FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition from-------------- to--------------
period
Commission file number 1-9109
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RAYMOND JAMES FINANCIAL, INC.
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(Exact name of registrant as specified in its charter)
Florida No. 59-1517485
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
880 Carillon Parkway, St. Petersburg, Florida 33716
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(Address of principal executive offices) (Zip Code)
(727) 573-3800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No___
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the close of the latest practicable date.
46,072,115 shares of Common Stock as of May 5, 2000
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Form 10-Q for the Quarter Ended March 31, 2000
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INDEX
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Statement of Financial Condition as of
March 31, 2000 (unaudited) and September 24, 1999 2
Consolidated Statement of Operations (unaudited) for the
three and six month periods ended March 31, 2000 and
March 26, 1999 3
Consolidated Statement of Cash Flows (unaudited) for the
six months ended March 31, 2000 and March 26, 1999 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Financial Discussion and Analysis 7
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share 10
Exhibit 27: Financial Data Schedule - EDGAR version only
(filed electronically)
(b) Reports on Form 8-K: None
All other items required in Part II have been previously filed or
are not applicable for the quarter ended March 31, 2000.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
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(in thousands, except share amounts)
March 31, September 24,
2000 1999
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(Unaudited)
ASSETS
Cash and cash equivalents $ 289,464 $ 250,855
Assets segregated pursuant to Federal Regulations:
Cash and cash equivalents 59 9
Securities purchased under agreements to resell 1,145,014 1,102,979
Securities owned:
Trading and investment account securities 168,014 180,967
Available for sale securities 410,664 400,143
Receivables:
Clients, net 1,945,245 1,447,618
Stock borrowed 1,682,890 1,277,692
Brokers, dealers and clearing organizations 100,993 34,670
Other 84,812 69,339
Investment in leveraged leases 24,165 23,950
Property and equipment, net 91,953 91,335
Deferred income taxes, net 38,163 39,631
Deposits with clearing organizations 25,239 24,634
Intangible assets 33,719 34,866
Prepaid expenses and other assets 44,349 52,027
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$6,084,743 $5,030,715
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 231,383 $ 201,504
Payables:
Clients 3,146,955 2,524,352
Stock loaned 1,678,334 1,378,821
Brokers, dealers and clearing organizations 80,460 55,722
Trade and other 132,704 101,772
Trading account securities sold but not yet
purchased 45,185 33,400
Accrued compensation and commissions 161,450 172,066
Income taxes payable 14,910 4,592
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5,491,381 4,472,229
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Commitments and contingencies - -
Shareholders' equity:
Preferred stock; $.10 par value; authorized
10,000,000 shares; issued and outstanding
-0- shares - -
Common stock; $.01 par value; authorized
100,000,000 shares; issued 48,997,995 shares 490 490
Additional paid-in capital 56,674 58,023
Other comprehensive income (2,020) (1,076)
Retained earnings 588,989 530,885
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644,133 588,322
Less: 2,932,136 and 1,755,585 common shares
in treasury, at cost (50,771) (29,836)
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593,362 558,486
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$6,084,743 $5,030,715
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See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF OPERATIONS
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(UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
-------------------- --------------------
March 31, March 26, March 31, March 26,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Securities commissions and fees $293,776 $185,329 $537,799 $349,589
Investment banking 18,548 15,819 34,705 27,349
Investment advisory fees 29,363 22,750 54,830 43,227
Interest 84,595 55,653 160,500 104,829
Correspondent clearing 1,626 1,217 2,942 2,285
Net trading profits 7,066 4,445 12,300 10,491
Financial service fees 12,099 8,740 22,195 15,961
Other 9,114 5,238 14,842 9,967
--------- --------- --------- ---------
Total revenues 456,187 299,191 840,113 563,698
--------- --------- --------- ---------
Expenses:
Employee compensation and benefits 275,048 181,233 512,839 343,789
Communications and
information processing 16,642 13,613 30,752 24,373
Occupancy and equipment 12,451 9,387 24,395 19,245
Clearing and floor brokerage 3,823 3,601 7,105 6,361
Interest 56,086 37,675 104,969 69,517
Business development 9,586 9,590 20,065 18,718
Other 20,376 8,773 34,586 18,039
--------- --------- --------- ---------
Total expenses 394,012 263,872 734,711 500,042
--------- --------- --------- ---------
Income before provision for
income taxes 62,175 35,319 105,402 63,656
Provision for income taxes 23,939 13,450 40,350 24,308
--------- --------- --------- ---------
Net income $ 38,236 $ 21,869 $ 65,052 $ 39,348
========= ========= ========= =========
Net income per share-basic $ .83 $ .46 $ 1.40 $ .82
========= ========= ========= =========
Net income per share-diluted $ .82 $ .45 $ 1.38 $ .81
========= ========= ========= =========
Cash dividends declared per
common share $ .075 $ .07 $ .15 $ .14
========= ========= ========= =========
Weighted average common shares
outstanding-basic 46,011 47,697 46,444 47,908
========= ========= ========= =========
Weighted average common and
common equivalent shares
outstanding-diluted 46,547 48,492 47,024 48,805
========= ========= ========= =========
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CASH FLOWS
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(UNAUDITED)
(in thousands)
Six Months Ended
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March 31, March 26,
2000 1999
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Cash flows from operating activities:
Net income $ 65,052 $ 39,348
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,388 9,538
(Increase) decrease in assets:
Available for sale investments (10,521) 2,940
Deposits with clearing organizations (605) (11,023)
Receivables:
Clients, net (497,627) (114,437)
Stock borrowed (405,198) (680,495)
Brokers, dealers and clearing organizations (66,323) 60,402
Other (15,473) 5,157
Trading account securities, net 24,738 (29,012)
Deferred income taxes 1,468 (1,466)
Prepaid expenses and other assets 8,610 (9,028)
Increase (decrease) in liabilities:
Payables:
Clients 622,603 190,979
Stock loaned 299,513 658,911
Brokers, dealers and clearing organizations 24,738 7,758
Trade and other 30,932 1,815
Accrued compensation (10,616) (39,902)
Income taxes payable 10,318 (4,740)
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Total adjustments 26,945 47,397
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Net cash provided by
operating activities 91,997 86,745
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Cash flows from investing activities:
Additions to property and equipment, net (11,006) (10,185)
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Net cash used in investing activities (11,006) (10,185)
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Cash flows from financing activities:
Borrowings from banks and financial institutions 137,509 201,077
Repayments on loans (107,630) (288)
Exercise of stock options and employee stock
purchases 3,784 5,081
Purchase of treasury stock (26,624) (27,149)
Corporate sale of put options 556 502
Cash dividends on common stock (6,949) (6,677)
Currency translation (451) -
Unrealized AGS valuation account (492) (366)
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Net cash (used in) provided by financing activities (297) 172,180
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Net increase in cash and cash equivalents 80,694 248,740
Cash and cash equivalents at beginning of period 1,353,843 1,243,541
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Cash and cash equivalents at end of period $1,434,537 $1,492,281
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Supplemental disclosures of cash flow information:
Cash paid for interest $ 90,447 $ 67,315
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Cash paid for taxes $ 28,565 $ 28,436
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See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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March 31, 2000
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Basis of Consolidation
The consolidated financial statements include the accounts of Raymond
James Financial, Inc. and its consolidated subsidiaries (the "Company"). All
material intercompany balances and transactions have been eliminated in
consolidation. These statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. All such adjustments made are of a normal,
recurring nature. The nature of the Company's business is such that the
results of any interim period are not necessarily indicative of results for a
full year.
Commitments and Contingencies
The Company has committed to lend to, or guarantee other debt for, Raymond
James Tax Credit Funds, Inc. ("RJTCF") up to $45 million upon request. RJTCF,
a wholly-owned subsidiary of the Company, is a sponsor of limited partnerships
qualifying for low income housing tax credits. The borrowings are secured by
properties under development. The commitment expires in November 2000, at
which time any outstanding balances will be due and payable. At March 31,
2000, there were loans of $15,220,000 outstanding and no guarantees.
The Company has guaranteed lines of credit for their various foreign joint
ventures as follows: two lines of credit totaling $3 million in Turkey, two
lines of credit not to exceed $8 million in Argentina, $5 million line of
credit and a $325,000 letter of credit in India. In addition, the Company has
guaranteed trades with counterparties in Turkey, Argentina and India.
The Company is a defendant or co-defendant in various lawsuits incidental
to its securities business. The Company is contesting the allegations in these
cases and believes that there are meritorious defenses in each of these
lawsuits. In view of the number and diversity of claims against the Company,
the number of jurisdictions in which litigation is pending and the inherent
difficulty of predicting the outcome of litigation and other claims, the
Company cannot state with certainty what the eventual outcome of pending
litigation or other claims will be. In the opinion of management, based on
discussions with counsel, the outcome of most of these matters will not result
in a material adverse effect on the financial position or results of
operations. On March 27, 2000, the Company received an unanticipated jury
verdict against it of $40 million arising from a contract dispute related to
activities of a now-defunct mortgage securitization subsidiary. Both parties
have filed briefs with the judge, who has not rendered his final judgement. In
the event the verdict stands, the Company expects to appeal. At this time the
Company can not predict the outcome and as a result, no charge has yet been
made to earnings.
The Securities and Exchange Commission, the Internal Revenue Service and
the National Association of Securities Dealers, Inc. completed their review of
investment banking practices in connection with advance refunding transactions
for municipalities. The Company's portion of the industry total settlement is
approximately $170 million, in which most of the nation's largest municipal
underwriters participated, was $3.9 million. Earnings were not impacted during
the quarter as this amount had been adequately reserved.
Capital Transactions
The Company's Board of Directors has, from time to time, adopted
resolutions authorizing the Company to repurchase its common stock for the
funding of its incentive stock option and stock purchase plans and other
corporate purposes. In February 2000, the Board increased the previously
authorized 2,500,000 shares by 1,000,000. A total of 1,768,875 remained
available to purchase as of March 31, 2000.
At their meeting on February 11, 2000, the Board of Directors of the
Company declared a quarterly cash dividend to $.075 per share.
Net Capital Requirements
The broker-dealer subsidiaries of the Company are subject to the
requirements of Rule 15c3-under the Securities Exchange Act of 1934. This rule
requires that aggregate indebtedness, as defined, shall not exceed fifteen
times net capital, as defined. Rule 15c3-1 also provides for an "alternative
net capital requirement" which, if elected, requires that net capital be equal
to the greater of $250,000 or two percent of aggregate debit items computed in
applying the formula for determination of reserve requirements. The New York
Stock Exchange may require a member organization to reduce its business if its
net capital is less than four percent of aggregate debit items and may prohibit
a member firm from expanding its business and declaring cash dividends if its
net capital is less than five percent of aggregate debit items. The net
capital position of the Company's clearing broker-dealer subsidiary at March
31, 2000 was as follows (dollar amounts in thousands):
Raymond James & Associates, Inc.:
---------------------------------
(alternative method elected)
Net capital as a percent of aggregate debit items 13.91%
Net capital $262,728
Required net capital $37,775
All other broker-dealer subsidiaries were in compliance during the periods
presented.
Comprehensive Income
Total comprehensive income for the three and six months ended March 31,
2000 and March 26, 1999 is as follows (in thousands):
Three Months Ended Six Months Ended
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March 31, March 26, March 31, March 26,
2000 1999 2000 1999
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Net income $ 38,236 $ 21,869 $ 65,052 $ 39,348
Accumulated other
comprehensive income:
Unrealized gain (loss)
on securities, net of tax 95 (31) (492) (366)
Cumulative translation
adjustment (196) - (451) -
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Total comprehensive income $ 38,135 $ 21,838 $ 64,109 $ 38,982
========= ========= ========= =========
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
(Any statements containing forward looking information should be read in
conjunction with Management's Discussion and Analysis of Results of Operations
and Financial Condition in the Company's Annual Report on Form 10-K for the
year ended September 24, 1999).
Results of Operations - Three months ended March 31, 2000 compared with three
- --------------------- months ended March 26, 1999.
----------------------------
Once again, the Company had record quarterly revenues. Revenues of
$456,187,000 exceeded the March 1999 quarter's $299,191,000 by 52%. Net income
of $38,236,000 also represented a quarterly record and a 75% increase over the
$21,869,000 in the prior year. Net income per share of $.82 was a larger
percentage increase than that of net income due to the impact of fewer shares
outstanding as a result of the Company's purchases of treasury shares.
On May 28, 1999 the Company purchased Roney & Co. ("Roney"). Immediately
subsequent to fiscal year end 1999, Roney was contributed to and merged into
RJA. Prior year results do not include Roney.
Record quarterly transaction volume, an increase of 72% over last year's
quarter, led to record commission revenues, a 59% increase over last year's
quarter. A 20% increase in the number of Financial Advisors, approximately
half of which was due to the addition of 320 brokers from the Roney
acquisition, was complemented by favorable market conditions and increased
productivity to produce the overall increase.
Investment Banking revenues showed some improvement, particularly in
merger & acquisition fees, although most of the Company's major sectors of
emphasis remained out of favor. The Company managed or co-managed 8 public
offerings raising $1,620,800,000 in the quarter ended March 2000 vs. 6
offerings raising $651,650,000 in the quarter ended March 1999. Merger &
acquisition fees increased to $5.7 million from $2.8 million in the prior
year's quarter.
Financial assets under management and the related investment advisory fees
continued their steady growth, as fees increased 29% over the prior year.
March 31, March 26,
2000 1999 % Increase
------------ ------------ ----------
Assets Under Management (000's):
Eagle Asset Management, Inc. $ 5,965,000 $ 5,310,000 12%
Heritage Family of Mutual Funds 6,126,000 4,535,000 35%
Investment Advisory Services 4,501,000 2,515,000 79%
Awad Asset Management 659,000 651,000 1%
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Total Financial Assets Under
Management $17,251,000 $13,011,000 33%
=========== ===========
Net interest income of $28.5 million established yet another quarterly
record and was 59% higher than the comparable prior year quarter. A near
doubling of margin loan balances, including $215 million in margin balances
from the Roney acquisition, and continued growth in customer deposits continue
to account for the majority of the increase.
Financial service fees continued to increase with the growth in the number
of accounts which generate administrative or transaction fees for the Company
such as IRA annual account fees, transaction fees in Passport (wrap fee)
accounts, and money market distribution fees.
Other revenues include a near doubling of postage & handling fees and
increased floor brokerage income, both related to transaction volume.
Employee compensation continues to increase, with the largest absolute
increase in Financial Advisor compensation, which is directly related to
increased securities commissions. In addition, administrative and clerical
compensation has increased due to an increased number of support and backoffice
staff to accommodate growth, and incentive compensation has increased as a
result of the Company's increased profitability.
Increased communications and information processing expenses are the
result of the Company's general growth. Areas of increased expenses include
telephone, postage, market quotation services and computer maintenance.
Occupancy and equipment costs reflect the addition of the Roney branch
offices, the expansion of several other branch offices and the establishment of
a second operations center in Detroit.
The increase in other expenses is attributable to increased legal and bad
debt expenses, increased errors (a result of volume), and increased outside
money manager fees (a direct result of the increase in assets in Investment
Advisory Services accounts).
Results of Operations - Six months ended March 31, 2000 compared with six months
- --------------------- ended March 26, 1999.
The results from the six month periods reflect the same trends as those
for the comparative quarterly results. Revenues for the six months ended March
31, 2000 were up 49% to $840,113,000 from $563,698,000 in the same period of
the prior year. Net income increased 65% to $65,052,000, or $1.38 per diluted
share compared to $0.81 per diluted share last year.
(The underlying reasons for the variances to the prior year period are
substantially the same as the comparative quarterly discussion above and the
statements contained in such foregoing discussion also apply to the six month
comparison.)
Segment Information
- -------------------
The Company's reportable segments are: retail distribution, institutional
distribution, investment banking, asset management and other. Segment data
includes charges allocating corporate overhead to each segment. Intersegment
revenues and charges are eliminated between segments. The Company has not
disclosed asset information by segment as the information is not produced
internally.
Information concerning operations in these segments of business is as
follows:
Three Months Ended Six Months Ended
----------------------- -----------------------
March 31, March 26, March 31, March 26,
2000 1999 2000 1999
----------- ---------- ----------- ----------
Revenues: (000's)
Retail distribution $334,139 $205,070 $613,383 $378,852
Institutional distribution 44,431 41,452 88,402 83,622
Investment banking 8,935 7,955 15,728 12,800
Asset management 30,060 23,508 56,532 44,900
Other 38,622 21,206 66,069 43,524
--------- --------- --------- ---------
Total $456,187 $299,191 $840,114 $563,698
========= ========= ========= =========
Pre-tax Income: (000's)
Retail distribution $ 48,267 $ 24,910 $ 83,081 $ 39,266
Institutional distribution 4,581 4,170 8,963 9,738
Investment banking (559) 1,060 (919) (86)
Asset management 6,151 5,411 11,494 9,977
Other 3,735 (232) 2,783 4,761
--------- --------- --------- ---------
Total $ 62,175 $ 35,319 $105,402 $ 63,656
========= ========= ========= =========
Financial Condition
- -------------------
The Company's total assets have increased 21% since fiscal year end,
reaching $6 billion. This increase is due to the increase in stock borrow/loan
balances and increased customer margin loans. Customer margin loan balances
are included in client receivables.
In addition to the $39 million mortgage on the corporate headquarters
complex, loans payable at March 31, 2000 include $50 million to finance
customer borrowing in a finance subsidiary, $75 million to fund brokerage
settlements and $60 million at the parent company ($10 million short-term and
$50 million on a term loan).
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities for the six months was
$91,997,000. The sources were increased customer cash balances (reflected as
client payables) net of increased customer margin loans, increased stock
borrowed net of increased stock loaned and net income.
Investing and financing activities used a net $11,303,000 over the past
six months. Cash was used to purchase treasury stock and equipment, and for the
payment of dividends, and cash was received from increased borrowings.
The Company has a term loan and two lines of credit. The parent company
has a $50 million three-year term loan and a committed, unsecured $100 million
line for general corporate purposes. In addition, Raymond James Credit
Corporation, a finance subsidiary which provides loans collateralized by
restricted or control shares of public companies, has a $50 million line of
credit. Raymond James & Associates, Inc., the Company's clearing broker-
dealer, also maintains uncommitted lines of credit aggregating $480 million
with commercial banks ($235,000,000 secured and $245,000,000 unsecured).
The Company's broker-dealer subsidiaries are subject to requirements of
the Securities and Exchange Commission relating to liquidity and capital
standards (see Notes to Consolidated Financial Statements).
Effects of Inflation
- --------------------
The Company's assets are primarily liquid in nature and are not
significantly affected by inflation. Management believes that the changes in
replacement cost of property and equipment would not materially affect
operating results. However, the rate of inflation affects the Company's
expenses, including employee compensation, communications and occupancy, which
may not be readily recoverable through charges for services provided by the
Company.
RAYMOND JAMES FINANCIAL, INC.
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COMPUTATION OF EARNINGS PER SHARE
---------------------------------
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
--------------------- ---------------------
March 31, March 26, March 31, March 26,
2000 1999 2000 1999
--------- --------- --------- ---------
Net income $38,236 $21,869 $65,052 $39,348
======= ======= ======= =======
Weighted average common
shares outstanding - basic 46,011 47,697 46,444 47,908
Additional shares assuming
exercise of stock
options and warrants(1) 536 795 580 897
------- ------- ------- -------
Weighted average common and
common equivalent
shares - diluted(1) 46,547 48,492 47,024 48,805
======= ======= ======= =======
Net income per share-basic $ .83 $ .46 $ 1.40 $ .82
======= ======= ======= =======
Net income per share-diluted(1) $ .82 $ .45 $ 1.38 $ .81
======= ======= ======= =======
(1) Represents the number of shares of common stock issuable on the exercise
of dilutive employee stock options less the number of shares of common stock
which could have been purchased with the proceeds from the exercise of such
options. These purchases were assumed to have been made at the average
market price of the common stock during the period, or that part of the
period for which the option was outstanding.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RAYMOND JAMES FINANCIAL, INC.
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(Registrant)
Date: May 11, 2000 /s/ Thomas A. James
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Thomas A. James
Chairman and Chief
Executive Officer
/s/ Jeffrey P. Julien
------------------------
Jeffrey P. Julien
Vice President - Finance
and Chief Financial
Officer