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 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9109
RAYMOND JAMES FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Florida No. 59-1517485
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
880 Carillon Parkway, St. Petersburg, Florida 33716
(Address of principal executive offices) (Zip Code)
(813) 573-3800
(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.
20,842,326 shares of Common Stock as of May 8, 1996
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Form 10-Q for the Quarter Ended March 29, 1996
INDEX
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PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Consolidated Statement of Financial Condition as of
March 29, 1996 (unaudited) and September 29, 1995 2
Consolidated Statement of Operations (unaudited) for the
three and six month periods ended March 29, 1996 and
March 31, 1995 3
Consolidated Statement of Cash Flows (unaudited) for the
six months ended March 29, 1996 and March 31, 1995 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Financial Discussion and Analysis 7
PART II. OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share 10
(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 29, 1996.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(in thousands, except share amounts)
March 29, September 29,
1996 1995
---------------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 65,203 $ 59,737
Securities purchased under agreements to resell 30,045 26,680
Assets segregated pursuant to Federal Regulations:
Cash and cash equivalents 566 3,158
Securities purchased under agreements to resell 500,435 330,804
Short-term and other investments 10,016 34,017
Trading and investment account securities 74,838 74,815
Available for sale securities 192,157 114,941
Held to maturity securities - 11,210
Receivables:
Brokerage customers 409,760 397,201
Stock borrowed 1,202,034 775,288
Brokers, dealers and clearing organizations 58,257 49,135
Other 21,561 24,886
Investment in leveraged lease 10,738 10,581
Property and equipment, net 38,112 40,946
Deferred income taxes 20,531 20,980
Prepaid expenses and other assets 41,884 38,336
---------------------------
$2,676,137 $2,012,715
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage note payable $ 12,998 $ 13,084
Payables:
Brokerage customers 967,998 774,476
Stock loaned 1,202,272 785,784
Brokers, dealers and clearing organizations 25,495 17,542
Trade and other 77,402 58,721
Trading account securities sold but not yet purchased 31,453 17,377
Accrued compensation 63,871 73,367
Income taxes payable 2,853 6,171
---------------------------
2,384,342 1,746,522
===========================
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 50,000,000
shares; issued 21,777,271 shares 217 217
Additional paid-in capital 50,040 50,685
Unrealized gain (loss) on securities available
for sale, net of deferred taxes (590) 146
Retained earnings 254,940 231,029
---------------------------
304,607 282,077
Less: 938,895 and 1,163,573 common shares in
treasury, at cost (12,812) (15,884)
---------------------------
291,795 266,193
---------------------------
$2,676,137 $2,012,715
===========================
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
-------------------------------------------
March 29, March 31, March 29, March 31,
1996 1995 1996 1995
-------------------------------------------
Revenues:
Securities commissions $110,572 $ 75,114 $202,342 $146,709
Investment banking 10,593 6,859 21,678 12,282
Investment advisory fees 11,458 9,445 23,030 21,353
Interest 33,183 21,790 59,747 41,470
Correspondent clearing 971 898 1,847 1,842
Net trading and investment profits 3,430 5,211 6,209 5,807
Financial service fees 4,500 3,390 8,279 6,206
Other 4,012 2,971 7,613 5,722
-------------------------------------------
178,719 125,678 330,745 241,391
-------------------------------------------
Expenses:
Employee compensation 106,060 73,785 195,473 143,760
Communications 7,990 6,322 14,789 12,578
Occupancy and equipment 6,128 5,374 12,199 10,398
Clearing and floor brokerage 2,927 1,819 5,306 3,783
Interest 22,277 14,386 38,913 26,733
Business development 3,859 3,498 7,864 7,200
Other 4,824 4,198 11,221 8,130
-------------------------------------------
154,065 109,382 285,765 212,582
-------------------------------------------
Income before provision for
income taxes 24,654 16,296 44,980 28,809
Provision for income taxes 9,352 6,195 17,100 10,828
Minority interests in income(losses)
of consolidated subsidiaries (11) 1 26 (10)
-------------------------------------------
Net income $ 15,313 $ 10,100 $ 27,854 $ 17,991
===========================================
Net income per share $ .73 $ .49 $ 1.33 $ .87
===========================================
Cash dividends declared per
share $ .095 $ .09 $ .19 $ .18
===========================================
Average common equivalent
shares outstanding 21,031 20,699 20,962 20,639
===========================================
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended
--------------------------
March 29, March 31,
1996 1995
---------------------------
Cash flows from operating activities:
Net income $ 27,854 $ 17,991
---------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,581 5,056
Increase (decrease) in assets:
Short-term and other investments 24,001 (4,127)
Securities available for sale and held to (66,006) (107,254)
maturity
Receivables:
Brokerage customers (12,559) (25,820)
Stock borrowed (426,746) (289,638)
Brokers, dealers and clearing organizations (9,122) (7,987)
Other 3,325 (21,873)
Trading and investment account securities, net 14,053 74,609
Deferred income taxes 449 (598)
Prepaid expenses and other assets (3,705) (5,460)
Increase (decrease) in liabilities:
Payables:
Brokerage customers 193,522 158,532
Stock loaned 416,488 258,962
Brokers, dealers and clearing organizations 7,953 943
Trade and other 18,681 18,951
Accrued compensation (9,496) (15,879)
Income taxes payable (3,318) (2,750)
Total adjustments 153,101 35,667
--------------------------
Net cash provided by operating activities 180,955 53,658
--------------------------
Cash flows from investing activities:
Additions to property and equipment, net (2,747) (5,085)
--------------------------
Cash flows from financing activities:
Borrowings from banks and financial institutions - 15,000
Repayments on mortgage note (86) (78)
Issuance of common stock 2,427 1,904
Purchase of treasury stock - (3,296)
Cash dividends on common stock (3,943) (3,689)
Unrealized gain (loss) on securities available
for sale, net (736) 32
--------------------------
Net cash provided by (used in) financing activities (2,338) 9,873
--------------------------
Net increase in cash and cash equivalents 175,870 58,446
Cash and cash equivalents at beginning of period 420,379 199,419
--------------------------
Cash and cash equivalents at end of period $596,249 $257,865
==========================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 36,188 $ 25,639
==========================
Cash paid for taxes $ 19,969 $ 13,880
==========================
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 29, 1996
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
In connection with certain limited partnerships syndicated by Raymond
James & Associates, Inc., the Company is contingently liable as guarantor
of certain loans totaling $385,000 at March 29, 1996. In connection with
the early payoff of its $5.8 million loan to Cumberland Healthcare Fund,
L.P.
I-A, the Company has a commitment to relend up to $5 million upon request
through October 1, 1996. No use of this facility is currently anticipated.
The Company has committed to lend to, or guarantee other debt for,
Gateway Tax Credit funds ("Gateway") up to $6 million upon request. The
borrowings would be secured by properties under development. The
commitment expires on November 30, 1997 at which time any outstanding
balances would be due and payable.
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 these matters
will not result in a material adverse effect on the 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. As of March 29, 1996, management has Board
authorization to purchase up to 999,000 shares.
At their meeting on February 16, 1996, the Board of Directors of the
Company declared the quarterly cash dividend of $.095 per share.
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, 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 positions
of the Company's broker-dealer subsidiaries at March 29, 1996 were as
follows (dollar amounts in thousands):
Raymond James & Associates, Inc.:
(alternative method elected)
Net capital as a percent of aggregate debit items 28%
Net capital $120,627
Required net capital $8,684
Investment Management & Research, Inc.:
Ratio of aggregate indebtedness to net capital 1.34
Net capital $4,549
Required net capital $407
Robert Thomas Securities, Inc.:
Ratio of aggregate indebtedness to net capital 3.91
Net capital $1,683
Required net capital $439
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
General
- -------
With the exception of a late upward move in interest rates, January
through March 1996 had all the elements of an exceptionally strong period
for the securities industry. Unprecedented transaction volume and robust
investment banking activity resulted from volatile yet generally favorable
equity markets.
Results of Operations - Three months ended March 29, 1996 compared with
- --------------------- three months ended March 31, 1995.
Total revenues of $178,719,000 were the Company's highest ever,
representing a 42% increase over last year's $125,678,000. Net income also
established a record, increasing 52% to $15,313,000 from the prior year's
$10,100,000.
Securities commission revenues increased significantly over the prior
year, led by a near doubling in sales of mutual funds and annuities.
Transaction volume set a record for the quarter with over 665,000 trades
processed, a 34% increase over the prior year. From March 1995 to March
1996, the number of account executives increased only 8%, highlighting the
increased productivity realized by existing account executives.
Investment banking revenues increased by more than 50%. The average
size of managed/co-managed deals grew from $28 million in the first quarter
of fiscal 1995 to $62 million in the first quarter of fiscal 1996. In
addition, consulting and merger and acquisition fees increased
substantially.
Investment advisory fees increased 22%, reflecting the growth in
assets under the various asset management programs. This growth reflects a
combination of improved net sales and market appreciation.
March 29, March 31, % Increase
1996 1995 (Decrease)
----------------------------------------
Assets Under Management (000's):
Eagle Asset Management, Inc. $ 2,104,000 $ 1,659,000 27%
Heritage Family of Mutual Funds 2,256,000 1,615,000 40%
Investment Advisory Services 914,000 723,000 26%
Awad and Associates Asset Management 432,000 240,000 80%
Focus Investment Advisors - 47,000 (100%)
Carillon Asset Management 60,000 81,000 (26%)
----------------------------------------
Total Financial Assets Under
Management $ 5,766,000 $ 4,365,000 32%
========================================
Tangible Assets Under Management$ 1,529,000$ 928,000 65%
========================================
Net interest income of $10.9 million was 47% higher than the prior
year and established a seventh consecutive quarterly record. Growth in
customer deposit balances, in both the brokerage and banking subsidiaries,
has continued at a rapid pace.
The decrease in net trading and investment profits reflects the
difficult fixed income environment experienced late in the current year
quarter.
The rise in employee compensation expense is a result of increased
commission expense commensurate with the growth in securities commission
revenues and increased incentive compensation accruals which are based on
departmental and company-wide profitability.
Communications expense has increased over the same quarter of the
prior year due to increased telephone and quotation service expenses.
Clearing and floor brokerage expenses have increased at a rate
in excess of the growth in relevant commission categories due to exchange
fees related to the Company's recently acquired specialist operations.
All other expenses have increased as a result of overall business
growth.
Results of Operations - Six months ended March 29, 1996 compared with six
- --------------------- months ended March 31, 1995.
Revenues for the six months ended March 29, 1996 increased 37% from
$241,391,000 to $330,745,000. Net income increased 55% from $17,991,000 to
$27,854,000.
(The underlying reasons for most of 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. Therefore, this section is limited to the
discussion of additional factors influencing the comparative six month
results.)
The growth in investment advisory fees for the year to date does not
reflect as great an increase as the three month period, as the prior year
to date figure includes the final quarter of fees related to $4.3 billion
of institutional growth equity accounts which were transferred to Liberty
Investment Management, Inc. as of January 1, 1995. Subsequent to the
transfer, the Company receives 50% of the fee revenues from these accounts
for the five year period ending December 31, 1999.
The increase in other expense for the six month period ended March 29,
1996 encompasses higher bad debt and legal accruals than in the same period
in the prior year.
Financial Condition
- -------------------
The Company's total assets have increased significantly since fiscal
year end, the combined result of increased matched-book stock loan program
balances and increased customer cash balances, particularly in the credit
interest program. The increase in customer cash balances is reflected as
an increased brokerage customer payable and results in a corresponding
increase in assets segregated pursuant to Federal Regulations.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities for the six months was
$180,955,000. The primary source of this increase was the aforementioned
increased customer cash balances, which does not give rise to cash
available for use in normal operations due to regulatory segregation
requirements.
Investing and financing activities used $5,085,000 during the six
months, the primary uses being the payment of cash dividends and purchases
of property and equipment, with an offsetting source being employee stock
purchases and exercise of stock options.
The Company has long-term debt in the amount of $12,998,000 in the
form of a mortgage on the first of its two current headquarters buildings.
The second building was constructed using internally generated funds.
The Company has two committed lines of credit. During 1995, the
parent company obtained an unsecured $50 million line for general corporate
purposes. In addition, a $50 million line was established to finance
Raymond James Credit Corporation, a Regulation G subsidiary organized to
provide loans collateralized by restricted or control shares of public
companies. In addition, Raymond James & Associates, Inc. has uncommitted
lines of credit aggregating $255,000,000.
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.
EXHIBIT 11
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RAYMOND JAMES FINANCIAL, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
-------------------------------------------------
March 29, March 31, March 29, March 31,
1996 1995 1996 1995
-------------------------------------------------
Net income $15,313 $10,100 $27,854 $17,991
=================================================
Average number of common
shares and equivalents
outstanding during the
period 20,802 20,486 20,721 20,479
Additional shares assuming
exercise of stock
options (1) 229 213 241 160
-------------------------------------------------
Average number of
common shares used
to calculate earnings
per share 21,031 20,699 20,962 20,639
=================================================
Net income per share $ .73 $ .49 $ 1.33 $ .87
=================================================
(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.
(Registrant)
Date: May 10, 1996 /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