organizations adopt rules
(which are subject to approval by the SEC) which govern the industry and
conduct periodic examinations of member broker/dealers. Securities
firms are also subject to regulation by state securities commissions in
the states in which they are registered. M.K. & Co. is registered in 50
states.
The regulations to which broker/dealers are subject cover all aspects
of the securities business, including sales methods, trade practices
among broker/dealers, capital structure of securities firms, uses and
safekeeping of customers' funds and securities, recordkeeping, and the
conduct of directors, officers and employees. Additional legislation,
changes in rules promulgated by the SEC and by self-regulatory
organizations, or changes in interpretation or enforcement of existing
laws and rules, often affect directly the method of operation and
profitability of broker/dealers. The SEC and the self-regulatory
organizations may conduct administrative proceedings which can result in
censure, fines, suspension or expulsion of a broker/dealer, its officers
or employees. The principal purpose of regulation and discipline of
broker/dealers is the protection of customer and the securities market
rather than the protection of creditors and stockholders of
broker/dealers.
One of the most important regulations with which the Registrant's
broker/dealer subsidiary must continually comply is the "net capital
rule" of the Securities and Exchange Commission and a similar rule of
the New York Stock Exchange. These rules, under the alternative method,
prohibit a broker/dealer from engaging in any securities transactions at
a time when its net capital is less than 2% of aggregate debit balances
arising from customer transactions; in addition, restrictions may be
imposed on the operations of a broker/dealer if its net capital is less
than 5% of aggregate debit items. At July 31, 1995, the Registrant's
subsidiary's net capital was 32% of aggregate debit items. See Note 10
- - Regulatory Requirements - page 21 of the 1995 Annual Report to
Shareholders.
The laws, rules and regulations of the various federal, state and
other regulatory bodies to which the business of the Registrant is
subject are constantly changing. While management believes that it is
currently in compliance in all material respects with all laws, rules
and regulations applicable to its business, it cannot predict what
effect any such changes might have.
Item 2. PROPERTIES
The Registrant's headquarters occupy approximately 122,000 square feet
in Morgan Keegan Tower in Memphis, Tennessee. All of the Registrant's
offices are leased. See Note 4 - Leases - on page 18 of the 1995 Annual
Report to Shareholders.
Item 3. LEGAL PROCEEDINGS
Morgan Keegan & Company, Inc. ("M.K. & Co.") one of many defendants in
class action complaints that are part of the Multi-District Litigation
("the MDL") involving the underwriting and sale of taxable municipal
bonds issued by several issuing authorities in 1986 and described in
previous Form 10-K and 10-Q filings. On October 10, 1995, the MDL Court
gave final approval to a class settlement, effectively resolving all
material claims against M.K. & Co. This settlement will have no
material adverse effect on M.K. & Co.'s results of operations or
financial conditions.
In addition to the matters described above, M.K. & Co. is subject to
various claims incidental to its securities business. While the
ultimate resolution of pending litigation and claims cannot be predicted
with certainty, based upon the information currently known, management
is of the opinion that it has meritorious defenses and has instructed
its counsel to vigorously defend such lawsuits and claims, and that
liability, if any, resulting from all litigation will have no material
adverse effect on the Registrant's consolidated results of operations or
financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The information required by this item is incorporated herein by
reference to Note 12 - Quarterly Results of Operations (Unaudited) - on
page 22 of the 1995 Annual Report to Shareholders, a copy of which is
enclosed.
Item 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by
reference to the Ten Year Financial Summary on pages 10 and 11 and
Additional Financial Information (Unaudited) on page 13 of the 1995
Annual Report to Shareholders, a copy of this is enclosed.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated herein by
reference to page 12 of the 1995 Annual Report to Shareholders, a copy
of which is enclosed.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by
reference to pages 10 through 22 of the 1995 Annual Report to
Shareholders, a copy of which is enclosed.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by
reference to the Registrant's definitive Proxy Statement which will be
filed with the Commission pursuant to Regulation 240.14a(6)(c) on
October 18, 1995 and will be used in connection with the solicitation of
proxies to be voted at the Registrant's annual meeting of shareholders
to be held November 21, 1995.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the Registrant's definitive Proxy Statement which will be
filed with the Commission pursuant to Regulation 240.14a(6)(c) on
October 18, 1995 and will be used in connection with the solicitation of
proxies to be voted at the Registrant's annual meeting of shareholders
to be held November 21, 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the Registrant's definitive Proxy Statement which will be
filed with the Commission pursuant to Regulation 240.14a(6)(c) on
October 18, 1995 and will be used in connection with the solicitation of
proxies to be voted at the Registrant's annual meeting of shareholders
to be held November 21, 1995.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the Registrant's definitive Proxy Statement which will be
filed with the Commission pursuant to Regulation 240.14a(6)(c) on
October 18, 1995 and will be used in connection with the solicitation of
proxies to be voted at the Registrant's annual meeting of shareholders
to be held November 21, 1995.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) List of Financial Statements, Financial Statement Schedules and
Exhibits
(1) The following consolidated financial statements of the Registrant
and its subsidiaries, included in the 1995 Annual Report to
Shareholders are incorporated by reference in Item 8:
Consolidated Statements of Financial Condition July 31, 1995 and 1994
Consolidated Statements of Income Years ended July 31, 1995
1994, and 1993
Consolidated Statements of Stockholders' Years ended July 31, 1995
Equity 1994, and 1993
Consolidated Statements of Cash Flows Years ended July 31, 1995
1994, and 1993
Notes to Consolidated Financial Statements July 31, 1995
2(2) The following consolidated financial statement schedule of Morgan
Keegan, Inc. and subsidiaries is included in Item 14 (d):
Schedule I - Condensed Financial Statements of Registrant
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
(3) The following exhibits are filed herewith or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of
Regulation S-K:
Exhibit 3 - Articles of Incorporation filed as Exhibits B & C and
Bylaws to Proxy Statement.
Exhibit 11 - Statement re: Computation of Per Share Earnings
Page 19
Exhibit 13 - Annual Report to Shareholders*
Exhibit 22 - List of Subsidiaries of Registrant*
Exhibit 23 - Consent of Independent Auditors
Page 20
*Certain portions of the Annual Report to Shareholders are incorporated
herein by reference: the Annual Report to Shareholders is not to be
deemed filed as a part of this Annual Report on Form 10-K.
(b) No reports on Form 8-K were filed during the fourth quarter of the
year ended July 31, 1995.
(c) Exhibits - The response to this portion of Item 14 is submitted as
a separate section of this report.
(d) Financial Statement Schedules - The response to this portion of Item
14 is submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Keegan, Inc.
(Registrant)
BY /s/Allen B. Morgan, Jr.
Allen B. Morgan, Jr.
Chairman
Date: October 27, 1995
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/Allen B. Morgan, Jr.
Allen B. Morgan, Jr. Chairman and Director October 27, 1995
/s/William W. Deupree, Jr.
William W. Deupree, Jr. President October 27, 1995
/s/John W. Stokes, Jr.
John W. Stokes, Jr. Vice President and
Director October 27, 1995
/s/Joseph C. Weller
Joseph C. Weller Secretary/Treasurer and October 27, 1995
Director
/s/Kenneth F. Clark, Jr.
Kenneth F. Clark, Jr. Director October 27, 1995
/s/James E. Harwood, III
James E. Harwood, III Director October 27, 1995
Schedule I
Condensed Financial Statements of Registrant
Morgan Keegan, Inc.
Condensed Balance Sheets July 31
1995 1994
ASSETS
Cash $1,000 $1,000
Securities owned 1,931,470 1,767,365
Furniture, equipment and leasehold
improvements less allowances for
depreciation and amortization
($7,324,441 at July 31, 1995,
$7,261,972 at July 31, 1994) 6,807,524 5,575,852
Investments in subsidiaries (a) 143,568,182 128,761,416
Other assets 6,403,139 2,908,830
Total Assets $158,711,315 $139,014,463
LIABILITIES
Short-term borrowings $10,000,000 $
Commercial paper 8,868,217 10,593,126
Intercompany (a) 384,222 3,056,619
Other liabilities 1,424
STOCKHOLDERS' EQUITY
Common Stock 12,605,439 8,565,006
Additional paid-in-capital 712,098 5,522,052
Retained earnings 126,139,915 111,277,660
139,457,452 125,364,718
Total Liabilities and
Stockholders' Equity $158,711,315 $139,014,463
Condensed Income Statements July 31
1995 1994 1993
Rental income $2,167,988 $1,881,486 $1,522,033
Interest income 185,095 4,198,859 145,582
Capital gain 2,248,375
Depreciation (2,167,988) (1,881,486) (1,522,033)
Other 402,300 6,636 608,160
Income taxes (300,000) (915,000) (300,000)
Income from subsidiaries 23,560,974 26,302,292 30,247,874
Net Income $23,848,369 $31,841,162 $30,701,616
(a) Eliminated in consolidation
Schedule I - Continued
Condensed Financial Statements of Registrant
Morgan Keegan, Inc.
Condensed Statement of Cash Flows July 31
1995 1994 1993
Cash Flows From Operating Activities
Operations (net income) $23,848,369 $31,841,162 $30,701,616
Less: Income from subsidiaries (23,560,974) (26,302,292) (30,247,874)
Amortization of restricted stock 1,800,000 1,580,000 822,000
Depreciation expense 2,167,988 1,881,486 1,522,033
Decrease (increase) in other
assets (3,494,309) (2,637,163) 20,000
(Decrease) increase in
intercompany payables (2,672,397) 6,973,383 1,726,710
(Decrease)increase in other
liabilities 1,424
Increase (decrease) from operating
activities (1,909,899) 13,336,576 4,544,485
Cash Flows From Financing Activities
Proceeds from short term
borrowings 10,000,000
Proceeds from sale or issuance
of common stock 2,232,853 6,423,113 1,453,690
Payments of commercial paper (1,724,909) (1,863,691) (523,552)
Dividends paid (4,438,988) (4,036,931) (2,937,420)
Retirement of common stock (9,349,500) (16,777,386) (395,695)
Decrease from financing
activities (3,280,544) (16,254,895) (2,402,977)
Cash Flows From Investing Activities
(Increase) decrease in securities
owned (164,105) (396,476) (302,000)
(Increase) decrease in investment
in subsidiaries 8,754,208 5,386,772 1,057,338
Purchase of furniture, equipment
and leasehold improvements (3,399,660) (2,071,977) (2,896,846)
(Increase) decrease from investing
activities 5,190,443 2,918,319 (2,141,508)
Increase in cash 0 0 0
CASH AT BEGINNING OF YEAR 1,000 1,000 1,000
CASH AT END OF YEAR $1,000 $1,000 $1,000
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended July 31
1995 1994 1993
PRIMARY
Average shares outstanding 20,308,407 21,722,947 21,145,595
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price. 82,360 63,914 71,614
TOTAL 20,390,767 21,786,861 21,217,209
Net Income $23,848,369 $31,841,162 $30,701,616
Per share amount $1.17 $1.46 $1.45
FULLY DILUTED
Average shares outstanding 20,308,407 21,722,947 21,145,595
Net effect of dilutive stock
options - based on the treasury
stock method using the year end
market price, if higher than
average market price. 82,360 63,914 71,614
TOTAL 20,390,767 21,786,861 21,217,209
Net Income $23,848,369 $31,841,162 $30,701,616
Per share amount $1.17 $1.46 $1.45
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Morgan Keegan, Inc. of our report dated September 19,
1995, included in the 1995 Annual Report to Shareholders of Morgan
Keegan, Inc.
Our audit also included the financial statement schedule of Morgan
Keegan, Inc. listed in Item 14(a). This schedule is the responsibility
of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-16982) pertaining to the 1985 Restricted
Stock and Stock Option Plan and in the Registration Statement (Form S-8
No. 33-32974) pertaining to the Employee Stock Purchase Plan of Morgan
Keegan, Inc. and in the related Prospectuses of our report dated
September 19, 1995, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in
the preceding paragraph with respect to the financial statement schedule
included in this Annual Report (Form 10-K) of Morgan Keegan, Inc.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Memphis, Tennessee
October 27, 1995
Exhibit 13 - Report of Independent Auditors
Board of Directors
Morgan Keegan, Inc.
We have audited the accompanying consolidated statements of financial
condition of Morgan Keegan, Inc. and subsidiaries as of July 31, 1995
and 1994, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the
period ended July 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform an 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
Morgan Keegan, Inc. and subsidiaries at July 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each
of the three years in the period ended July 31, 1995 in conformity with
generally accepted accounting principles.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Memphis, Tennessee
September 19, 1995
Ten Year Financial Summary
Morgan Keegan, Inc. and Subsidiaries
Years ended July 31 1995 1994 1993
Revenues
Commissions
Listed securities $ 21,246 $ 22,748 $ 20,457
Over-the-counter 12,624 10,076 10,159
Options 2,631 1,990 1,927
Other 9,661 11,723 11,196
46,162 46,537 43,739
Principal transactions:
Corporate securities 36,724 33,541 34,404
Municipal securities 16,404 14,135 17,432
U.S. government securities 33,982 41,746 51,297
87,110 89,422 103,133
Investment banking:
Corporate securities 25,009 32,850 15,760
Municipal securities 1,926 4,059 3,947
Underwriting management and other fees 18,259 18,923 9,571
45,194 55,832 29,278
Interest:
Interest on margin balances 17,519 10,824 7,047
Interest on securities owned 20,261 14,070 12,627
37,780 24,894 19,674
Other 11,826 15,035 13,371
228,072 231,720 209,195
Expenses
Compensation 120,795 125,205 109,748
Floor brokerage and clearance 3,724 3,875 5,296
Communications 15,962 13,852 12,012
Travel and promotional 5,855 5,721 4,241
Occupancy and equipment costs 9,716 8,320 8,153
Interest 23,600 14,393 11,185
Taxes, other than income taxes 6,298 4,972 4,199
Other operating expenses 3,774 3,741 4,659
189,724 180,079 159,493
Income (loss) before income taxes 38,348 51,641 49,702
Income tax expense (credit) 14,500 19,800 19,000
Net income $ 23,848 $ 31,841 $ 30,702
Per Share Data*
Net income $ 1.17 $ 1.46 $ 1.45
Book value $ 6.91 $ 6.10 $ 4.97
Other Data (at year end):
Total assets $882,292 $571,009 $527,084
Stockholders' equity $139,457 $125,365 $106,335
Common shares outstanding* 20,169 20,556 21,408
<FN>
*Adjusted for a three-for-two stock split in April, 1986, a four-for-
three stock split in September, 1991, a three-for-two stock split in
March, 1992, a three-for-two stock split in June, 1993, and a three-for-
two stock split in June, 1995.
Ten Year Financial Summary
Morgan Keegan, Inc. and Subsidiaries
Years ended July 31 1992 1991 1990
Revenues
Commissions
Listed securities $ 18,378 $ 13,143 $ 14,444
Over-the-counter 9,041 5,347 1,745
Options 2,089 2,143 2,180
Other 7,632 4,824 4,434
37,140 25,448 22,803
Principal transactions:
Corporate securities 28,161 16,554 11,808
Municipal securities 12,037 10,730 7,445
U.S. government securities 48,588 30,279 18,478
88,786 57,563 37,731
Investment banking:
Corporate securities 16,730 4,836 2,947
Municipal securities 3,960 376 159
Underwriting management and other fees 9,862 5,436 3,926
30,552 10,648 7,032
Interest:
Interest on margin balances 5,941 4,867 5,521
Interest on securities owned 12,709 12,490 10,769
18,650 17,357 16,290
Other 7,536 5,501 5,152
182,664 116,517 89,008
Expenses
Compensation 94,348 61,265 48,243
Floor brokerage and clearance 4,571 3,751 3,749
Communications 9,791 8,764 8,436
Travel and promotional 3,699 2,982 2,660
Occupancy and equipment costs 7,557 8,194 7,789
Interest 12,562 12,953 12,591
Taxes, other than income taxes 3,823 3,116 2,682
Other operating expenses 4,122 3,288 3,308
140,473 104,313 89,458
Income (loss) before income taxes 42,191 12,204 (450)
Income tax expense (credit) 16,400 4,500 (475)
Net income $ 25,791 $ 7,704 $ 25
Per Share Data*
Net income $ 1.25 $ .38 $ .01
Book value $ 3.67 $ 2.50 $ 2.14
Other Data (at year end):
Total assets $434,448 $304,445 $236,991
Stockholders' equity $ 76,690 $ 50,837 $ 44,888
Common shares outstanding* 20,893 20,336 20,959
<FN>
*Adjusted for a three-for-two stock split in April, 1986, a four-for-
three stock split in September, 1991, a three-for-two stock split in
March, 1992, a three-for-two stock split in June, 1993, and a three-for-
two stock split in June, 1995.
Ten Year Financial Summary
Morgan Keegan, Inc. and Subsidiaries
Years ended July 31 1989 1988 1987
Revenues
Commissions
Listed securities $ 13,675 $ 12,901 $ 10,829
Over-the-counter 1,848 2,088 2,313
Options 2,339 2,509 2,564
Other 4,192 3,943 6,714
22,054 21,441 22,420
Principal transactions:
Corporate securities 14,369 15,421 17,723
Municipal securities 5,993 6,401 4,550
U.S. government securities 14,707 14,829 19,927
35,069 36,651 42,200
Investment banking:
Corporate securities 3,461 2,225 8,152
Municipal securities 213 19 394
Underwriting management and other fees 4,057 3,302 5,267
7,731 5,546 13,813
Interest:
Interest on margin balances 5,698 5,406 4,753
Interest on securities owned 6,129 3,407 2,307
11,827 8,813 7,060
Other 2,750 1,105 902
79,431 73,556 86,395
Expenses
Compensation 43,953 42,242 50,119
Floor brokerage and clearance 2,966 2,900 2,044
Communications 7,996 7,366 6,744
Travel and promotional 1,990 2,649 3,040
Occupancy and equipment costs 6,852 5,755 4,645
Interest 7,931 4,620 3,928
Taxes, other than income taxes 2,326 2,179 1,934
Other operating expenses 2,330 1,989 1,342
76,344 69,700 73,796
Income (loss) before income taxes 3,087 3,856 12,599
Income tax expense (credit) 715 1,351 5,900
Net income $ 2,372 $ 2,505 $ 6,699
Per Share Data*
Net income $ .10 $ .10 $ .29
Book value $ 2.18 $ 2.11 $ 2.10
Other Data (at year end):
Total assets $397,007 $236,209 $195,128
Stockholders' equity $ 48,432 $ 49,325 $ 55,999
Common shares outstanding* 22,219 23,374 26,697
<FN>
*Adjusted for a three-for-two stock split in April, 1986, a four-for-
three stock split in September, 1991, a three-for-two stock split in
March, 1992, a three-for-two stock split in June, 1993, and a three-for-
two stock split in June, 1995.
Ten Year Financial Summary
Morgan Keegan, Inc. and Subsidiaries
(In thousands, except per share amounts)
Years ended July 31 1986
Revenues
Commissions
Listed securities $ 7,073
Over-the-counter 1,440
Options 2,030
Other 6,001
16,544
Principal transactions:
Corporate securities 14,430
Municipal securities 7,428
U.S. government securities 17,591
39,449
Investment banking:
Corporate securities 3,923
Municipal securities 314
Underwriting management and other fees 3,835
8,072
Interest:
Interest on margin balances 3,497
Interest on securities owned 1,681
5,178
Other 567
69,810
Expenses
Compensation 40,846
Floor brokerage and clearance 1,897
Communications 5,801
Travel and promotional 2,009
Occupancy and equipment costs 3,848
Interest 3,113
Taxes, other than income taxes 1,476
Other operating expenses 1,046
60,036
Income (loss) before income taxes 9,774
Income tax expense (credit) 4,300
Net income $ 5,474
Per Share Data*
Net income $ .26
Book value $ 1.60
Other Data (at year end):
Total assets $180,318
Stockholders' equity $ 33,889
Common shares outstanding* 21,177
<FN>
*Adjusted for a three-for-two stock split in April, 1986, a four-for-
three stock split in September, 1991, a three-for-two stock split in
March, 1992, a three-for-two stock split in June, 1993, and a three-for-
two stock split in June, 1995.
General Business Environment. Morgan Keegan, Inc. (collectively, with
its subsidiaries, the "Company") operates a full service regional
brokerage business through its principal subsidiary, Morgan Keegan &
Company, Inc. The Company is involved in the origination, underwriting,
distribution, trading and brokerage of fixed income and equity
securities and also provides investment advisory services. While the
Company regularly participates in the trading of some derivatives
securities for its customers, this trading is not a major portion of the
Company's business. The Company is not involved with high yield
securities, bridge loan financing, or any other ventures that management
feels may not be appropriate for the Company's strategic approach.
Many factors affect the Company's revenues including changes in
economic conditions, investor sentiment, the level and volatility of
interest rates, inflation, political events and competition. As these
factors are beyond the Company's control, and certain expenses are
relatively fixed, earnings can significantly vary from year to year
regardless of management's efforts to enhance revenue and control costs.
Increasing competition from commercial banks and thrift institutions is
anticipated as these institutions begin to offer investment banking and
financial services which were previously only offered by securities
firms. The Company anticipates increasing regulation in the securities
industry, meaning that continued compliance may be more difficult and
costly. At present, the Company is unable to predict the extent of
changes that may be enacted or the effect on the Company's business.
The Company's long term plan is to continue to grow its regional
brokerage and other services in the southeastern United States. During
the past year, the Company has focused on two new markets, North
Carolina and Texas.
Results of Operations. The Company was faced with increasing interest
rates and uncertain market conditions for most of fiscal 1995. Total
revenues of $228,072,000 were $3,648,000 less than fiscal 1994 when they
were a record $231,720,000. Fiscal 1994 revenues were buoyed by a
strong market for most of fiscal 1994 which surpassed the fiscal 1993's
previous high of $209,195,000 by $22,525,000.
Investment banking revenues for fiscal 1995 of $45,194,000 were
$10,638,000 less than 1994 revenues of $55,832,000. This decline is
primarily attributed to less favorable market conditions for equity
securities and continued weakness in the taxable debt securities market
during fiscal 1995. Investment banking revenues for fiscal 1994 had
increased $26,554,000 or 91% due to outstanding efforts by the bankers
from underwriting stocks of real estate investment trusts which allowed
a strong performance for all of fiscal 1994.
Both fiscal 1995 and fiscal 1994 saw drops in revenue from principal
transactions, 3% for 1995 and 13% for 1994. The decrease in both years
was due to lower volume and trading losses. Interest income increased
$12,886,000 or 52% in fiscal 1995 after a $5,220,000 or 26% increase in
fiscal 1994. The increases resulted from gradually increasing rates in
both years as well as higher customer borrowings. Other income declined
21% or $3,209,000 to $11,826,000 resulting from the fall off of certain
fee based income which was adversely affected by the poor markets.
Operating expenses increased $9,645,000 or 5% for fiscal 1995 over
fiscal 1994. The largest component was the $9,207,000 increase in
interest expense which was due to the higher interest rates for the
year, as well as larger inventory and customer credit positions.
Compensation expense declined $4,410,000 or 4% which corresponded with
the decline in production revenues. Other fixed costs rose slightly due
to the Company's commitment to expansion with the opening of the new
Texas offices and the Commonwealth and Peeler acquisitions in Kentucky
and North Carolina, respectively.
Operating expenses increased 13% in fiscal 1994 from $159,493,000 to
$180,079,000. Approximately 75% of the increase was compensation which
increased from $109,748,000 to $125,205,000 or 14% and corresponds
closely to the increase in production revenues for the year.
Earnings per share for fiscal 1995 were $1.17 which was $.29 per share
less than the record earnings per share of fiscal 1994. The increasing
interest rates for most of the year weakened the market resulting in
lower commission revenue and substantially less investment banking
business, resulting in the earnings decline. The Company plans to
continue expansion of its branch offices and to grow in the southeastern
United States.
Liquidity and Capital Resources.
Most of the Company's assets are highly liquid, consisting mainly of
cash or assets readily convertible into cash. These assets are financed
by the Company's equity capital, short-term bank loans, commercial
paper, repurchase agreements and other payables. Changes in the amount
of securities owned by the Company and customer and broker receivables
affect directly the amount of the Company's financing requirements.
The Company's dealer subsidiary is subject to requirements of the
Securities and Exchange Commission and the New York Stock Exchange
relating to liquidity and capital standards. It has historically
operated well in excess of the minimum requirements. At July 31, 1995,
the net capital of the Company's dealer subsidiary exceeded the SEC's
minimum requirements by more than $81,000,000, which is slightly less
than the $85,000,000 at the end of last year. Continued expansion is
not expected to have a significant adverse impact on liquidity or
capital. Funds available from operations and lines of credit should
provide sufficient sources to meet capital needs of the foreseeable
future.
During the early part of the year, the Company continued its stock
repurchase program, purchasing 1,030,309 shares for an aggregate value
of $9,349,000. This followed fiscal 1994 repurchases of 2,010,189
shares valued at $16,778,000, and leaves 709,611 shares not yet
purchased under the previously announced stock buy- back program.
Effective June 9, 1995, the board of directors declared a three-for-
two stock split. The purpose of the stock split was to allow the
shareholders to participate in the Company's outstanding growth for the
past several years and to increase the cash dividend.
Total assets of the Company were $311,283,000 higher at July 31, 1995
than 1994, with the two most significant increases coming in securities
segregated for regulatory purposes of $190,299,000 and securities owned
of $42,347,000. Repurchase agreements held for the exclusive benefit of
customers under rule
15c-3-3 increased due to the corresponding increase in payables to
customers.
Liabilities increased $297,191,000 from the previous year's total of
$445,644,000. The majority of the increase was $197,377,000 in payables
to customers due to an increasing customer base and additional accounts
opened by customers to more conveniently pay for trades under the SEC's
new T+3 settlement procedures.
Cash used in financing activities was $40,929,000 in fiscal 1995, as
the Company used short term borrowings to finance inventory and other
operations.
Cash used in investing activities remained about the same in 1995 and
1994. Primary expenditures for 1995 were the continued development of
the communications and quotation system which began in 1993 and branch
expansion.
Effects of Inflation. The Company's assets are primarily monetary,
consisting of cash, assets convertible into cash, securities and owned
and receivables. Because of their liquidity, these assets are not
significantly affected by inflation. Management believes that
replacement costs of furniture, equipment and leasehold improvements
will not materially affect operations. However, the rate of inflation
affects the Company's expenses, such as those for employee compensation
and communications, which may not be readily recoverable in the price of
services offered by the Company.
The table below summarizes the changes in the major categories of
revenues and expense for the past three (3) years.
(Dollars in thousands) Increase (Decrease)
Revenues: 1995 vs 1994 1994 vs 1993
Commissions $ (375) (1%) $ 2,798 6%
Principal transactions (2,312) (3%) (13,711) (13%)
Investment banking (10,638) (19%) 26,554 91%
Interest 12,886 52% 5,220 26%
Other (3,209) (21%) 1,664 12%
$ (3,648) (2%) $ 22,525 11%
Expenses:
Compensation $ (4,410) (4%) $ 15,457 14%
Floor brokerage and clearance (151) (4%) (1,421) (27%)
Communications 2,110 15% 1,840 15%
Travel and promotional 134 2% 1,480 35%
Occupancy and equipment costs 1,396 17% 167 2%
Interest 9,207 64% 3,208 29%
Taxes, other than income taxes 1,326 27% 773 18%
Other operating expenses 33 1% (918) (20%)
$ 9,645 5% $ 20,586 13%
Additional Financial Information (Unaudited)
Morgan Keegan, Inc. and Subsidiaries
(In thousands, except per share amounts)
Summary of Quarterly Results
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal 1995
Revenues $56,206 $55,267 $50,147 $66,452
Income before income taxes 10,971 9,537 6,960 10,880
Net income 6,771 5,937 4,360 6,780
Net income per share 0.33 0.29 0.22 0.33
Fiscal 1994
Revenues $57,664 $60,125 $56,294 $57,637
Income before income taxes 13,732 14,310 10,657 12,942
Net income 8,432 8,810 6,657 7,942
Net income per share 0.39 0.40 0.30 0.37
Fiscal 1993
Revenues $47,047 $49,397 $55,312 $57,439
Income before income taxes 11,207 11,270 13,235 13,990
Net income 6,808 7,170 8,085 8,639
Net income per share 0.33 0.34 0.38 0.40
Fiscal 1992
Revenues $37,923 $48,094 $50,837 $45,810
Income before income taxes 7,697 11,126 12,665 10,703
Net income 4,772 6,701 7,715 6,603
Net income per share 0.24 0.33 0.37 0.31
Fiscal 1991
Revenues $21,830 $27,598 $33,573 $33,516
Income (loss) before income
taxes (18) 1,960 5,055 5,207
Net income 32 1,310 3,180 3,182
Net income per she 0.01 0.07 0.15 0.15
PAGE
Statistical Comparison of Production
1995 1994 1993 1992 1991
Total
pro-
duction $160,335,704 $168,350,637 $154,251,186 $136,760,330 $86,440,943
Percentage
change in
production -4.8% +9.1% +12.8% +58.3% +28.7%
Number of
tickets 558,967 480,564 439,006 376,128 273,288
Average
commissions
per ticket $ 287 $ 350 $ 351 $ 363 $ 316
Number of
investment
brokers 551 492 438 409 396
Number of
Investment
brokers
(over 1 year) 438 436 403 379 326
Total number
of employees 1,335 1,218 1,088 969 878
Average
commissions
per investment
broker
(over
1 year) $ 334,555 $ 346,274 $ 359,817 $ 327,096 $ 233,328
Number of
new accounts
opened 29,559 25,861 21,451 25,322 17,789
Consolidated Statements of Income
(In thousands, except per share amounts)
Morgan Keegan, Inc. and Subsidiaries
Year ended July 31 1995 1994 1993
Revenues
Commissions $ 46,162 $ 46,537 $ 43,739
Principal transactions 87,110 89,422 103,133
Investment banking 45,194 55,832 29,278
Interest 37,780 24,894 19,674
Other 11,826 15,035 13,371
228,072 231,720 209,195
Expenses
Compensation 120,795 125,205 109,748
Floor brokerage and clearance 3,724 3,875 5,296
Communications 15,962 13,852 12,012
Travel and promotional 5,855 5,721 4,241
Occupancy and equipment costs 9,716 8,320 8,153
Interest 23,600 14,393 11,185
Taxes, other than income taxes 6,298 4,972 4,199
Other operating expenses 3,774 3,741 4,659
189,724 180,079 159,493
Income Before Income Taxes 38,348 51,641 49,702
Income Tax Expense 14,500 19,800 19,000
Net Income $ 23,848 $ 31,841 $ 30,702
Net Income Per Share $ 1.17 $ 1.46 $ 1.45
Average shares outstanding 20,390,767 21,786,861 21,217,209
See accompanying notes.
Consolidated Statements of Stockholders' Equity
Morgan Keegan, Inc. and Subsidiaries
(In thousands, except per share amounts)
Common Common Additional Stock-
Stock Stock Paid-In Retained holders
Shares Amount Capital Earnings Equity
Balance at August 1, 1992 9,285,962 $5,804 $15,177 $55,709 $76,690
Stock split effected
in the form of a stock
dividend 4,643,080 2,901 (2,901)
Issuance of restricted
stock 208,834 131 (131)
Issuance of Common
Stock 183,749 115 1,339 1,454
Dividends paid ($.15 per
share) (2,937) (2,937)
Retirement of Common
Stock (49,632) (31) (365) (396)
Amortization of
restricted stock 822 822
Net income 30,702 30,702
Balance at July 31, 1993 14,271,993 8,920 13,941 83,474 106,335
Issuance of restricted
stock 219,073 137 (137)
Issuance of Common
Stock 553,071 346 6,078 6,424
Dividends paid ($.19
per share) (4,037) (4,037)
Retirement of Common
Stock (1,340,126) (838) (15,940) (16,778)
Amortization of
restricted stock 1,580 1,580
Net income 31,841 31,841
Balance at July 31, 1994 13,704,011 8,565 5,522 111,278 125,365
Stock split effected
in the form of a stock
dividend 6,852,005 4,283 (81) (4,202)
Issuance of restricted
stock 298,072 186 (186)
Issuance of Common
Stock 344,924 216 2,017 2,233
Dividends paid ($.22
per share) (4,440) (4,440)
Retirement of Common
Stock (1,030,309) (645) (8,360) (344) (9,349)
Amortization of
restricted stock 1,800 1,800
Net income 23,848 23,848
Balance at July 31, 1995 20,168,703 $12,605 $ 712 $126,140 $139,457
See accompanying notes.
Consolidated Statements of Financial Condition
Morgan Keegan, Inc. and Subsidiaries (In thousands)
July 31 1995 1994
Assets
Cash $ 22,287 $ 12,854
Securities segregated for regulatory
purposes, at market 226,000 35,701
Deposits with clearing organizations
and others 7,655 2,591
Receivable from brokers and dealers and
clearing organizations 25,046 29,945
Receivables from customers 260,707 236,764
Securities purchased under agreements
to resell 91,861 62,811
Securities owned, at market 209,915 167,568
Memberships in exchanges, at cost (market value-
$2,367,000 at July 31, 1995; $2,310,000 at
July 31, 1994) 719 678
Furniture, equipment and leasehold improvements,
(less allowances for depreciation and
amortization $12,159,000 at July 31, 1995;
$12,296,000 at July 31, 1994) 13,037 9,353
Other assets 25,065 12,744
$882,292 $571,009
Liabilities and Stockholders' Equity
Short-term borrowings $127,649 $ 16,500
Commercial paper 7,468 10,593
Payable to brokers and dealers and clearing
organizations 5,387 13,581
Payable to customers 438,518 241,141
Customers drafts payable 13,774 10,950
Securities sold under agreements
to repurchase 35,360 61,849
Securities sold, not yet purchased,
at market 68,430 35,985
Other liabilities 46,249 55,045
742,835 445,644
Stockholders' equity
Common Stock, par value $.625 per share:
authorized 100,000,000 shares;
20,168,703 shares issued and outstanding
at July 31, 1995; 13,704,011
at July 31, 1994 12,605 8,565
Additional paid-in capital 712 5,522
Retained earnings 126,140 111,278
139,457 125,365
$882,292 $571,009
See accompanying notes.
Consolidated Statements of Cash Flows
Morgan Keegan, Inc. and Subsidiaries
Year ended July 31 1995 1994 1993
Cash Flows From Operating Activities:
Net Income $23,848 $31,841 $30,702
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Depreciation and amortization 3,501 3,321 2,542
Deferred income taxes (1,900) (958) (900)
Amortization of restricted stock 1,800 1,580 822
27,249 35,784 33,166
(Increase) decease in operating assets:
Receivable from brokers and dealers and
clearing organizations 4,899 (10,321) 3,312
Receivable from customers (23,943) (80,131) (29,500)
Securities segregated for
regulatory purposes, at market (190,299) 3,100 (29,000)
Deposits with clearing organizations
and others (5,064) (127) 1,704
Securities owned, at market (42,347) 22,114 (5,043)
Other assets (10,462) (4,240) (977)
(Decrease) increase in operating liabilities:
Payable to brokers and dealers and
clearing organizations (8,194) (3,919) (14,207)
Payable to customers 197,377 63,933 69,125
Customer drafts payable 2,824 3,077 1,008
Securities sold, not yet purchased,
at market 32,445 19,974 (16,704)
Other liabilities (8,796) 11,924 8,295
(51,560) 25,384 (11,987)
Cash provided by (used in) operating
activities (24,311) 61,168 21,179
Cash Flows From Financing Activities:
Commercial paper (3,125) (1,864) (523)
Issuance of Common Stock 2,233 6,424 1,454
Retirement of Common Stock (9,349) (16,778) (396)
Dividends paid (4,440) (4,037) (2,937)
Short-term borrowings 111,149 (51,605) 596
Securities purchased under agreements
to resell (29,050) 25,827 (27,472)
Securities sold under agreement to
repurchase (26,489) (16,625) 15,908
Cash provided by (used in) financing
activities 40,929 (58,658) (13,370)
Cash Flows From Investing Activities:
Payments for furniture, equipment and
leasehold improvements (7,185) (4,515) (4,309)
Increase (decrease) in cash 9,433 (2,005) 3,500
Cash at beginning of period 12,854 14,859 11,359
Cash at end of period $22,287 $12,854 $14,859
Income tax payments totaled $14,651,000 in 1995, $17,769,000 in 1994,
and $19,300,000 in 1993. Interest payments totaled $23,445,000 in 1995,
$14,519,000 in 1994 and $11,161,000 in 1993.
See accompanying notes.
Notes to Consolidated Financial Statements
Morgan Keegan, Inc., and Subsidiaries
July 31, 1995
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of Morgan Keegan, Inc. and its subsidiaries (collectively
referred to as the Company). All significant intercompany balances and
transactions have been eliminated in consolidation. The Company is in
one principal line of business, that of providing investment services.
Financial Assets and Liabilities: Substantially all of the Company's
financial assets and liabilities are carried at market value or at
amounts which because of the short-term nature of the financial
instruments, approximate current fair value.
Securities Transactions: Securities transactions and related commission
revenue and expense are recorded on a settlement date basis, generally
the third business day following the transaction date, which is not
materially different from a trade date basis.
Securities: Securities owned are carried at market value and unrealized
gains and losses are reflected in revenues.
Investment Banking: Management fees on investment banking transactions
and selling concessions are recorded on settlement date, which is not
materially different from a trade date basis. Underwriting fees are
generally recorded on the date the underwriting syndicate is closed.
Furniture, Equipment and Leasehold Improvements: Furniture, equipment
and leasehold improvements are carried at cost. Depreciation and
amortization are provided on a straight-line basis over the estimated
useful lives of the assets.
Reverse Repurchase and Repurchase Agreements: Securities purchased under
agreements to resell (Reverse Repurchase Agreements) and securities sold
under agreements to repurchase (Repurchase Agreements) are carried at
the amounts at which the securities will be subsequently resold or
reacquired as specified in the respective agreements. Government
securities segregated in a special reserve bank account for the benefit
of customers under rule 15c3-3 of the Securities and Exchange Commission
relate to a Reverse Repurchase Agreement of $226,000,000 and $35,701,000
at July 31, 1995 and 1994, respectively.
Income Taxes: The parent and its subsidiaries file a consolidated income
tax return. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes.
Net Income Per Share: Net income per share is computed based on the
weighted average number of shares outstanding including shares issuable
under stock options, when dilutive. All earnings per share date
included in the consolidated financial statements and notes thereto have
been adjusted to give effect to all stock splits.
Accounts with Customers: Accounts with customers include amounts arising
from uncompleted transactions and margin balances. Securities which are
owned by customers but held as collateral for receivables from customers
are not included in the consolidated financial statement.
Restricted Stock: Amortization of restricted stock is provided on the
straight-line basis over the life of the restriction, which is four or
five years.
NOTE 2-SHORT-TERM BORROWINGS
Short-term borrowings represent bank loans payable on demand used to
finance clearance of securities and to carry customers' margin accounts.
These notes bear interest at the broker loan rate, which was 6.5% at
July 31, 1995. The notes were collateralized by securities with
approximate market values as follows, in thousands:
July 31 1995 1994
Firm-owned securities $170,322 $55,173
Customer-owned securities 12,581 0
$182,903 $55,173
The Company also issues its own commercial paper to investors at
fluctuating interest rates (5.50% at July 31, 1995). The paper matures
over various terms not to exceed nine months.
NOTE 3-SECURITIES
Securities owned for trading purposes consist of the following, in
thousands:
July 31 1995 1994
U.S. government obligations $ 94,814 $104,210
State and municipal obligations 72,389 43,540
Corporate bonds 32,058 9,203
Stocks 10,627 10,599
Bankers' acceptance 27 16
$209,915 $167,568
State and municipal obligations include an issue with a par value of
$12,700,000 which has been written down to an approximate fair market
value of $5,715,000 at both July 31, 1995 and 1994, as determined by
management of the Company.
Securities sold, not yet purchased consist of the following, in
thousands:
July 31 1995 1994
U.S. government obligations $58,057 $13,852
State and municipal obligations 2,276 249
Corporate bonds 1,758 1,028
Stocks 6,339 20,846
Bankers' acceptance 0 10
$68,430 $35,985
NOTE 4-LEASES
The Company leases office space, furniture and equipment under
noncancellable leases expiring through 2000, with options to renew the
leases for up to five years. Total rental expense for each of the years
ended July 31 was as follows, in thousands:
1995 $7,615
1994 $6,729
1993 $6,383
Aggregate future annual minimum rental commitments, excluding
escalations, for the years ending July 31 are as follows, in thousands:
1996 $ 5,422
1997 5,243
1998 4,840
1999 4,121
2000 3,456
Thereafter 8,375
$31,457
NOTE 5-COMMITMENTS AND CONTINGENCIES
At July 31, 1995, the Company was obligated under commercial letters of
credit of approximately $12,500,000 drawn in favor of certain clearing
organizations which were collateralized by customer-owned securities of
$9,153,231 and firm-owned securities of $5,500,000. These obligations
normally settle through the clearance of the related securities
transactions with the respective organizations.
The Company is named in and subject to various proceedings and claims
incidental to its securities business. While the ultimate resolution of
pending litigation and claims cannot be predicted with certainty, based
upon the information currently known, management is of the opinion that
it has meritorious defenses to these claims and has instructed its
counsel to vigorously defend such lawsuits and claims, and that
liability, if any, resulting from all litigation will have no material
adverse effect on the Company's results of operations or financial
condition.
NOTE 6-INCOME TAX EXPENSE (CREDIT)
Significant Components of the provision (credit) for income taxes are as
follows at July 31, in thousands:
Liability Method Deferred Method
1995 1994 1993
Federal:
Current $14,000 $17,458 $16,750
Deferred (1,900) (958) (900)
12,100 16,500 15,850
State 2,400 3,300 3,150
$14,500 $19,800 $19,000
The principal reasons for the difference between the effective rate and
the federal statutory income tax rate for the years ended July 31 are as
follows, in thousands:
Liability Method Deferred Method
1995 1994 1993
Amount Percent Amount Percent Amount Percent
Federal Statutory
rate applied to
pretax earnings $13,422 35.0% $18,074 35.0% $17,396 35.0%
State and local
taxes, less
income tax
benefit 1,560 4.0 2,145 4.2 2,048 4.1
Non-taxable
interest, less
non-deductible
interest (404) (1.0) (410) (0.8) (393) (0.8)
Other - net (78) (.2) (9) (0.1) (51) (0.1)
$14,500 37.8% $19,800 38.3% $19,000 38.2%
The components of the deferred tax provision (credit) for the years
ended July 31 are as follows, in thousands:
1995 1994 1993
Depreciation and other building
related items $ (675) $ (324) $ 162
Deferred compensation (73) (27) (20)
Restricted Stock (311) (75) (288)
Non-deductible reserves (356) (281) (279)
Trade date profit (178) 24 (25)
Insurance and benefits (341) (377) (408)
Other - net 34 102 (42)
$(1,900) $ (958) $ (900)
Significant components of the Company's deferred tax assets and
liabilities as of July 31 are as follows, in thousands:
1995 1994
Deferred tax assets:
Deferred compensation and
restricted stock $1,234 $ 850
Non-deductible reserves 1,695 1,339
Insurance and benefits 1,541 1,199
Trade date profit 226 48
Other 20 24
4,716 3,460
Deferred tax liabilities:
Depreciation and other building
related items 1,241 1,916
Other 225 194
1,466 2,110
Net deferred tax assets $3,250 $1,350
NOTE 7-COMMON STOCK
The Board of Directors has reserved 6,112,500 shares for issuance
under the Company's Restricted Stock and Incentive Stock Option plans of
1983 and 1985. Under provisions of the Restricted Stock and the
Incentive Stock Options Plans, benefits may be granted to key officers
and employees in either, or a combination of, incentive stock options or
restricted stock awards. Incentive stock options are granted at the
fair market value of the stock at the time of grant. There were
approximately 1,800,000 remaining shares available to be granted at July
31, 1995.
The Board of Directors has authorized 450,000 shares to be granted to
non-employee directors in the form of incentive stock options. As of
July 31, 1995, 148,500 options were outstanding at an average price of
$7.01.
Employee stock option activity is summarized as follows:
Shares Price Aggregate Exercisable
Outstanding at
August 1, 1992 96,075 $ 2.76 $265,338
Exercised 27,450 3.04 83,402
Outstanding at
July 31, 1993 68,625 2.65 181,936
Granted 31,407 8.35 262,100 1994-1999
Exercised 16,875 2.18 36,788
Outstanding at
July 31, 1994 83,157 4.90 407,248
Granted 58,750 8.80 516,790 1995-2001
Exercised 10,125 2.55 25,773
Forfeited 20,133 6.74 135,651
Outstanding at
July 31, 1995 111,649 6.83 762,614
The Company has approximately 1,363,000 shares of restricted stock
included in common stock outstanding which was issued at the fair market
value at the date of grant.
Under an Employee Stock Purchase Plan, 2,850,000 shares have been
reserved to allow employees to purchase company shares at a 15%
discount, not to exceed 225,000 shares to all employees in any year
after fiscal 1995. In 1992, 229,602 shares were issued under the plan,
243,675 were issued in 1993, and 264,887 were issued in 1994, 325,799
were issued in 1995, leaving 1,448,914 shares available for future
grants at July 31, 1995.
NOTE 8-REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Company enters into sales of securities under agreements to
repurchase, with the obligation to repurchase the securities sold
reflected as a liability in the consolidated statement of financial
condition. The majority of the repurchase agreements are matched with
a reverse repurchase agreement.
Repurchase agreement information as of July 31, 1995 is summarized as
follows, in thousands:
Assets Sold Repurchase Liability
Carrying Market Interest
Amount Value Amount Rate
Demand:
Mortgage-backed
certificates $ 2,632 $ 2,628 $ 2,753 5.25%-5.45%
Up to 30 days:
Mortgage-backed
certificates 9,262 9,284 9,405 5.80%-6.30%
U.S. Treasury
securities 4,502 4,563 4,502 4.35%-8.65%
$13,764 $13,847 $13,907
60 to 90 days:
Mortgaged-backed
certificates 19,490 19,505 18,700 2.80%-3.65%
$35,886 $35,980 $35,360
Repurchase agreement information as of July 31, 1994 is summarized as
follows, in thousands:
Assets Sold Repurchase Liability
Carrying Market Interest
Amount Value Amount Rate
Up to 30 days:
Mortgage-backed
certificates $13,573 $13,627 $13,152 4.75%-5.00%
U.S. Treasury
securities 48,697 48,917 48,697 4.20%-4.70%
$62,270 $62,544 $61,849
The Company also enters into purchases of securities under agreements to
resell (reverse repurchase agreements). The amounts advanced under
these agreements represent short-term loans and are reflected as a
receivable in the consolidated statement of financial condition.
Securities purchased under agreements to resell are held in safekeeping
in the Company's name. Should the market value of the underlying
securities decrease below the amount recorded, the counterparty is
required to place an equivalent amount of additional securities in
safekeeping in the name of the Company.
NOTE 9-EMPLOYEE BENEFIT PLANS
The Company makes discretionary contributions to its 401K defined
contribution plan and its profit sharing plan covering substantially all
employees. The Company also has a defined retirement plan covering
certain executives. Total provisions for expenses under all plans for
each of the years ended July 31, 1995, 1994 and 1993 totaled $974,000,
$916,000, and $917,000, respectively.
NOTE 10-REGULATORY REQUIREMENTS
The Company's broker/dealer subsidiary, Morgan Keegan & Company, Inc.,
is subject to the Securities and Exchange Commission's (SEC) uniform net
capital rule. The subsidiary broker/dealer company has elected to
operate under the alternate method of the rule, which prohibits a dealer
from engaging in any securities transactions when its net capital is
less than 2% of its aggregate debit balances, as defined, arising from
customer transactions. The SEC may also require a member to reduce its
business and restrict withdrawal of subordinated capital if its net
capital is less than 4% of aggregate debit balances, and may prohibit a
member firm from expanding its business and declaring cash dividends if
its net capital is less than 5% of aggregate debit balances.
At July 31, 1995, the broker/dealer subsidiary had net capital of
$87,185,586 which was 32% of its aggregate debit balances and
$81,657,792 in excess of the 2% net capital requirement. At July 31,
1994, the broker/dealer subsidiary had net capital of $89,849,110 which
was 36% of its aggregate debit balances and $84,811,408 in excess of the
2% net capital requirement.
NOTE 11-FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company's activities involve the
execution, settlement and financing of various securities transactions.
These activities may expose the Company to risk in the event the
customer is unable to fulfill its contractual obligations. The Company
maintains cash and margin accounts for its customers located throughout
the United States but primarily in the Southeast.
The Company, as part of its normal brokerage activities, assumes short
positions on securities. The establishment of short positions exposes
the Company to off-balance sheet risk in the event prices change, as the
Company may be obligated to cover such positions at a loss. The Company
manages its exposure to these instruments by entering into offsetting or
other positions in a variety of financial instruments.
As a securities dealer, a substantial portion of the Company's
transactions are collateralized. The Company's exposure to credit risk
associated with nonperformance in fulfilling contractual obligations
pursuant to securities transactions can be directly impacted by volatile
trading markets which may impair the customer's or contra party's
ability to satisfy their obligations to the Company. Where considered
necessary, the Company requires a deposit of additional collateral, or
a reduction of securities positions.
In the normal course of business, the Company enters into underwriting
and forward and future commitments. At July 31, 1995, the contract
amount of future contracts to purchase and sell U.S. government
securities was approximately $7 million each. At July 31, 1994, the
contract amount of future contracts to purchase and sell U.S. government
securities was approximately $20 million and $11 million, respectively.
The Company typically settles its position by entering into equal but
opposite contracts and, as such, the contract amounts do not necessarily
represent future cash requirement. Transactions relating to such
commitments were subsequently settled and had no material effect on
financial position. While the Company regularly participates in the
trading of some derivative securities for its customers, this trading is
not a significant portion of the Company's business.
PAGE
NOTE 12-QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
Quarter Ended October 31 January 31 April 30 July 31
1995:
Revenues $56,206 $55,267 $50,147 $66,452
Expenses 45,235 45,730 43,187 55,572
Income before
income taxes 10,971 9,537 6,960 10,880
Net income 6,771 5,937 4,360 6,780
Net income per share 0.33 0.29 0.22 0.33
Dividends per share 0.05 0.05 0.05 0.07
Stock price range:
High 9 8.75 10.67 13.13
Low 8.16 7.83 8.50 10.42
1994:
Revenues $57,664 $60,125 $56,294 $57,637
Expenses 43,932 45,815 45,637 44,695
Income before
income taxes 13,732 14,310 10,657 12,942
Net income 8,432 8,810 6,657 7,942
Net income per share 0.39 0.40 0.30 0.37
Dividends per share 0.04 0.05 0.05 0.05
Stock price range:
High 10 9.2 8.83 8.75
Low 8.08 7.83 8 8