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 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition from to
period
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.
48,425,299 shares of Common Stock as of August 3, 1998
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Form 10-Q for the Quarter Ended June 26, 1998
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Statement of Financial Condition as of
June 26, 1998 (unaudited) and September 27, 1997 2
Consolidated Statement of Operations (unaudited) for the
three and nine month periods ended June 26, 1998 and
June 27, 1997 3
Consolidated Statement of Cash Flows (unaudited) for the
nine months ended June 26, 1998 and June 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 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 June 26, 1998.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(in thousands, except share amounts)
June 26, September 26,
1998 1997
(Unaudited)
ASSETS
Cash and cash equivalents $ 220,982 $ 196,351
Assets segregated pursuant to Federal Regulations:
Cash and cash equivalents 5 375
Investments purchased under agreements to resell 799,594 692,054
Securities owned:
Trading and investment account securities 211,558 98,004
Available for sale investments 343,741 313,286
Receivables:
Clients 884,095 686,339
Stock borrowed 1,276,304 1,070,944
Brokers, dealers and clearing organizations 42,980 39,644
Other 38,690 38,118
Investment in leveraged leases 23,067 22,161
Property and equipment, net 87,467 51,674
Deferred income taxes 30,586 24,356
Deposits with clearing organizations 20,959 22,200
Prepaid expenses and other assets 25,830 23,139
---------- ----------
$4,005,858 $3,278,645
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $72,860 $ 14,215
Payables:
Clients 1,817,682 1,487,158
Stock loaned 1,221,666 1,035,035
Brokers, dealers and clearing organizations 25,051 24,954
Trade and other 87,556 81,217
Trading account securities sold but not yet purchased147,773 52,596
Accrued compensation 131,504 141,781
Income taxes payable 8,332 18,413
--------- ---------
3,512,424 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 56,704 52,599
Unrealized gain on securities available for sale, net
of deferred taxes 216 341
Retained earnings 439,528 377,981
---------- ----------
496,938 431,247
Less: 572,697 and 1,303,176 common shares in treasury,
at cost (3,504) (7,971)
---------- ----------
493,434 423,276
---------- ----------
$4,005,858 $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 Nine Months Ended
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
Revenues:
Securities commissions and fees $162,981 $127,044 $465,471 $368,880
Investment banking 22,892 16,400 82,501 58,429
Investment advisory fees 22,947 13,346 56,944 39,709
Interest 51,693 38,912 146,489 112,476
Correspondent clearing 1,078 1,022 3,297 3,258
Net trading profits 697 3,243 5,606 11,955
Financial service fees 7,587 6,126 20,949 17,145
Gain on sale of Liberty Inv. Mgmt. - - - 30,646
Other 5,916 4,025 14,376 12,434
-------- -------- -------- --------
Total revenues 275,791 210,118 795,633 654,932
-------- -------- -------- --------
Expenses:
Employee compensation 166,288 125,781 477,941 373,562
Communications and
information processing 11,369 9,137 31,971 26,206
Occupancy and equipment 8,441 6,836 23,875 19,652
Clearing and floor brokerage 2,865 2,811 8,661 8,316
Interest 33,465 24,850 94,152 73,397
Business development 8,393 6,124 23,014 15,551
Other 8,629 6,634 22,257 20,178
-------- -------- -------- --------
Total expenses 239,450 182,173 681,871 536,862
-------- -------- -------- --------
Income before provision for
income taxes 36,341 27,945 113,762 118,070
Provision for income taxes 13,550 10,805 43,526 45,632
-------- -------- -------- --------
Net income $ 22,791 $ 17,140 $ 70,236 $ 72,438
======== ======== ======== ========
Net income per share-basic* $ .47 $ .36** $ 1.46 $ 1.53**
======== ======== ======== ========
Net income per share-diluted* $ .46 $ .35** $ 1.41 $ 1.50**
======== ======== ======== ========
Cash dividends declared per
common share* $ .060 $ .054 $ .180 $ .156
======== ======== ======== ========
Average common equivalent
shares outstanding-basic* 48,351 47,494** 48,086 47,317**
======== ======== ======== =======
Average common equivalent 49,954 48,728** 49,889 48,308**
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)
Nine Months Ended
June 26, June 27,
1998 1997
Cash flows from operating activities:
Net income $ 70,236 $ 72,438
---------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,641 9,356
(Increase) decrease in assets:
Available for sale investments (30,455) (63,675)
Deposits with clearing organizations 1,241 1,000
Receivables:
Clients (197,756) (123,280)
Stock borrowed (205,360) (45,497)
Brokers, dealers and clearing organizations (3,336) (11,145)
Other (572) 4,135
Trading and investment account securities, net (18,377) (22,482)
Deferred income taxes (6,230) (368)
Prepaid expenses and other assets (3,597) (4,255)
Increase (decrease) in liabilities:
Payables:
Clients 330,524 226,921
Stock loaned 186,631 30,002
Brokers, dealers and clearing organizations 97 (31,011)
Trade and other 6,340 11,307
Accrued compensation (10,277) 1,134
Income taxes payable (10,081) 1,592
---------- ----------
Total adjustments 50,433 (16,266)
---------- ----------
Net cash provided by operating activities 120,669 56,172
Cash flows from investing activities: ---------- ----------
Additions to property and equipment, net (47,435) (17,309)
---------- ----------
Cash flows from financing activities:
Borrowings from banks and financial institutions 73,000 7,510
Repayments on loans (14,355) (143)
Exercise of stock options and employee stock
purchases 8,736 4,927
Cash dividends on common stock (8,675) (7,374)
Cash in lieu of fractional shares (15) (5)
Unrealized (loss) gain on securities
available for sale, net (124) 732
---------- ----------
Net cash provided by financing activities 58,567 5,647
---------- ----------
Net increase in cash and cash equivalents 131,801 44,510
Cash and cash equivalents at beginning of period 888,780 735,270
---------- ----------
Cash and cash equivalents at end of period $1,020,581 $779,780
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 58,199 $ 72,931
========== ==========
Cash paid for taxes $ 59,837 $ 44,408
========== ==========
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 26, 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 June 26, 1998,
there were loans of $1,264,957 and guarantees of $2,419,956 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 June 26, 1998, management has Board authorization to
purchase up to 1,571,250 shares.
At their meeting on May 14, 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 June 26, 1998
were as follows (dollar amounts in thousands):
Raymond James & Associates, Inc.:
(alternative method elected)
Net capital as a percent of aggregate debit items 15.05%
Net capital $138,667
Required net capital $18,433
Investment Management & Research, Inc.:
Ratio of aggregate indebtedness to net capital .84
Net capital $11,530
Required net capital $643
Robert Thomas Securities, Inc.:
Ratio of aggregate indebtedness to net capital 1.87
Net capital $4,812
Required net capital $600
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 June 26, 1998 compared with three
months ended June 27, 1997.
Revenues in the third quarter increased to a record high of $275,791,000,
a 31% increase over revenues of $210,118,000 in the comparable quarter last
year. Net income was $22,791,000, a 33% increase from $17,140,000 in 1997.
A continuation of the active equity markets led to record quarterly
transaction volume and resultant commission revenues, with the latter
increasing 28% over last year's quarter. A 12% increase in the number of
Financial Advisors was complemented by increased productivity to achieve the
overall increase.
Despite a slowdown from recent levels in both underwriting and M&A
activity, investment banking revenues showed an impressive increase from the
prior year as a result of the Company's commitment to the growth of the entire
equity capital markets effort.
Investment advisory fees have increased 72% due to increased assets under
management and the recognition of $3.8 million of performance fees related to
the sale of RJ Properties' real estate portfolio management operations.
Excluding these non-recurring performance fees, investment advisory fees
increased 43%. Effective in April, Carillon Asset Management was no longer
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. Both asset appreciation and record retail sales
volumes have contributed to the overall increase in assets under management as
shown below:
June 26, June 27 %Increase
1998 1997 (Decrease)
Assets Under Management (000's):
Eagle Asset Management, Inc. $5,237,693 $3,292,726 59%
Heritage Family of Mutual Funds 3,740,000 2,847,939 31%
Investment Advisory Services 1,861,430 1,152,049 62%
Awad and Associates Asset Management 828,453 607,824 36%
Carillon Asset Management 0 42,866 (100%)
Total Financial Assets Under ----------- ----------
Management $11,667,576 $7,943,404 47%
=========== ==========
Net interest income of $18.2 million was 30% higher than the prior year
and established a sixteenth consecutive quarterly record. Growth in customer
deposit and margin loan balances continue to account 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.
Other revenues include $1.7 million from the sale of certain assets in
conjunction with the aforementioned disposition of RJ Properties' real estate
portfolio and property management operations.
The largest portion of the increase in employee compensation continues to
be in Financial Advisor compensation, a direct result of increased securities
commissions. Administrative and clerical compensation increased at a rate
below that of overall revenue and expense growth, while incentive compensation
accruals rose commensurate with the increase in overall profitability.
The increase in data communications is the aggregate result of several
factors arising from the Company's general growth, including increased
telephone equipment and usage, higher postage and printing costs, increased
cost of market quotation services, and personal computer software upgrades.
Occupancy and equipment costs reflect the addition of several branch
offices, expansion of several branch offices and, most significantly, the
opening of the third tower of the Company's headquarters complex effective May
1. The latter factor alone will increase future costs by approximately
$500,000 per quarter.
Increased business development expenses includes additional advertising
for brand recognition and recruiting purposes, travel expenses, and various
costs associated with general overall growth.
The increase in other expenses is primarily attributable to increased
legal expenses, settlements and bad debt accruals.
Results of Operations - Nine months ended June 26, 1998 compared with nine
months ended
June 27, 1997.
Exclusive of the prior year gain from the sale of the Company's interest
in Liberty Investment Management, revenues for the nine months ended June 26,
1998, were up 27% to $795,633,000, while net income increased 31% to
$70,236,000, or $1.41 per diluted share.
The underlying reasons for 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.
In January 1997, the Company sold its interest in Liberty Investment
Management, Inc. ("Liberty") to Goldman Sachs Asset Management. The Company
received $30.6 million for its interest in future revenues and its option to
purchase 20% of Liberty at a future date. This transaction generated net income
of $18.8 million.
Financial Condition
The Company's total assets have increased 22% since fiscal year end,
surpassing
$4 billion. Most of the rise was due to increases in matched-book stock loan
program balances, inventory balances and customer cash and margin loan
balances. 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.
Loans payable at June 26, 1998 includes $52 million related to short-term
borrowings under existing lines of credit in order to accommodate customer
settlement activity. These loans were repaid in full on June 29, 1998.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months was
$120,669,000. 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 an additional $11,132,000 over
the last nine months. Sources included increased mortgage financing, employee
stock purchases, exercises of stock options and short term borrowings. The
primary uses were 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.
The construction of the third building and an adjacent parking garage are
now complete and in service. A smaller building, which houses Raymond James
Bank and Raymond James Trust Company, is also complete and occupied. At June
26, 1998 the Company had a $20 million mortgage on the first two buildings.
The construction of new facilities are financed with internal funds, however,
subsequent to quarter end, the Company has obtained an additional $20 million
in financing which will be combined with the present mortgage and will be
secured by all three headquarters buildings.
The parent company has an unsecured $50 million line for general corporate
purposes. 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 made substantial progress in revising the internal computer code which will
require modification to become Year 2000 compliant, and will begin internal
testing of the revised code by the end of our current fiscal year The Company
is also monitoring the progress of the supplier of its securities processing
software and other industry suppliers in addressing this issue, as well as the
progress of venders of software on which it relies.
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 Nine Months Ended
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
Net income $22,791 $17,140 $70,236 $72,438
======= ======= ======= =======
Average number of common
shares and equivalents
outstanding during the
period (3) 48,351 47,494 (2) 48,086 47,317
(2)
Additional shares assuming
exercise of stock
options (1) (3) 1,603 1,234 (2) 1,803 991 (2)
------- ------- ------- -------
Average number of
common shares used
to calculate diluted
earnings per share (3) 49,954 48,728 (2) 49,889 48,308 (2)
======= ======= ======= =======
Net income per
share-basic(3) $ .47 $ .36 (2) $ 1.46 $ 1.53 (2)
======= ======= ======= =======
Net income per
share-diluted(3 ) $ .46 $ .35 (2) $ 1.41 $ 1.50 (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: August 6, 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