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 27, 1997
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.
31,650,874 shares of Common Stock as of_May 6, 1997
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Form 10-Q for the Quarter Ended March 27, 1997
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statement of Financial Condition as of
March 27, 1997 (unaudited) and September 27, 1996 2
Consolidated Statement of Operations (unaudited) for the
three and six month periods ended March 27, 1997 and
March 29, 1996 3
Consolidated Statement of Cash Flows (unaudited) for the
six months ended March 27, 1997 and March 29, 1996 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Financial Discussion and Analysis 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 3: Amended and Restated Articles of Incorporation
as filed on March 3, 1997
(filed electronically)
Exhibit 11: Computation of Earnings Per Share 11
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 27, 1997.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(in thousands, except share amounts)
March 27, September 27,
1996 1997
(Unaudited)
----------------------------
ASSETS
Cash and cash equivalents $ 297,719 $ 258,206
Assets segregated pursuant to Federal Regulations:
Cash and cash equivalents 6,332 119
Securities purchased under agreements to resell 619,611 476,945
Securities owned:
Trading and investment account securities 122,836 124,253
Available for sale securities 237,589 208,897
Receivables:
Customers 545,182 459,180
Stock borrowed 1,012,445 864,140
Brokers, dealers and clearing organizations 29,137 24,306
Other 21,185 28,980
Investment in leveraged lease 21,347 20,318
Property and equipment, net 45,727 39,585
Deferred income taxes 21,595 21,189
Deposits with clearing organizations 20,873 22,044
Prepaid expenses and other assets 19,481 18,219
--------------------------
$3,021,059 $2,566,381
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 20,096 $ 24,898
Payables:
Customers 1,328,503 1,086,406
Stock loaned 995,106 848,595
Brokers, dealers and clearing organizations 65,852 56,928
Trade and other 61,001 54,007
Trading account securities sold but not yet purchased 64,544 57,210
Accrued compensation 86,661 101,300
Income taxes payable 18,675 10,405
--------------------------
2,640,438 2,239,749
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 32,665,720 shares 326 217
Additional paid-in capital 51,145 50,271
Unrealized gain (loss) on securities available for sale,
net of deferred taxes (901) (791)
Retained earnings 339,443 289,096
--------------------------
390,013 338,793
Less: 1,023,124 and 1,324,165 common
shares in treasury,at cost (9,392) (12,161)
--------------------------
380,621 326,632
--------------------------
$3,021,059 $2,566,381
==========================
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 27, March 29, March 27, March 29,
1997 1996 1997 1996
-------------------------------------------
Revenues:
Securities commissions $130,341 $110,572 $241,836 $202,342
Investment banking 24,119 10,593 42,029 21,678
Investment advisory fees 12,139 11,458 26,363 23,030
Interest 37,686 33,183 73,564 59,747
Correspondent clearing 1,202 971 2,236 1,847
Net trading and investment profits 4,022 3,430 8,711 6,209
Financial service fees 5,685 4,500 11,019 8,279
Gain on sale of interest in Liberty
Investment Management, Inc. 30,646 - 30,646 -
Other 4,155 4,012 8,410 7,613
--------------------------------------------
Total revenues 249,995 178,719 444,814 330,745
--------------------------------------------
Expenses:
Employee compensation 132,465 106,060 247,781 195,473
Communications 9,207 7,990 17,068 14,789
Occupancy and equipment 6,633 6,128 12,817 12,199
Clearing and floor brokerage 3,102 2,927 5,505 5,306
Interest 25,068 22,277 48,547 38,913
Business development 4,712 3,859 9,427 7,864
Other 6,680 4,813 13,543 11,247
-------------------------------------------
Total expenses 187,867 154,054 354,688 285,791
-------------------------------------------
Income before provision for
income taxes 62,128 24,665 90,126 44,954
Provision for income taxes 23,998 9,352 34,828 17,100
-------------------------------------------
Net income $ 38,130 $ 15,313 $ 55,298 $ 27,854
===========================================
Net income per share $ 1.18 $ .49 $ 1.72 $ .89
===========================================
Cash dividends declared per
share $ .08 $_ .063 $ .153 $ .126
===========================================
Average common equivalent
shares outstanding 32,273 31,546 32,065 31,442
===========================================
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended
March 27, March 29,
1997 1996
--------------------------
Cash flows from operating activities:
Net income $ 55,298 $ 27,854
--------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,224 5,581
(Increase) decrease in assets:
Securities available for sale (28,692) (66,006)
Short-term investments - 24,001
Receivables:
Customers (86,002) (12,559)
Stock borrowed (148,305) (426,746)
Brokers, dealers and clearing organizations (4,831) (9,122)
Other 7,795 3,325
Trading and investment account securities, net 8,751 14,053
Deferred income taxes (406) 449
Prepaid expenses and other assets (1,120) (3,705)
Increase (decrease) in liabilities:
Payables:
Customers 242,097 193,522
Stock loaned 146,511 416,488
Brokers, dealers and clearing organizations 8,924 7,953
Trade and other 6,994 18,681
Accrued compensation (14,639) (9,496)
Income taxes payable 8,270 (3,318)
--------------------------
Total adjustments 151,571 153,101
--------------------------
Net cash provided by operating activities 206,869 180,955
--------------------------
Cash flows from investing activities:
Additions to property and equipment, net (12,366) (2,747)
--------------------------
Cash flows from financing activities:
Repayments on notes (4,802) (86)
Issuance of common stock 3,644 2,427
Cash dividends on common stock (4,838) (3,943)
Cash paid for fractional shares (5) -
Unrealized gain (loss) on
securities available for sale, net (110) (736)
--------------------------
Net cash used in financing activities (6,111) (2,338)
--------------------------
Net increase in cash and cash equivalents 188,392 175,870
Cash and cash equivalents at beginning of period 735,270 420,379
---------------------------
Cash and cash equivalents at end of period $923,662 $596,249
===========================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 47,129 $ 36,188
===========================
Cash paid for taxes $ 26,964 $ 19,969
===========================
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 27, 1997
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 $10 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 on November 30, 1997, at which time any outstanding balances will
be due and payable. At March 27, 1997, there were loans of $700,000
outstanding.
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 27, 1997, management has Board
authorization to purchase up to 1,500,000 shares.
At their meeting on February 14, 1997, the Company's Board of
Directors declared a 3-for-2 stock split. The additional shares were
distributed on April 3, 1997, to shareholders of record on March 7, 1997.
All references in the consolidated financial statements to amounts per
share and to the average number of shares outstanding have been restated to
give retroactive effect to the stock split. Also at their meeting on
February 14, 1997, the Board of Directors of the Company increased the
quarterly cash dividend to $.08 per post-split 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 27, 1997 were as
follows (dollar amounts in thousands):
Raymond James & Associates, Inc.:
(alternative method elected)
Net capital as a percent of aggregate debit items 21.00%
Net capital $121,739
Required net capital $11,453
Investment Management & Research, Inc.:
Ratio of aggregate indebtedness to net capital 1.40
Net capital $6,540
Required net capital $610
Robert Thomas Securities, Inc.:
Ratio of aggregate indebtedness to net capital 3.12
Net capital $2,490
Required net capital $518
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 27, 1996.)
Results of Operations - Three months ended March 27, 1997 compared with
three months ended March 29, 1996.
As previously announced, the Company completed the sale of its
interest in Liberty Investment Management, Inc. ("Liberty") during the
current quarter. Pursuant to an agreement executed in 1994, the Company
was to receive, for the five years ending December 31, 1999, 50% of the
revenues derived from institutional growth equity accounts previously
managed by its Eagle Asset Management subsidiary. Liberty assumed
management of approximately $4.3 billion of such accounts effective January
1, 1995, and this arrangement generated an average of approximately $2.4
million per quarter for the Company during calendar years 1995 and 1996.
Liberty was sold to Goldman Sachs Asset Management in early January 1997,
and the Company received $30.6 million, shown as a separate line item on
the statement of operations, for its remaining three years' interest in
account revenues and its option to purchase a 20% interest in Liberty at a
future date. This transaction generated net income of $18.8 million, or
$.58 per share. Excluding the one-time effect of the Liberty sale,
revenues were $219,349,000, representing a 23% increase over last year's
$178,719,000. Net income, also excluding the one-time gain on the sale of
Liberty, was $19,341,000, the Company's second highest ever and a 26%
increase over the $15,313,000 in the prior year.
The Company's transaction volume set a record for the quarter;
accordingly, securities commission revenues increased 18% over the same
quarter of the prior year. Sales of equities and annuities were
exceptionally strong. The 11% increase in number of account executives was
complemented by increased productivity to attain the overall increase.
Investment banking revenues increased as the number of offerings
managed or co-managed doubled from 6 in the quarter ended March 1996 to 12
in the current quarter, with the dollar volume underwritten rising from
$473 million to $733 million, a 55% increase. This quarter's investment
banking revenues were further augmented by the recognition of revenues from
the final settlements on some of the deals completed in the first quarter
of this fiscal year.
Beginning in the quarter ended March 1997, investment advisory fees no
longer include the aforementioned fees received from Liberty. Excluding
the fees recorded from Liberty in the prior year's quarter, investment
advisory fees have increased approximately 28% due to increased assets
under management as shown below. Both asset appreciation and record retail
sales volumes have contributed to the increases.
March 27, March 29, % Increase
1997 1996 (Decrease)
------------------------------------------
Assets Under Management (000's):
Eagle Asset Management, Inc. $2,705,000 $2,104,000 29%
Heritage Family of Mutual Funds 2,816,000 2,256,000 25%
Investment Advisory Services 1,169,000 914,000 28%
Awad and Associates Asset Mgnt. 545,000 432,000 26%
Carillon Asset Management 43,000 60,000 (28)%
------------------------------------------
Total Financial Assets Under
Management $7,279,000 $5,766,000 26%
==========================================
Tangible Assets Under Mgnt. $1,843,909 $1,529,000 21%
==========================================
Net interest income of $12.6 million was 16% higher than the prior
year and established an eleventh consecutive quarterly record. Growth in
customer deposit balances, in both the brokerage and banking subsidiaries,
has continued at a rapid pace.
Financial service fees continue to increase with the growth in the
number of accounts which generate administrative fees for the Company such
as IRA accounts, trust accounts and Passport (wrap fee) accounts.
The largest portion of the increase in employee compensation continues
to be in registered representative compensation, a direct result of
increased securities commissions and investment banking revenues. In
addition, departmental and Company-wide profit-based incentive compensation
accruals increased commensurate with increased profitability (excluding the
one-time Liberty gain), while administrative and clerical compensation
continued to rise as additional staff were hired in order to support the
Company's growth.
Communications expenses include the expenses related to communicating
with a larger sales force and client base, reflected in increased postage
and printing costs and increased expenditures on computer equipment.
Other expenses reflect increases resulting from overall firm growth.
Results of Operations - Six months ended March 27, 1997 compared with six
months ended March 29, 1996.
Revenues for the six months ended March 27, 1997, exclusive of the
Liberty sale, were up 25% to $414,168,000, while net income increased 31%
to $36,509,000, or $1.14 per share.
(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.)
Investment banking revenues are markedly higher in the current year as
a result of two strong underwriting quarters. For the six months, the
Company has managed or co-managed 33 offerings for a total of $3.4 billion
raised versus 38 offerings with $2.7 billion raised in all of fiscal 1996.
Due to the growth of assets under management, investment advisory fees
exceeded the prior year figure in spite of the fact the prior year includes
two quarters of fees from Liberty, while the current year includes only one
quarter of these fees.
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 client
interest program. Customer cash balances are reflected as a customer
payable, and the corresponding assets are either customer receivables
(margin loans) or assets segregated pursuant to Federal Regulations.
Liquidity and Capital Resources
Net cash provided by operating activities for the six months was
$206,869,000. 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, and the proceeds received from the sale of Liberty.
Investing and financing activities used $18,477,000 during the six
months, the primary uses being the payment of cash dividends, repayments on
bank loans and purchases of property and equipment, with an offsetting
source being employee stock purchases and exercises of stock options.
The Company has debt in the amount of $12,814,000 in the form of a
mortgage on the first of its two current headquarters buildings. The
second building was constructed using internally generated funds. During
the current quarter, the Company commenced construction of a third building
at its headquarters complex. The 270,000 square foot tower, including an
adjacent parking garage, is scheduled for completion during the first
quarter of calendar 1998. Construction will be financed with internal
funds, and longer term financing plans have not yet been finalized.
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 $7,282,000 outstanding on this line is included
in bank notes payable. In addition, Raymond James & Associates, Inc. has
uncommitted lines of credit aggregating $255 million.
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.
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were approved by shareholders at the Company's
Annual Meeting of Shareholders held on February 13, 1997:
1. Election of Directors:
Director For Against Abstain
Jonathan A. Bulkley 16,621,455 8,319 36,369
Thomas S. Franke 16,620,805 8,969 36,369
Francis S. Godbold 16,620,635 9,139 36,369
M. Anthony Greene 16,621,723 8,051 36,369
Harvard H. Hill, Jr. 16,620,191 9,583 36,369
Huntington A. James 16,614,399 15,375 36,369
Thomas A. James 16,621,172 8,602 36,369
Paul W. Marshall 16,625,931 3,843 36,369
J. Stephen Putnam 16,620,436 9,338 36,369
Robert F. Shuck 16,621,834 7,940 36,369
Dennis W. Zank 16,597,896 31,878 36,369
2. Proposal to ratify Incentive Compensation Criteria for certain of
the Company's executive officers:
For 16,383,878
Against 170,824
Abstain 111,141
3. Proposal to ratify the selection of Price Waterhouse LLP as
independent accountants of the Company for the fiscal year ending
September 26, 1997:
For 16,549,103
Against 32,867
Abstain 84,173
EXHIBIT 11
RAYMOND JAMES FINANCIAL, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
March 27, March 29, March 27, March 29,
1997 1996 1997 1996
-------------------------------------------------
Net income $38,130 $15,313 $55,298 $27,854
=================================================
Average number of common
shares and equivalents
outstanding during the
period 31,575 31,203 31,486 31,082
Additional shares assuming
exercise of stock
options (1) 698 343 579 360
-------------------------------------------------
Average number of
common shares used
to calculate earnings
per share 32,273 31,546 32,065 31,442
=================================================
Net income per share $ 1.18 $ .49 $ 1.72 $ .89
=================================================
(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 9, 1997 /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