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 June 28, 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.
20,865,694 shares of Common Stock as of_August 5, 1996
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Form 10-Q for the Quarter Ended June 28, 1996
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE
---------------------
Item 1. Financial Statements
Consolidated Statement of Financial Condition as of
June 28, 1996 (unaudited) and September 29, 1995 2
Consolidated Statement of Operations (unaudited) for the
three and nine month periods ended June 28, 1996 and
June 30, 1995 3
Consolidated Statement of Cash Flows (unaudited) for the
nine months ended June 28, 1996 and June 30, 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 June 28, 1996.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(in thousands, except share amounts)
June 28, September 29,
1995 1995
---------------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 104,727 $ 59,737
Securities purchased under agreements to resell 66,808 26,680
Assets segregated pursuant to Federal Regulations:
Cash and cash equivalents 10,365 3,158
Securities purchased under agreements to resell 427,862 330,804
Short-term and other investments - 34,017
Trading and investment account securities 111,933 74,815
Available for sale securities 202,588 114,941
Held to maturity securities - 11,210
Receivables:
Customers 453,768 397,201
Stock borrowed 1,078,667 775,288
Brokers, dealers and clearing organizations 62,171 49,135
Other 26,327 24,886
Investment in leveraged leases 19,560 10,581
Property and equipment, net 37,698 40,946
Deferred income taxes 20,352 20,980
Prepaid expenses and other assets 43,464 38,336
--------------------------
$2,666,290 $2,012,715
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable $ 30,483 $ 13,084
Payables:
Customers 1,031,144 774,476
Stock loaned 1,066,336 785,784
Brokers, dealers and clearing organizations 27,780 17,542
Trade and other 55,983 58,721
Trading account securities sold but not yet purchased 58,693 17,377
Accrued compensation 81,710 73,367
Income taxes payable 5,616 6,171
--------------------------
2,357,745 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 50,186 50,685
Unrealized gain (loss) on securities available for sale,
net of deferred taxes (1,082) 146
Retained earnings 271,539 231,029
--------------------------
320,860 282,077
Less: 902,539 and 1,163,573 common shares in treasury,
at cost (12,315) (15,884)
--------------------------
308,545 266,193
--------------------------
$2,666,290 $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 Nine Months Ended
-------------------------------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
-------------------------------------------
Revenues:
Securities commissions $118,219 $ 85,569 $320,561 $232,279
Investment banking 20,941 13,267 42,619 25,548
Investment advisory fees 12,902 9,754 35,932 31,108
Interest 33,303 28,080 93,051 69,549
Correspondent 1,199 897 3,045 2,739
Net trading and investment profits 3,028 4,857 9,236 10,664
Financial service fees 5,040 3,676 13,319 9,932
Other 3,562 2,843 11,176 8,515
------------------------------------------
198,194 148,943 528,939 390,334
------------------------------------------
Expenses:
Employee compensation 119,006 85,198 314,478 228,958
Data processing and communications 7,468 6,071 22,257 18,649
Occupancy and equipment 5,772 5,373 17,971 15,771
Clearing and floor brokerage 1,985 2,116 7,292 5,899
Interest 22,293 19,576 61,206 46,308
Business development 4,562 3,929 12,426 11,130
Other 6,547 5,008 17,769 13,138
------------------------------------------
167,633 127,271 453,399 339,853
------------------------------------------
Income before provision for
income taxes 30,561 21,672 75,540 50,481
Provision for income taxes 11,940 7,832 29,040 18,660
Minority interest in income(loss)
of consolidated subsidiary 39 2 64 (8)
------------------------------------------
Net income $ 18,582 $ 13,838 $ 46,436 $ 31,829
==========================================
Net income per share $ .88 $ .67 $ 2.21 $ 1.54
==========================================
Cash dividends declared per
share $ .095 $ .09 $ .285 $ .27
==========================================
Average common equivalent
shares outstanding 21,103 20,775 21,005 20,670
==========================================
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended
-------------------------
June 28, June 30,
1996 1995
-------------------------
Cash flows from operating activities:
Net income $ 46,436 $ 31,829
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,347 7,739
Increase (decrease) in assets:
Short-term and other investments 34,017 4,840
Securities available for sale and held to maturity(76,437) (121,478)
Receivables:
Customers (56,567) (37,026)
Stock borrowed (303,379) (304,794)
Brokers, dealers and clearing organizations (13,036) (28,489)
Other (1,441) (10,115)
Trading and investment account securities 4,198 120,396
Deferred income taxes 628 (595)
Prepaid expenses and other assets (14,107) (920)
Increase (decrease) in liabilities:
Payables:
Customers 256,668 210,007
Stock loaned 280,552 274,148
Brokers, dealers and clearing organizations 10,238 11,811
Trade and other (2,738) 26,939
Accrued compensation 8,343 (4,608)
Income taxes payable (555) 1,539
-------------------------
Total adjustments 134,731 149,394
-------------------------
Net cash provided by operating activities 181,167 181,223
-------------------------
Cash flows from investing activities:
Additions to property and equipment, net (5,099) (7,386)
-------------------------
Cash flows from financing activities:
Borrowings from banks and financial institutions 17,529 -
Repayments on mortgage note (130) (118)
Exercise of stock options and employee stock purchases3,070 2,543
Purchase of treasury stock - (3,296)
Cash dividends on common stock (5,926) (5,539)
Unrealized gain (loss) on
securities available for sale, net (1,228) 277
-------------------------
Net cash provided by (used in) financing activities 13,315 (6,133)
-------------------------
Net increase in cash and cash equivalents 189,383 167,704
Cash and cash equivalents at beginning of period 420,379 199,419
-------------------------
Cash and cash equivalents at end of period $609,762 $367,123
=========================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 61,384 $ 44,135
=========================
Cash paid for taxes $ 27,864 $ 13,880
=========================
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 28, 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
- -----------------------------
The Company has committed to lend to, or guarantee other debt for,
Gateway Tax Credit funds ("Gateway") up to $6 million upon request.
Gateway is a program sponsored by a subsidiary of the Company. 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 June 28, 1996, management has Board
authorization to discretionarily purchase up to 999,000 shares.
At their meeting on May 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 June 28, 1996 were as
follows:
Raymond James & Associates, Inc.:
(alternative method elected)
Net capital as a percent of aggregate debit items 25%
Net capital $118,810,000
Required net capital $9,693,000
Investment Management & Research, Inc.:
Ratio of aggregate indebtedness to net capital 1.20
Net capital $5,605,000
Required net capital $448,000
Robert Thomas Securities, Inc.:
Ratio of aggregate indebtedness to net capital 4.50
Net capital $1,480,000
Required net capital $444,000
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
General
- -------
Unlike the prior two fiscal years, fiscal 1996 has now encompassed
three quarters of extremely favorable equity market conditions.
Accordingly, the Company has set several quarterly records and will almost
certainly enjoy a record year. The rising equity markets have led to
record levels of transaction volume and investment banking activity, both
of which significantly affect the Company's results.
Results of Operations - Three months ended June 28, 1996 compared with
- --------------------- three months ended June 30, 1995.
Total revenues of $198,194,000 were the Company's highest ever,
representing a 33% increase over last year's $148,943,000. Net income of
$18,582,000 also established a record, increasing 34% from last year's
$13,838,000.
Record transaction volume resulted in a record level of securities
commissions, 38% ahead of the prior year. While commissions on all product
categories increased over the same quarter in the prior year, the largest
increases were in the sales of annuities, mutual funds and equities. The
number of account executives increased only 9% from year to year,
highlighting the increased productivity of existing account executives.
Investment banking showed the greatest percentage increase of any
revenue line item. Both the number and size of managed/co-managed
offerings increased from the prior year. Further, merger and acquisition
fees are also on record pace.
The increases in both financial and tangible assets under management
have led to the 32% increase in investment advisory fees. This growth
reflects both strong market appreciation and greatly improved net sales.
June 28, June 30, % Increase
1996 1995 (Decrease)
-------------------------------------------
Assets Under Management (000's):
Eagle Asset Management, Inc. $2,235,000 $1,776,000 26%
Heritage Family of Mutual Funds 2,280,000 1,783,000 28%
Investment Advisory Services 942,000 786,000 20%
Awad and Associates Asset Management 456,000 292,000 56%
Carillon Asset Management 57,000 81,000 (30%)
-------------------------------------------
Total Financial Assets
Under Management $5,970,000 $4,718,000 27%
===========================================
Tangible Assets Under Management $1,530,000 $ 941,000 63%
===========================================
Net interest income of just over $11 million was 30% higher than the
prior year and the eighth consecutive quarterly record. Customer balances
continue to grow at a rapid pace and record levels were attained in the
Customer Credit Interest Program (CIP), Raymond James Bank, and customer
margin balances.
Decreased principal trading profits reflect the continuation of a
volatile fixed income environment, as the vast majority of the Company's
inventories are fixed income securities.
Increased financial service fees are the result of the increased
number of customer accounts and transaction activity. Most of these fees
are related to non-commissionable activity such as transfers, IRA fees, and
service charges for trades in non-discretionary wrap fee accounts.
Increased employee compensation primarily reflects increased
commission expense and increased incentive compensation accruals related to
departmental and overall corporate profitability.
Increases in occupancy and equipment, business development and other
expenses reflect the increased costs of supporting the strong overall
business growth.
Results of Operations - Nine months ended June 28, 1996 compared with nine
- --------------------- months ended June 30, 1995.
Net income of $46,436,000 for the nine months ended June 28, 1996 is
slightly ahead of earnings for the entire year ended September 29, 1995,
and exceeds the nine month period ended June 30, 1995 by 46%. Revenues of
$528,939,000 represent a 36% increase over the prior year's nine month
revenues of $390,334,000.
(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 nine month comparison. Therefore, this section is limited to the
discussion of additional factors influencing the comparative nine 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, because 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.
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 and bank deposits. The increase in customer cash balances
is reflected as an increased customer payable and results in a
corresponding increase in assets segregated pursuant to Federal Regulations
and available for sale securities.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities for the nine months was
$181,167,000. 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 provided $8,216,000 during the nine
months, the net result of $20,469,000 provided through additional bank
borrowings, employee stock purchases and stock option exercises,
$11,025,000 used for purchases of fixed assets and the payment of cash
dividends, and net investments in and unrealized losses on securities
available for sale.
The Company entered into a second leveraged lease transaction on June
27, 1996. This transaction involved the purchase and subsequent lease of a
commercial aircraft to a major airline. It is anticipated that the Company
will earn an attractive return on its investment through cash flows
generated by current income tax savings.
The Company has long-term debt, included in bank notes payable, in the
amount of $12,954,000 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. The balance of $17,529,000 outstanding on this line is included
in bank notes payable. 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
RAYMOND JAMES FINANCIAL, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
--------------------------------------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
--------------------------------------------------
Net income $18,582 $13,838 $46,436 $31,829
==================================================
Average number of common
shares and equivalents
outstanding during the
period 20,851 20,541 20,764 20,500
Additional shares assuming
exercise of stock
options (1) 252 234 241 170
--------------------------------------------------
Average number of
common shares used
to calculate earnings
per share 21,103 20,775 21,005 20,670
==================================================
Net income per share $ .88 $ .67 $ 2.21 $ 1.54
==================================================
(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: August 12, 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