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 December 29, 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 period from To
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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.
47,525,893 shares of Common Stock and 601,282 exchangeable shares as
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of February 5, 2001.
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The exchangeable shares were issued on January 2, 2001 in connection with the
acquisition of Goepel McDermid Inc. They are exchangeable into shares of
common stock on a one-for-one basis and entitle holders to payments equivalent
to cash dividends paid on shares of common stock.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Form 10-Q for the Quarter Ended December 29, 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
December 29, 2000 (unaudited) and September 29, 2000 2
Consolidated Statement of Operations (unaudited) for the
three month period ended December 29, 2000 and
December 31, 1999 3
Consolidated Statement of Cash Flows (unaudited) for the
three months ended December 29, 2000 and December 31, 1999 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Financial Discussion and Analysis 7
Item 3. Quantitative and Qualitative Disclosure of Market Risk 9
PART II. OTHER INFORMATION
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Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share 11
(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 December 29, 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)
December 29, September 29,
2000 2000
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ASSETS
Cash and cash equivalents $ 421,684 $ 305,284
Assets segregated pursuant to Federal Regulations:
Cash and cash equivalents 18,636 183
Securities purchased under agreements to resell 1,528,988 814,050
Securities owned:
Trading and investment account securities 238,609 121,584
Available for sale securities 330,150 398,537
Receivables:
Clients, net 1,774,648 2,037,049
Stock borrowed 2,201,611 2,143,452
Brokers, dealers and clearing organizations 214,357 123,874
Other 107,018 97,415
Investment in leveraged leases 24,539 24,407
Property and equipment, net 90,143 91,064
Deferred income taxes, net 49,555 44,228
Deposits with clearing organizations 23,394 24,621
Intangible assets 31,814 32,448
Prepaid expenses and other assets 74,454 50,620
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$7,129,600 $6,308,816
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LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 146,366 $ 132,470
Payables:
Clients 3,648,446 2,962,786
Stock loaned 2,127,803 2,109,506
Brokers, dealers and clearing organizations 63,629 69,190
Trade and other 155,475 152,937
Trading account securities sold but not yet
purchased 121,044 29,740
Accrued compensation and commissions 145,273 199,678
Income taxes payable 25,568 1,991
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6,433,604 5,658,298
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Commitments and contingencies (Note 10) - -
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 59,628 56,380
Accumulated other comprehensive income (743) (1,618)
Retained earnings 670,163 642,202
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729,538 697,454
Less: 1,932,521 and 2,710,636 common shares
in treasury, at cost (33,542) (46,936)
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695,996 650,518
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$7,129,600 $6,308,816
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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
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December 29, December 31,
2000 1999
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Revenues:
Securities commissions and fees $245,239 $244,023
Investment banking 12,989 16,158
Investment advisory fees 33,528 25,467
Interest 102,465 75,904
Correspondent clearing 1,052 1,316
Net trading profits 6,980 5,235
Financial service fees 10,742 10,095
Other 8,028 5,728
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Total revenues 421,023 383,926
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Expenses:
Compensation and benefits 245,196 237,791
Communications and information processing 13,568 14,110
Occupancy and equipment 13,276 11,944
Clearance and floor brokerage 3,153 3,282
Interest 70,813 48,883
Business development 12,065 10,479
Other 13,823 14,210
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Total expenses 371,894 340,699
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Income before provision for income taxes 49,129 43,227
Provision for income taxes 16,948 16,411
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Net income $ 32,181 $ 26,816
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Net income per share-basic $ .69 $ .57
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Net income per share-diluted $ .67 $ .56
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Cash dividends declared per
common share $ .090 $ .075
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Weighted average common shares
outstanding-basic 46,648 46,876
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Weighted average common and common
equivalent shares outstanding-diluted 47,822 47,498
======== ========
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)
Three Months Ended
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December 29, December 31,
2000 1999
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Cash flows from operating activities:
Net income $ 32,181 $ 26,816
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Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,346 5,401
(Increase) decrease in assets:
Deposits with clearing organizations 1,227 600
Receivables:
Clients, net 262,401 (292,872)
Stock borrowed (58,159) (91,003)
Brokers, dealers and clearing organizations (90,483) (27,716)
Other (9,603) (6,349)
Trading account securities, net (25,721) 65,780
Deferred income taxes (5,327) (951)
Prepaid expenses and other assets (10,981) 9,185
Increase (decrease) in liabilities:
Payables:
Clients 685,660 871,232
Stock loaned 18,297 (94,882)
Brokers, dealers and clearing organizations (5,561) (15,140)
Trade and other 2,538 20,149
Accrued compensation (54,405) (50,893)
Income taxes payable 23,577 13,896
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Total adjustments 738,806 406,437
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Net cash provided by operating activities 770,987 433,253
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Cash flows from investing activities:
Additions to property and equipment, net (4,425) (8,157)
Securities available for sale, net 68,619 (34,671)
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Net cash provided by (used in) investing activities 64,194 (42,828)
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Cash flows from financing activities:
Borrowings from banks and financial institutions 41,228 51,351
Repayments on loans (27,332) (107,154)
Exercise of stock options, stock grants
and employee stock purchases 4,291 1,560
Purchase of treasury stock - (22,029)
Cash dividends on common stock (4,220) (3,494)
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Net cash provided by (used in) financing activities 13,967 (79,766)
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Currency adjustments:
Effect of exchange rate changes on cash 643 (254)
Net increase in cash and cash equivalents 849,791 310,405
Cash and cash equivalents at beginning of period 1,119,517 1,353,843
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Cash and cash equivalents at end of period $1,969,308 $1,664,248
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Supplemental disclosures of cash flow information:
Cash paid for interest $ 44,991 $ 36,425
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Cash paid for taxes $ 2,830 $ 3,467
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See Notes to Consolidated Financial Statements.
Supplemental disclosure of non-cash activities:
Issuance of 387,486 Treasury shares of restricted
common stock as deferred compensation vesting
over 5 years. $ 12,351
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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December 29, 2000
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 $60 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 2001, at
which time any outstanding balances will be due and payable. At December 29,
2000, there were loans of $14,540,199 outstanding and guarantees of $2,739,725.
The Company has guaranteed lines of credit for its various foreign joint
ventures as follows: three lines of credit totaling $12.5 million in Turkey,
two lines of credit not to exceed $11 million in Argentina and a $325,000
letter of credit in India. In addition, the Company has twenty-one limited
guarantees to customers totaling $55 million in Turkey, four comfort letters
totaling $8 million in Argentina and one comfort letter for $2 million in
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.
On June 19, 2000 a judgment in the amount of $40.7 million was entered in
the United States District Court for the Eastern District of Kentucky,
Covington Division, against two of the Company's subsidiaries: Raymond James &
Associates, Inc (RJA) and RJ Mortgage Acceptance Corp., a subsidiary which has
been inactive since 1995. The judgment was based on a jury verdict that found
that both companies had breached a contractual obligation made in 1994 to
provide financing in the amount of $18 million to Corporex Realty and
Investment Corporation and a related entity. The jury also found that both
defendants had defrauded the plaintiffs in failing to provide financing; the
jury awarded the plaintiffs compensatory damages of approximately $10 million
(including $7.6 million for "lost investment opportunity") and $30 million in
punitive damages.
The Company has filed a notice of appeal with the U.S. Court of Appeals
for the Sixth Circuit and has posted a bond securing the judgment. The Company
is unable to predict the ultimate outcome of this matter. If the Company is
unsuccessful in setting aside all of this judgment, the Company will be
required to pay interest from June 19,2000 on the amount sustained by the Court
of Appeals at the statutory rate of 6.375% per year. The company has provided
for this judgement in the accompanying consolidated financial statements.
In the opinion of the Company's management, based in part on outside legal
counsel, and after consideration of amounts provided for in the accompanying
financial statements, ultimate resolution of these matters will not have a
material adverse impact on the Company's financial position or results of
operations.
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. A total of 1,968,875 shares remained available to purchase
as of December 29, 2000.
At their meeting on November 29, 2000, the Board of Directors of the
Company increased the annual dividend to $.36 per share, a 20% increase and
declared the first $.09 quarterly dividend payable to shareholders of record
December 13, 2000.
Effective January 1, 2001 the Company purchased Goepel McDermid, Inc. for
a purchase price which included 1,000,000 shares, see discussion under
Subsequent Events
Net Capital Requirements
The broker-dealer subsidiaries of the Company are subject to the
requirements of Rule 15c3-1 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 December
29, 2000 was as follows (dollar amounts in thousands):
Raymond James & Associates, Inc.:
---------------------------------
(alternative method elected)
Net capital as a percent of aggregate debit items 18.69%
Net capital $286,128
Required net capital $30,611
The other broker-dealer subsidiary was in compliance at December 29, 2000.
Comprehensive Income
Total comprehensive income for the three months ended December 29, 2000
and December 31, 1999 is as follows (in thousands):
Three Months Ended
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December 29, December 31,
2000 1999
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Net income $ 32,181 $ 26,816
Other comprehensive income:
Unrealized gains(loss)
on securities held for sale, net of tax 273 (587)
Unrealized loss on interest rate
swaps accounted for as hedges (41) -
Translation adjustment 643 (254)
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Total comprehensive income $ 33,056 $ 25,975
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Item 2.
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MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
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(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 December 29, 2000 compared with three
- --------------------- months ended December 31, 1999.
-------------------------------
Quarterly revenues of $421,023,000 exceeded the prior year quarter's
$383,926,000 by 10%. Augmented by a $2 million income tax refund which was
related to prior years and reduced the current period provision, net income of
$32,181,000, or $.67 per share, was a 20% increase over the $26,816,000, or
$.56 per share, in the prior year.
Declining equity markets produced essentially flat commission revenues. A
38% increase in fee-based commission equivalents was offset by decreases in OTC
and listed equity commissions. The number of Financial Advisors at the end of
December was 4,313, which represents a 6% increase from the prior year.
Investment banking was down 20% from the comparable quarter last year as
underwriting activity continues to be extremely slow. However, merger and
acquisition fees were up 35% over the prior year.
Financial assets under management have increased 8% over prior year while
related investment advisory fees increased 32% as certain fees are billed in
advance based on beginning-of-quarter balances. As a result, a portion of the
fees reflected in the December quarters are based on the September balances.
The balances in September were 5% higher than the current quarter due to asset
depreciation during the current quarter.
December 29, December 31, % Increase
2000 1999 (Decrease)
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Assets Under Management (000's):
Eagle Asset Management, Inc. $ 5,472,337 $ 5,674,064 (4%)
Heritage Family of Mutual Funds 5,850,212 5,405,093 8%
Investment Advisory Services 4,926,000 3,949,000 25%
Awad Asset Management 584,000 614,000 (5%)
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Total Financial Assets Under
Management $16,832,549 $15,642,157 8%
=========== ===========
Net interest income of $31.6 million established another quarterly record
and was 17% higher than the comparable prior year quarter. The increased
earnings on cash balances and an increase of 25% in RJBank net interest
earnings compare favorably to the prior year quarter. Client margin account
balances, a significant source of interest income for the Company, declined
sharply during the quarter as investors opted to use loss leverage in the face
of declining equity markets.
The increase in trading profits of 33% was due mostly to fixed income
activities with significant gains in corporate and municipal trading.
Other revenues include increased postage and handling fees from a rate
increase that took effect in February 2000.
Business development expenses reflect the acceleration of the Company's
branding efforts.
Data communications expenses are down 4% in comparison to last year's
December quarter, which included additional expenses attributable to Y2K.
The increase in occupancy and equipment cost reflects the additions and
upgrades of retail and institutional branches and upgrades of computers and
workstations at the Company headquarters.
Segment Information
The Company's reportable segments are: retail distribution, institutional
distribution, investment banking, asset management and other. Segment data
include 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.
Information concerning operations in these segments of business is as
follows:
Three Months Ended
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December 29, December 31,
2000 1999
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Revenues: (000's)
- ---------
Retail distribution $285,244 $279,244
Institutional distribution 47,616 43,971
Investment banking 6,586 6,628
Asset management 32,603 26,472
Other 48,974 27,611
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Total $421,023 $383,926
========= =========
Pre-tax Income: (000's)
- ---------------
Retail distribution $ 35,699 $ 34,814
Institutional distribution 3,385 4,382
Investment banking (3,320) (360)
Asset management 7,143 5,343
Other 6,222 (952)
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Total $ 49,129 $ 43,227
========= =========
Financial Condition
- -------------------
The Company's total assets have increased 13% since fiscal year end. This
increase is due almost entirely to cash balances arising from increased client
liquidity.
In addition to the $38 million mortgage on the corporate headquarters
complex, loans payable at December 29, 2000 include $6 million to finance
customer borrowing in a finance subsidiary, and $70 million at the parent
company ($20 million short-term and $50 million on a term loan), $30 million in
advances from The Federal Home Loan Bank to RJBank and $1.6 million in short-
term financing with various International subsidiaries.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities for the three months was
$770,987,000. The main increase was the cash balances (reflected as client
payables) net of lower customer margin loans.
Investing and financing activities provided a net cash inflow of
$78,161,000 over the past three months. Cash was provided by borrowings
and used to purchase equipment and for the payment of dividends.
The Company has a term loan and two committed lines of credit. The parent
company has a $50 million three-year term loan and a committed, unsecured $125
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 $430 million
with commercial banks. RJBank's pre-approved borrowing availability related to
FHLB advances is 20 percent of RJBank's total assets which are approximately
$756 million at December 29, 2000.
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).
Derivative Financial Instruments
- ---------------------------------
The Company has only limited involvement with derivative financial
instruments. Certain derivative financial instruments are used to manage well-
defined interest rate risk at RJBank, others are used to hedge fixed income
inventories.
RJBank uses interest rate swap agreements to hedge against the potential
impact on earnings from increases in market interest rates during the initial
fixed rate period of certain purchased whole loan pools. Under the interest
rate swap agreements, RJBank receives or makes payments on a monthly basis,
based on the differential between a specified interest rate and one month
LIBOR. Loan pools totaling $144,397,853 are designated as hedged items for
interest rate swaps at December 29, 2000.
These interest rate swaps are accounted for as cash flow hedges in
accordance FAS 133 and FAS 138 which were implemented as of the beginning of
the fiscal year. As of the report date all swaps met effectiveness tests, and
as such no gains or losses were included in net income during the quarter
related to hedge ineffectiveness and there was no income adjustment related to
any portion excluded from the assessment of hedge effectiveness. A $40,664
loss was included in other comprehensive income. The original terms of the
contracts are four to five years.
During the current quarter the Company has begun using interest rate swaps
and total return swaps to hedge certain fixed income inventory positions. The
hedged positions and the swaps are marked to market with the gain or loss
recorded in income for the period. In addition, the Company is entering into
these swaps with some of its institutional customers. The Company's management
performs evaluations of its potential interest rate risk, including an exposure
analysis on municipal bond inventories, and is of the opinion that the
exposures to interest rate risk is not material to its financial position.
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.
Subsequent Event
- ----------------
Effective January 1, 2001 the Company purchased Goepel McDermid Inc. for
CDN $112.5 million plus the establishment of CDN $17.5 million in deferred
compensation. The CDN $112.5 million purchase price consisted of cash and
1,000,000 shares of RJF common stock, valued at $25.75 per share, for a total
purchase price of approximately $78 million. The Company will record the
assets based on their fair market values, with the remainder of the purchase
price recorded as goodwill and amortized over 15 years.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
- -------
Information about market risks for the three months ended December 29,
2000 does not differ materially from that discussed under Item 7a of the
Company's Annual Report on Form 10-K for the year ended September 29, 2000.
Additional information is discussed under Derivative Financial instruments in
this Form 10-Q.
PART II
Item 5.
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Other Matters
- -------------
The proxy statement dated December 13, 2000 for the Company's annual
meeting of shareholders to be held on February 8, 2001 disclosed fiscal 2000
bonus amounts for M. Anthony Greene and J. Stephen Putnam that were calculated
incorrectly. The corrected bonus amounts are $2,360,000 and $ 1,560,000 for
Mr. Greene and Mr. Putnam, respectively. The overpayment amounts of $210,000
and $146,000, respectively, have been reimbursed to the Company.
Exhibit 11
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RAYMOND JAMES FINANCIAL, INC.
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COMPUTATION OF EARNINGS PER SHARE
---------------------------------
(in thousands, except per share amounts)
Three Months Ended
--------------------------
December 29, December 31,
2000 1999
------------ ------------
Net income $32,181 $26,816
======= =======
Weighted average common
shares outstanding - basic 46,648 46,876
Additional shares assuming
exercise of stock
options and warrants(1) 1,174 622
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Weighted average common and
common equivalent shares - diluted(1) 47,822 47,498
======= =======
Net income per share-basic $ .69 $ .57
======= =======
Net income per share-diluted(1) $ .67 $ .56
======= =======
(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 exer-
cise 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: February 7, 2001 /s/ Thomas A. James
---------------- -----------------------------
Thomas A. James
Chairman and Chief
Executive Officer
/s/ Jeffrey P. Julien
-----------------------------
Jeffrey P. Julien
Vice President - Finance
and Chief Financial
Officer