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, 1996
COMMISSION FILE NO. 1-9015
MORGAN KEEGAN, INC.
(Exact name of Registrant as specified in its charter)
Tennessee 62-1153850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Fifty Front Street
Memphis, Tennessee
38103
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 Act
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 11, 1996, the Registrant had approximately 20,427,631 shares of
Common Stock outstanding. The aggregate market value of Common Stock held by
non-affiliates was approximately $324,288,642.
DOCUMENTS INCORPORATED HEREIN BY REFERENCE:
Portions of the Registrant's Annual Report to Shareholders for the year
ended July 31, 1996, 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 22, 1996, which will be
filed with the Commission pursuant to Regulation 240.14a(6)(c) prior to
October 18, 1996, 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, Inc., a subsidiary of the Registrant. 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
1996 1995 1994
Institutional clients 24 26 31
Retail customers 45 44 41
Investment banking fees, interest and
other activities 31 30 28
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-five offices in twelve states. The following table
reflects the number of account executives in each office as of July 31, 1996:
Account Account
Office Executives Office Executives
Birmingham, Alabama 34 New Orleans, Louisiana 22
Decatur, Alabama 5 Shreveport, Louisiana 13
Fairhope, Alabama 1 Boston, Massachusetts 4
Huntsville, Alabama 14 Jackson, Mississippi 25
Mobile, Alabama 16 New York, New York 5
Montgomery, Alabama 25 Durham, North Carolina 8
Little Rock, Arkansas 44 Raleigh, North Carolina 6
Rogers, Arkansas 5 Wilmington, North Carolina 5
Ft. Lauderdale, Florida 6 Jackson, Tennessee 6
Pensacola, Florida 6 Knoxville, Tennessee 25
Athens, Georgia 4 Memphis, Tennessee
Atlanta, Georgia 24 Headquarters 109
Bowling Green, Kentucky 5 Suburban Offices 38
Lexington, Kentucky 7 Nashville, Tennessee 25
Louisville, Kentucky 22 Austin, Texas 27
Baton Rouge, Louisiana 15 Dallas, Texas 7
Lafayette, Louisiana 9 Houston, Texas 29
TOTAL 596
PAGE
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
1996 1995 1994
Amount % Amount % Amount %
REVENUES
Commissions
Listed securities $26,467 8.78 $21,246 9.32 $22,748 9.81
Over-the-counter
securities 21,849 7.25 12,624 5.54 10,076 4.35
Options 3,243 1.08 2,631 1.15 1,990 0.86
Other 16,311 5.41 9,661 4.24 11,723 5.06
TOTAL 67,870 22.52 46,162 20.25 46,537 20.08
Principal transactions
Corporate securities 59,567 19.76 36,724 16.10 33,541 14.47
Municipal securities 16,345 5.42 16,404 7.19 14,135 6.10
U.S. Government
obligations 39,291 13.04 33,982 14.90 41,746 18.02
TOTAL 115,203 38.22 87,110 38.19 89,422 38.59
Investment banking
Corporate securities 25,990 8.62 25,009 10.97 32,850 14.18
Municipal securities 2,427 0.81 1,926 0.84 4,059 1.75
Underwriting, management
and other fees 21,884 7.26 18,259 8.01 18,923 8.17
TOTAL 50,301 16.69 45,194 19.82 55,832 24.10
Interest
Interest on margin
balances 19,752 6.55 17,519 7.68 10,824 4.67
Interest on securities
owned 30,171 10.01 20,261 8.88 14,070 6.07
TOTAL 49,923 16.56 37,780 16.56 24,894 10.74
Other Income 18,109 6.01 11,826 5.18 15,035 6.49
TOTAL REVENUES $301,406 100.0 $228,072 100.0 $231,720 100.0
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 operations.
PAGE
Institutional Business
During the three years ended July 31, 1996, approximately 27% 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, 1996, 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, 1996, 1995, and 1994, institutional
revenues and percentages of total consolidated revenues were $73,468,000
(24%), $60,097,000 (26%) and $72,774,000 (31%), respectively.
Retail Business
During each of the three years ended July 31, 1996, approximately 43% of
the Registrant's total revenues were derived from transactions with retail
(individual) customers. For the fiscal years ended July 31, 1996, 1995, and
1994, such revenues of total consolidated revenues were $134,807,000 (45%),
$100,239,000 (44%), and $95,576,000 (41%), 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 6.6%
of total revenues in fiscal 1996.
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, 1996, the Registrant made a market in common stock or
other equity securities of approximately 178 corporations, many 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.
In some cases, in order to hedge the risks of carrying inventory, MK & Co.
enters into transactions for U.S. Treasury note futures. The following table
sets forth for the year ended July 31, 1996, 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 $ 34,207,250 $ 16,029,898 $ 20,557,670
Corporate debt securities 47,892,718 26,617,863 38,283,982
Tax-exempt securities 128,696,669 45,882,495 79,634,822
U.S. government, agency,
and guaranteed securities 229,145,299 145,894,183 200,377,278
The following table sets forth the composition of revenues from principal
transactions:
Year Ended July 31
1996 1995 1994
Amount % Amount % Amount %
Common stocks $ 52,206,040 45 $31,123,000 36 $27,055,067 30
Corporate debt securities 7,361,130 7 5,601,396 6 6,486,202 7
Tax-exempt securities 16,344,828 14 16,404,132 19 14,135,366 16
U.S. government, agency,
and guaranteed
securities 39,291,236 34 33,981,688 39 41,746,006 47
Total $115,203,234 100 $87,110,216 100 $89,422,641 100
PAGE
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
1996 46 $317,690,000
1995 52 382,075,000
1994 70 566,630,000
1993 90 690,705,000
1992 99 963,215,000
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.
PAGE
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 the counterpart's 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
1996 246 $744,497,589 322 $1,449,875,000
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
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
25 of the 1996 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 Bankers, Inc., serves as a general partner
in two limited partnerships, Morgan Keegan Merchant Banking Fund Limited
Partnerships I and II, currently together have approximately $20,000,000 in
assets and are engaged in merchant banking activities.
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-owned subsidiary of the Registrant,
acts 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.
PAGE
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
1996 77,289 47,209 61,618
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
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. There is an internal audit department and an audit committee,
both of which help management place an emphasis on strong internal controls.
Employees
As of July 31, 1996, M.K. & Co. had 1,491 employees, 596 of whom were
account executives, 272 of whom were engaged in other service areas,
including trading, research and investment banking, and 623 of whom were
employed in accounting, clearing, data processing, management and other
activities.
<PAGEp
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, 1996, M.K. & Co. hired 110
account executives for a net increase of 45 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, 1996, the Registrant's subsidiary's net capital was 33% of
aggregate debit items. See Note 10 - Regulatory Requirements - page 25 of
the 1996 Annual Report to Shareholders.
PAGE
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 134,000 square feet in
Morgan Keegan Tower in Memphis, Tennessee. On May 31, 1996, Morgan Keegan
Tower was purchased by Morgan Properties, LLC, a wholly-owned subsidiary of
the Registrant. The acquisition was financed with a twenty-five year term
mortgage payable at 8.25% fixed rate with the building as collateral.
Management believes the acquisition will allow the Company to better control
and manage its future space needs. The Registrant's offices are leased with
the exception of Morgan Properties, LLC. See Note 4 - Leases - on page 22 of
the 1996 Annual Report to Shareholders.
Item 3. LEGAL PROCEEDINGS
The Registrant 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 the
resolution of such litigation and claims will have no material adverse effect
on the Registrant's 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 26 of the
1996 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 14 and 15 and Additional Financial
Information (Unaudited) on page 17 of the 1996 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 16 of the 1996 Annual Report to Shareholders, a copy of which is
enclosed.
PAGE
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference
to pages 18 through 26 of the 1996 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 was filed with the
Commission pursuant to Regulation 240.14a(6)(c) on October 18, 1996 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 22, 1996.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Registrant's definitive Proxy Statement which was filed with the
Commission pursuant to Regulation 240.14a(6)(c) on October 18, 1996 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 22, 1996.
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 was filed with the
Commission pursuant to Regulation 240.14a(6)(c) on October 18, 1996 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 22, 1996.
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 was filed with the
Commission pursuant to Regulation 240.14a(6)(c) on October 18, 1996 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 22, 1996.
PAGE
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 1996 Annual Report to Shareholders are
incorporated by reference in Item 8:
Consolidated Statements of Financial Condition July 31, 1996 and 1995
Consolidated Statements of Income Years ended July 31, 1996
1995, and 1994
Consolidated Statements of Stockholders' Years ended July 31, 1996
Equity 1995, and 1994
Consolidated Statements of Cash Flows Years ended July 31, 1996
1995, and 1994
Notes to Consolidated Financial Statements July 31, 1996
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(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
Exhibit 27 - Financial Data Schedule Page 21
*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, 1996.
(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 25, 1996
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/ Kenneth F. Clark, Jr.
Kenneth F. Clark, Jr. Director October 25, 1996
/s/ William W. Deupree, Jr.
William W. Deupree, Jr. Director October 25, 1996
/s/ Allen B. Morgan, Jr.
Allen B. Morgan, Jr. Chairman and Director October 25, 1996
/s/ Donald Ratajczak
Donald Ratajczak Director October 25, 1996
/s/ John W. Stokes, Jr.
John W. Stokes, Jr. Vice President and Director October 25, 1996
/s/ Joseph C. Weller
Joseph C. Weller Secretary/Treasurer and October 25, 1996
Director
/s/ Peter S. Willmott
Peter S. Willmott Director October 25, 1996
Schedule I
Condensed Financial Statements of Registrant
Morgan Keegan, Inc. (Parent Company)
Condensed Balance Sheets July 31
1996 1995
ASSETS
Cash $ 1,000 $ 1,000
Securities owned 2,080,105 1,931,470
Furniture, equipment and leasehold
improvements less allowances for
depreciation and amortization
($7,774,721 at July 31, 1996,
$7,324,441 at July 31, 1995) 10,187,711 6,807,524
Investments in subsidiaries (a) 173,434,119 143,568,182
Intercompany receivables (a) 21,803,616
Other assets 5,921,080 6,403,139
Total Assets $213,427,631 $158,711,315
LIABILITIES
Short-term borrowings $ 1,400,000 $11,400,000
Commercial paper 42,928,286 7,468,217
Intercompany payables (a) 384,222
Other liabilities 91,425 1,424
STOCKHOLDERS' EQUITY
Common Stock 12,773,497 12,605,439
Additional paid-in-capital 1,510,383 712,098
Retained earnings 154,724,040 126,139,915
169,007,920 139,457,452
Total Liabilities and
Stockholders' Equity $213,427,631 $158,711,315
Condensed Income Statements July 31
1996 1995 1994
Rental income $ 2,492,649 $ 2,167,988 $ 1,881,486
Interest income 396,957 185,095 4,198,859
Investment income 5,064 2,248,375
Depreciation (2,492,649) (2,167,988) (1,881,486)
Other 7,507 402,300 6,636
Interest expense (90,000)
Income taxes (125,000) (300,000) (915,000)
Equity in net income
of subsidiaries 33,672,460 23,560,974 26,302,292
Net Income $33,866,988 $23,848,369 $31,841,162
<FN>
(a) Eliminated in consolidation
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Schedule I - Continued
Condensed Financial Statements of Registrant
Morgan Keegan, Inc. (Parent Company)
Condensed Statement of Cash Flows July 31
1996 1995 1994
Cash Flows From Operating Activities
Operations (net income) $33,866,988 $23,848,369 $31,841,162
Less:Income from subsidiaries (33,672,460) (23,560,974) (26,302,292)
Amortization of restricted stock 2,580,000 1,800,000 1,580,000
Depreciation expense 2,492,649 2,167,988 1,881,486
Decrease (increase) in other assets 482,059 (3,494,309) (2,637,163)
(Decrease) increase in intercompany
payables (384,222) (2,672,397) 6,973,383
(Decrease) increase in other
liabilities 90,001 1,424
Increase in intercompany
receivables (21,803,616)
Increase (decrease) from operating
activities (16,348,601) (1,909,899) 13,336,576
Cash Flows From Financing Activities
Proceeds (payments) from short
term borrowings (10,000,000) 10,000,000
Proceeds from sale or
issuance of common stock 2,920,669 2,232,853 6,423,113
Proceeds (payments) of
commercial paper 35,460,069 (1,724,909) (1,863,691)
Dividends paid (5,282,864) (4,438,988) (4,036,931)
Retirement of common stock (4,534,325) (9,349,500) (16,777,386)
(Decrease)increase from
financing activities 18,563,549 (3,280,544) (16,254,895)
Cash Flows From Investing Activities
(Increase) decrease in securities
owned (148,635) (164,105) (396,476)
(Increase) decrease in investment
in subsidiaries 3,806,523 8,754,208 5,386,772
Purchase of furniture, equipment
and leasehold improvements (5,872,836) (3,399,660) (2,071,977)
(Increase) decrease from investing
activities (2,214,948) 5,190,443 2,918,319
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
Notes to Financial Statements
1. Basis of Presentation - In the Parent-Company-only financial statements,
the Registrant's investment in subsidiaries is stated at cost plus equity in
undistributed earnings of subsidiaries since date of acquisition. The
Registrant's share of net income of its unconsolidated subsidiaries is
included in consolidated income using the equity method. Parent-Company-only
financial statements should be read in conjunction with the Registrant's
consolidated financial statements.
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EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended July 31
1996 1995 1994
PRIMARY
Average shares outstanding 20,390,236 20,308,407 21,145,595
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price. 95,004 82,360 71,614
TOTAL 20,485,240 20,390,767 21,217,209
Net Income $33,866,988 $23,848,369 $31,841,162
Per share amount $1.65 $1.17 $1.46
FULLY DILUTED
Average shares outstanding 20,390,236 20,308,407 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. 95,004 82,360 71,614
TOTAL 20,485,240 20,390,767 21,217,209
Net Income $33,866,988 $23,848,369 $31,841,162
Per share amount $1.65 $1.17 $1.46
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, 1996, included
in the 1996 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. of our
report dated September 19, 1996, 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 25, 1996