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, 1998
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.
48,320,037 shares of Common Stock as of_May 1, 1998
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Form 10-Q for the Quarter Ended March 27, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statement of Financial Condition as of
March 27, 1998 (unaudited) and September 27, 1997 2
Consolidated Statement of Operations (unaudited) for the
three and six month periods ended March 27, 1998 and
March 27, 1997 3
Consolidated Statement of Cash Flows (unaudited) for the
six months ended March 27, 1998 and March 27, 1997 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 3: Amendment to the Articles of Incorporation
as filed on March 9, 1998
(filed electronically)
Exhibit 11: Computation of Earnings Per Share 10
Exhibit 27: Financial Data Schedule - EDGAR version only
(filed electronically)
(b) Reports on Form 8-K: None
All other items required in Part II have been previously filed or
are not applicable for the quarter ended March 27, 1998.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(in thousands, except share amounts)
March 27, September 26,
1998 1997
__________________________
(Unaudited)
ASSETS
Cash and cash equivalents $ 210,907 $ 196,351
Assets segregated pursuant to Federal Regulations:
Cash and cash equivalents 75 375
Investments purchased under agreements to resell 823,625 692,054
Securities owned:
Trading and investment account securities 248,549 98,004
Available for sale investments 331,336 313,286
Receivables:
Clients 767,973 686,339
Stock borrowed 1,542,790 1,070,944
Brokers, dealers and clearing organizations 30,861 39,644
Other 42,052 38,118
Investment in leveraged leases 22,803 22,161
Property and equipment, net 70,485 51,674
Deferred income taxes 30,722 24,356
Deposits with clearing organizations 22,187 22,200
Prepaid expenses and other assets 27,676 23,139
_________________________
$4,172,041 $3,278,645
_________________________
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 19,930 $ 14,215
Payables:
Clients 1,843,088 1,487,158
Stock loaned 1,458,131 1,035,035
Brokers, dealers and clearing organizations 65,091 24,954
Trade and other 83,585 81,217
Trading account securities sold but not yet purchased102,820 52,596
Accrued compensation 114,024 141,781
Income taxes payable 13,998 18,413
_________________________
3,700,667 2,855,369
_________________________
Commitments and contingencies
Shareholders' equity:
Preferred stock; $.10 par value; authorized 10,000,000
shares; issued and outstanding -0- shares - -
Common stock; $.01 par value; authorized 100,000,000
shares; issued 48,997,995 shares 490 326
Additional paid-in capital 55,182 52,599
Unrealized gain on securities available for sale, net
of deferred taxes 326 341
Retained earnings 419,642 377,981
_________________________
475,640 431,247
Less: 694,620 and 1,303,176 common shares in treasury,
at cost (4,266) (7,971)
__________________________
471,374 423,276
__________________________
$4,172,041 $3,278,645
==========================
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 27, March 27, March 27,
1998 1997 1998 1997
____________________________________________
Revenues:
Securities commissions and fees $157,626 $130,341 $302,489 $241,836
Investment banking 28,338 24,119 59,609 42,029
Investment advisory fees 17,583 12,139 33,998 26,363
Interest 48,606 37,686 94,796 73,564
Correspondent clearing 1,100 1,202 2,219 2,236
Net trading profits 3,035 4,022 4,909 8,711
Financial service fees 6,858 5,685 13,362 11,019
Gain on sale of Liberty Inv. Mgmt. - 30,646 - 30,646
Other 4,392 4,155 8,460 8,410
_________________________________________
Total revenues 267,538 249,995 519,842 444,814
_________________________________________
Expenses:
Employee compensation 159,167 132,465 311,653 247,781
Communications and
information processing 10,817 9,207 20,602 17,068
Occupancy and equipment 7,916 6,633 15,434 12,817
Clearing and floor brokerage 2,767 3,102 5,796 5,505
Interest 31,268 25,068 60,687 48,547
Business development 8,042 4,712 14,621 9,427
Other 7,027 6,680 13,628 13,543
_________________________________________
Total expenses 227,004 187,867 442,421 354,688
_________________________________________
Income before provision for
income taxes 40,534 62,128 77,421 90,126
Provision for income taxes 15,834 23,998 29,976 34,828
_________________________________________
Net income $ 24,700 $ 38,130 $ 47,445 $ 55,298
=========================================
Net income per share-basic* $ .51 $ .81** $ .99 $ 1.17**
_________________________________________
Net income per share-diluted* $ .50 $ .79** $ .96 $ 1.15**
_________________________________________
Cash dividends declared per
common share* $ .060 $ .053 $ .120 $ .102
_________________________________________
Average common equivalent
shares outstanding-basic* 48,158 47,362** 47,953 47,229**
_________________________________________
Average common equivalent 49,515 48,410** 49,233 48,097**
shares outstanding-diluted*
_________________________________________
* Gives effect to the two 3-for-2 stock splits paid to shareholders in
April 1997 and April 1998.
** Restated in accordance with FAS 128.
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 27,
1998 1997
_________________________
Cash flows from operating activities:
Net income $ 47,445 $ 55,298
_________________________
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,429 6,224
(Increase) decrease in assets:
Available for sale investments (18,050) (28,692)
Deposits with clearing organizations 13 1,171
Receivables:
Clients (81,634) (86,002)
Stock borrowed (471,846) (148,305)
Brokers, dealers and clearing organizations 8,783 (4,831)
Other (3,934) 7,795
Trading and investment account securities, net (100,321) 8,751
Deferred income taxes (6,366) (406)
Prepaid expenses and other assets (5,179) (2,291)
Increase (decrease) in liabilities:
Payables:
Clients 355,930 242,097
Stock loaned 423,096 146,511
Brokers, dealers and clearing organizations 40,137 8,924
Trade and other 2,368 6,994
Accrued compensation (27,757) (14,639)
Income taxes payable (4,415) 8,270
__________________________
Total adjustments 118,254 151,571
__________________________
Net cash provided by operating activities 165,699 206,869
__________________________
Cash flows from investing activities:
Additions to property and equipment, net (26,240) (12,366)
__________________________
Cash flows from financing activities:
Borrowings from banks and financial institutions 20,000
Repayments on notes (14,285) (4,802)
Exercise of stock options and employee stock purchases
6,452 3,644
Cash dividends on common stock (5,768) (4,838)
Cash in lieu of fractional shares (16) (5)
Unrealized (loss) on securities
available for sale, net (15) (110)
___________________________
Net cash provided by (used) in financing activities 6,368 (6,111)
___________________________
Net increase in cash and cash equivalents 145,827 188,392
Cash and cash equivalents at beginning of period 888,780 735,270
___________________________
Cash and cash equivalents at end of period $1,034,607 $923,662
===========================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 58,762 $ 47,129
===========================
Cash paid for taxes $ 40,756 $ 26,964
===========================
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 27, 1998
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 $15 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, 1998, at
which time any outstanding balances will be due and payable. At March 27,
1998, there were loans of $3,906,000 and guarantees of $1,329,000 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, 1998, management has Board authorization
to purchase up to 1,571,250 shares.
At their meeting on February 13, 1998, the Company's Board of Directors
declared a 3-for-2 stock split. The additional shares were distributed on
April 2, 1998, to shareholders of record on March 10, 1998. 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 13, 1998, the Board of
Directors of the Company declared a quarterly cash dividend of $.06 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, 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 positions of the Company's broker-dealer subsidiaries at March 27, 1998
were as follows (dollar amounts in thousands):
Raymond James & Associates, Inc.:
(alternative method elected)
Net capital as a percent of aggregate debit items 16.00%
Net capital $140,332
Required net capital $17,091
Investment Management & Research, Inc.:
Ratio of aggregate indebtedness to net capital .89
Net capital $9,796
Required net capital $579
Robert Thomas Securities, Inc.:
Ratio of aggregate indebtedness to net capital 1.71
Net capital $5,179
Required net capital $590
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 26, 1997).
Results of Operations - Three months ended March 27, 1998 compared with three
months ended March 27, 1997.
The Company continues to enjoy extraordinary market conditions, benefiting
all segments of its business. In the second fiscal quarter, revenues increased
7% to $267,538,000, even with $30,646,000 from the sale of Liberty Investment
Management included in last year's comparable quarter, and net income was
$24,700,000, down from $38,130,000 last year, which included a net gain of
$18,789,000 from the sale of Liberty. Exclusive of the Liberty transaction,
revenues and net income increased 22% and 28%, respectively.
The Company's transaction volume and resultant commission revenues set
another record for the quarter, increasing 21% over last year's quarter. Sales
of equities and annuities were exceptionally strong. A 14% increase in the
number of Financial Advisors was complemented by increased productivity to
attain the overall increase.
Despite a slowdown in new issue activity during the quarter, investment
banking revenues exceeded last year's quarter as a result of larger offerings
and increased merger and acquisition fees in the current year.
Investment advisory fees have increased 45% 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 27, % Increase
1998 1997 (Decrease)
______________________________________
Assets Under Management (000's):
Eagle Asset Management, Inc. $4,889,000 $2,705,000 81%
Heritage Family of Mutual Funds 3,711,000 2,816,000 32%
Investment Advisory Services 1,425,000 1,169,000 22%
Awad and Associates Asset Management 859,000 545,000 58%
Carillon Asset Management 60,000 43,000 40%
___________________________________
Total Financial Assets Under
Management
$10,944,000 $7,278,000 50%
===================================
Tangible Assets Under Management $ 2,108,530 $1,843,909 14%
===================================
When the Company's largest institutional real estate asset management
client elected to transfer its real estate holdings, the Company chose to exit
the institutional real estate business and subsequent to quarter end sold
almost all of the assets of its RJ Properties subsidiary for a profit of $1.7
million, which will be recorded in the June quarter. As a result, the Company
will no longer perform asset management for $1.2 billion of tangible assets
included above or property management for the 34 properties formerly managed.
During fiscal 1997 and the first six months of 1998, these operations generated
$2.7 million and $1.1 million, respectively, in investment advisory fees, and
$2.5 million and $1.5 million, respectively, in property management fees
(included in other income).
Effective in April, Carillon Asset Management is no longer being offered.
The holders of assets in these managed accounts, which invested in closed-end
funds, have transferred the assets to other objectives within the asset
management group.
Net interest income of $17.3 million was 37% higher than the prior year
and established a fifteenth consecutive quarterly record. Growth in customer
deposit and margin loan balances accounted for most of the increase.
The decline in principal trading profits is primarily the result of the
changes in OTC equity trading and order handling rules, which have
substantially limited the ability to earn gross trading profits from this
activity.
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,
administrative and clerical compensation continued to rise as additional staff
were hired in order to support the Company's growth.
Increased business development expenses includes additional advertising
for brand recognition and recruiting purposes, as well as costs associated with
general overall growth.
Results of Operations - Six months ended March 27, 1998 compared with six
months ended March 27, 1997.
Revenues for the six months ended March 27, 1998, exclusive of the Liberty
sale, were up 26% to $519,842,000, while net income increased 30% to
$47,445,000, or $.96 per diluted share from $.76.
(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,
particularly as a result of the first quarter. Merger and acquisition fees are
$10.6 million for the first six months of 1998 versus $3.9 million for the
comparable period in fiscal 1997. For the six months, the Company has lead
managed 8 offerings versus 6 offerings in the first half of fiscal 1997.
Financial Condition
The Company's total assets have increased 27% since fiscal year end,
surpassing $4 billion for first time. Most of the rise was due to increases in
matched-book stock loan program balances, inventory balances and customer cash
balances 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
$165,699,000. 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 $19,872,000 during the six months,
the primary uses being purchases of property and equipment (notably the costs
incurred for the construction of the Company's third building at its corporate
headquarters complex), the payment of cash dividends, and repayments of bank
loans. Sources included increased mortgage financing, employee stock purchases
and exercises of stock options.
The Company has debt in the amount of $19,930,000 in the form of a
mortgage on the first two buildings at its corporate headquarters complex. The
construction of the third building, including an adjacent parking garage, is
near completion. Construction is currently being financed with internal funds,
however, the Company has committed to an additional borrowing of $20 million to
be executed on or before July 31, 1998.
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 $285 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).
Year 2000 Compliance
The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
computer systems to malfunction in the year 2000 and lead to significant
business delays and disruptions in the U.S. and internationally. The Company
has begun the process of identifying internal computer code which will require
modification to become Year 2000 compliant, as well as identifying software
provided by third party vendors which will require modification. The Company is
also monitoring the progress of the supplier of its securities processing
software and other industry suppliers in addressing this issue.
While management has not finalized an estimate of the cost of internal
system modifications, it does not believe that these costs will have a material
impact on the Company's operations in fiscal 1998.
The impact of this problem on the securities industry will be material,
however, since virtually every aspect of the sale of securities and processing
of transactions will be affected. Due to the enormous task facing the
securities industry, and the interdependent nature of securities transactions,
the Company may be adversely affected by this problem in the Year 2000
depending on whether it and the entities with whom it does business address
this issue successfully.
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 Six Months Ended
March 27, March 27, March 27, March 27,
1998 1997 1998 1997
_________________________________________________
Net income $24,700 $38,130 $47,445 $55,298
=================================================
Average number of common
shares and equivalents
outstanding during the
period (3) 48,158 47,362 (2) 47,953 47,229 (2)
Additional shares assuming
exercise of stock
options (1)(3) 1,357 1,048 (2) 1,280 868 (2)
--------------------------------------------------
Average number of
common shares used
to calculate diluted
earnings per share (3) 49,515 48,410 (2) 49,233 48,097 (2)
==================================================
Net income per share-basic (3)
$ .51 $ .81 (2) $ .99 $ 1.17 (2)
==================================================
Net income per share-diluted(3)
$ .50 $ .79 (2) $ .96 $ 1.15 (2)
==================================================
(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.
(2) Restated in accordance with FAS 128.
(3) Gives effect to the 3-for-2 stock splits paid to shareholders April 3,
1997 and April 2, 1998.
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 7, 1998 /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
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
Raymond James Financial, Inc.
Pursuant to the provisions of section 607.1006, Florida Statutes, this Florida
profit corporation adopts the following articles of amendment to its articles
of incorporation:
FIRST: Amendment(s) adopted: (indicate article number(s) being amended, added
or deleted)
ARTICLE IV
Stock Clause
Shares Authorized. The aggregate number of shares of stock which this
Corporation shall have authority to issue shall be one hundred million
(100,000,000) shares of common stock, each with a par value of one cent($.01)
and ten million (10,000,000) shares of preferred stock, each with a par value
of ten cents ($.10).
SECOND: If an amendment provides for an exchange, reclassification or
cancellation of issued shares, provisions for implementing the amendment if not
contained in the amendment itself, are as follows:
THIRD: The date of each amendment's adoption: February 12, 1998
FOURTH: Adoption of Amendment(s) (CHECK ONE)
X The amendment(s) was/were approved by the shareholders. The number of
votes cast for the amendment(s) was/were sufficient for approval.
The amendment(s) was/were approved by the shareholders through voting
groups. The following statement must be separately provided for each
voting group entitled to vote separately on the
amendment(s):
"The number of votes cast for the amendment(s) was/were
sufficient for approval by _____________________________,"
voting group
The amendment(s) was/were adopted by the board of directors without
shareholder action and shareholder action was not required.
The amendment(s) was/were adopted by the incorporators without
shareholder action and shareholder action was not required.
Signed this 2nd day of March, 1998
Signature ______________________________________________
(By the Chairman or Vice Chairman of the Board of Directors,
President or other officer if adopted by the shareholders)
OR
(By a director if adopted by the directors)
OR
(By an incorporator if adopted by the incorporators)
_________________________________________
Typed or printed name
_________________________________________
Title