SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended Commission file number 1-8517
February 28, 1997
THE QUICK & REILLY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3082841
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
230 South County Road, Palm Beach, Florida 33480
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (561) 655-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $.10 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(Title of class)
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 for 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)
The aggregate market value of voting stock held by non-affiliates of the
registrant is $547,815,819 at May 9, 1997.
38,605,780
(Number of shares of common stock outstanding at May 9, 1997)
<PAGE>
Documents Incorporated by Reference Form 10-K
Annual Report to Shareholders for Parts II, IV
year ended February 28, 1997
Proxy Statement for Annual Meeting Part III
of Shareholders - June 24, 1997
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
The Quick & Reilly Group, Inc. (the "Company") was originally
incorporated in New York on June 25, 1981. The Company was reincorporated in
Delaware in 1987. It is a holding company owning all of the capital stock of
its primary subsidiaries: Quick & Reilly, Inc., U.S. Clearing Corp., JJC
Specialist Corp. and Nash, Weiss & Co.
Quick & Reilly, Inc. ("Q&R") was incorporated in New York on
March 1, 1974. Q&R became a member organization of the New York Stock Exchange,
Inc. ("NYSE") on May 2, 1974, and became the first member organization to offer
substantially discounted commission rates to individual investors following
the elimination of fixed commission rates by the Securities and Exchange
Commission ("SEC") on May 1, 1975.
U.S. Clearing Corp. ("USCC") was incorporated in New York on
December 22, 1978, as a subsidiary of the Company and began clearing customer
securities transactions in March 1979.
JJC Specialist Corp. ("JJC Specialist") was incorporated in
New York as a subsidiary of the Company on September 10, 1982, and conducts
specialist operations on the floor of the NYSE.
On March 7, 1997, the Company acquired Nash, Weiss & Co.
("Nash Weiss"), an over-the-counter market maker. As of this date, Nash
Weiss became one of the primary subsidiaries of the Company. As this
acquisition was subsequent to February 28, 1997, no financial or operational
data for Nash Weiss is presented in this filing.
Q&R, USCC, JJC Specialist, and Nash Weiss (the "primary
subsidiaries") are registered as broker-dealers with the SEC. Q&R, USCC and
JJC Specialist are member organizations of the NYSE. Q&R, USCC, and
Nash Weiss are members of the National Association of Securities Dealers (the
"NASD"). USCC is also a member of the American Stock Exchange (the "AMEX"),
Boston Stock Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange,
Chicago Stock Exchange and Chicago Board of Options Exchange. The primary
subsidiaries are members of the Securities Investor Protection Corporation
which provides protection for customer accounts up to $500,000 per customer,
with a limitation of $100,000 on claims for cash balances. USCC has arranged
for an additional $49.5 million worth of protection per customer on
securities through the Aetna Casualty & Surety Co.
(b) Financial Information about Industry Segments
The Company operates in a single industry segment and has
limited foreign operations. No material part of the Company's consolidated
revenues is received from a single customer or group of customers.
(c) Narrative Description of Business
The following table sets forth consolidated revenues of the Company, the number
of branch offices of Q&R, and the number of USCC correspondents at year-end, on
a comparative basis for each of the last three fiscal years:
<TABLE>
Fiscal Year Ended the Last Day of February
1997 1996 1995
AMOUNT % AMOUNT % AMOUNT %
<CAPTION>
<S> <C> <C> <C>
Commissions (Net of
clearance fees) $196,925,000 38.8% $165,259,000 37.2 $117,834,000 38.0
Clearance Income 49,783,000 9.8 41,303,000 9.3 27,815,000 9.0
Interest (1) 186,639,000 36.8 172,824,000 38.9 123,668,000 39.9
Trading 59,526,000 11.8 52,648,000 11.9 32,584,000 10.5
Other 14,159,000 2.8 11,831,000 2.7 7,950,000 2.6
TOTAL REVENUES $507,032,000 100% $443,865,000 100% $309,851,000 100%
Number of Q&R
Offices 116 112 103
Number of USCC
Correspondents 330 270 179
<F1>
(1) Amounts for the fiscal years ended the last day of February 1996 and
1995 have been restated to conform with the presentation for the fiscal year
ended February 28, 1997.
</TABLE>
<PAGE>
Brokerage Services
On May 1, 1975, the SEC eliminated fixed commission rates on securities
transactions. Quick & Reilly, Inc. became the first Member of the New York
Stock Exchange to offer discounted commissions to all investors..
Q&R reaches the self-directed investor through a combination of customer
referrals and national and local advertising, including the Internet. An
account is established when the application is returned and an initial
transaction takes place.
An extensive branch office system has been established by Q&R
for investor convenience and to create a local community presence. Personal
brokers in the branch offices service client accounts and offer a full array
of investment opportunities.
From a single office in New York in 1974, Q&R has grown to a
total of 116 offices nationwide. Five new offices were opened during the
fiscal year ended February 28, 1997. These offices are located in Oklahoma
City, OK; Reno, NV; Jupiter, FL; Las Vegas (West Side), NV; and Millburn, NJ.
QuickWay Net, Q&R's Internet securities trading system, was launched in
November, 1996. QuickWay Net, a competitively priced product, offers unlimited
free quotes, portfolio management tools, and the ability to trade stocks,
options and mutual funds.
Q&R offers investors a number of additional methods to access their
accounts and transact business beyond the branch office system. Available
twenty four hours a day and seven days a week, these include Easy Trade which
provides touch-tone telephone access, QuickWay Plus (direct PC access)
and QuickWay Net which provides access through the Internet.
Q&R has available various money market funds as well as load and no-load
mutual funds that are provided by outside vendors, representing over 150
mutual fund families (of these, 50 are no-load fund families). Represented
are more than 2,100 individual funds, including 580 no-load funds.
Q&R provides investment information services to its clients to assist
them in making investment decisions. A list of these services includes:
Standard & Poor's Marketscope; Standard & Poor's Stock Reports; the Dow
Jones News Service; Microsoft Money; Morningstar's Principia Service;
Wall Street by Fax; Quick & Reilly Top Performers Report prepared by Standard &
Poor's; and Quick & Reilly's Dividend Study.
The Company believes that Q&R's advertising has played a role in
expanding the firm's customer base. Advertising expenses for the fiscal
years ended in 1997, 1996, and 1995 were approximately $8,360,000;
$8,342,000; and $5,218,000, respectively.
Clearing Services
USCC, which became operational in 1979, maintains accounts and
clears securities transactions for correspondents. Correspondents consist of
Q&R, JJC, other specialist firms, banks, insurance companies, broker-dealers
and financial planners. When a correspondent opens an account, the account
is physically maintained by USCC as agent.
USCC clears all securities transactions for Q&R's customer accounts
and presently carries accounts and clears transactions for 330
correspondents. There is continued competition to obtain clearing agreements
with correspondent firms . USCC competes in this respect with a number of other
large, highly visible, well-financed clearing firms. Contacts between USCC
and potential correspondent brokers are made through attending and exhibiting
at various trade and financial conferences, advertising, direct mail
campaigns, referrals and solicited calls. Price, services, diversity of data
processing programs and applications, and reputation are the main basis of
competition. Management believes that USCC's services and systems are
competitive.
On January 23, 1996, USCC formed a subsidiary, Quick & Reilly
Limited, to arrange transactions in U.S. Securities for institutional
investors in the United Kingdom and Switzerland. Quick & Reilly Limited
became a member of the Securities and Futures Authority of the United Kingdom
on July 3, 1997 and maintains offices in London, England and Zurich,
Switzerland.
Electronic data processing is an integral part of the Company's entire
brokerage operations, and particularly of USCC's operations. The Company
owns or leases the data processing hardware necessary to input trades and
back-office data. It relies on a data processing service bureau for
programming and main frame computer capabilities. Management thus far has been
satisfied with the service bureau's performance, but there can be no
assurance of satisfactory performance in the future.
The Company believes that USCC's internal controls and safeguards
against risk of securities theft are adequate. USCC relies upon certificate
counts, microfilming procedures, and video cameras recording movements in
high security areas as deterrents to securities theft. In addition, as required
by the NYSE and certain other regulatory authorities, USCC carries a fidelity
bond covering loss or theft.
USCC is a member of the Securities Investor Protection Corporation
("SIPC"), which protects the securities and cash in each account up to $500,000,
no more than $100,000 of which may be cash. In addition, USCC has secured
additional insurance up to $49,500,000, for securities only, above the SIPC
protection.
Customer Financing
Customers of correspondent brokers may effect transactions either on a
cash or margin basis. In an account authorized for margin trading, USCC may
lend its customers an amount up to that permitted by the Federal Reserve
Board (Regulation T) . The amount of the loan is also subject to NYSE margin
requirements and the firm's internal policies, which in some instances are more
stringent than Regulation T and NYSE requirements.
Short sales of securities represent sales of borrowed securities and
obligate the client to purchase the securities at a later date. Clients may
sell securities short in a margin account subject to minimum equity,
applicable margin requirements, and the availability of such securities to be
borrowed and delivered.
Interest is charged on the amount borrowed by customers to finance
their margin transactions. Interest charged on customer accounts represented a
major component of the Company's gross revenues for the fiscal years ended
the last day of February, 1997, 1996, and 1995.
USCC uses cash balances in customer accounts, known as free credit
balances, to finance customer margin account balances. Secured borrowings and
equity capital are also used to finance customer margin account borrowings.
That portion of the Company's net interest revenues derived from
financing margin transactions and from free credit balances is affected not only
by the volume of business but also by fluctuations in prevailing interest rates.
Specialist Business
JJC Specialist Corp. is one of the largest specialist firms on the
NYSE trading floor. The firm employs 38 specialists who are members of the
NYSE and make markets in 278 issues. Each specialist firm is obligated by
NYSE rules to maintain a fair and orderly market in those stocks in which it
is registered. One of the firm's primary roles is to purchase or sell stock
when there is a disparity between public supply and public demand. This
provides an opportunity for profits but also involves a high degree of risk
during market volatility.
At present, there are 38 specialist firms that compete in the
allocation process for new stocks. JJC Specialist was awarded eight
securities during the fiscal year ended February 28, 1997.
The following table sets forth the highest, lowest and average
month-end long and short positions of the Company's specialist business for
the year ending February 28, 1997:
<TABLE>
<S> <C> <C>
Average Month-End
Highest Position Lowest Position Position
Long Short Long Short Long Short
$45,181,520 $25,788,816 $27,522,104 $13,253,071 $35,203,944 $17,650,687
</TABLE>
Over-the-counter Market Maker Business
On March 7, 1997, Nash, Weiss & Co., a registered broker-dealer
engaged solely in the business of providing market making services in
securities traded in the over-the counter market, was acquired by the Company.
Competition
All aspects of the Company's business are highly competitive.
Competition within the securities industry is principally based upon the price
and quality of the products and services offered, financial resources, and
the Company's reputation within the investing community. There is also
competition to attract and retain personnel within the securities industry.
Competition for clients has increased from other sources, such as commercial
banks, savings institutions, mutual fund management companies and investment
advisory companies. It is likely that competition from these institutions will
intensify as they expand their brokerage, clearance and specialist operations.
Regulation
The Company's primary subsidiaries are subject to various federal and
state laws which specifically regulate their activities. The primary purpose of
these requirements is to enhance the protection of customer assets. Under
certain circumstances, these rules may limit the ability of the Company to
make withdrawals of capital from the primary subsidiaries. These laws and
regulatory requirements generally subject the primary subsidiaries to standards
of solvency with respect to capital requirements, financial reporting
requirements, approval of qualifications of personnel engaged in various
aspects of their business, record keeping and business practices, the handling
of customer funds resulting from securities transactions and the extension of
credit to customers on margin transactions. Infractions of these rules and
regulations may result in suspension of individual employees and/or their
supervisors, termination of employees, limitations on certain aspects of the
subsidiary's business, as well as censures and fines, or even proceedings of
a civil or criminal nature which could result in a temporary or permanent
suspension of a part or all of the primary subsidiaries' activities. Additional
information regarding regulatory requirements is set forth in Note 11 of the
Notes to Consolidated Financial Statements under the caption "Capital
Requirements". Such information is incorporated by reference.
Employees
As of February 28, 1997, the Company and its subsidiaries had 1,169
employees, including full-time and part-time employees. Of these, 525 acted
as Account Executives for Q&R. The Company's executive management group
consists of six executive officers. The Company believes its relations with
its employees are good.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales
The Company's foreign operations are not significant to its overall
operation.
Item 2. Properties
The headquarters of the Company are located at 230 South County Road,
Palm Beach, Florida, 33480. The offices of its primary subsidiaries are located
at 26 Broadway, New York, New York 10004 under a lease expiring in 2005.
Q&R's 116 branch offices are located in 34 states and the District of
Columbia. These offices are located in premises covered by leases that expire
on various dates through 2008.
Item 3. Legal Proceedings
In the ordinary course of their securities business, certain of the
Company's primary subsidiaries have been named as defendants in a number of
legal actions. In the opinion of management, based on discussions with
counsel, the resolution of such actions will not have a material adverse effect
on the consolidated financial condition of the Company or on its results of
operations.
Nash Weis, together with most other major firms in the over-the-counter
market making business, is a party to various class action lawsuits alleging
that the firms maintained at an artificial level the spread between the bid and
ask price on certain over-the-counter securities. These allegations relate to
the period prior to the acquisition of Nash Weiss by the Company, and the former
owner has agreed to indemnify the Company for up to approximately $16 million
of liabilities relating to lawsuits and certain other liabilities of the
Company. While the suits seek damages in unspecified amounts, management
believes the ultimate outcome will not have a materially adverse effect on the
consolidated financial condition of the Company or on its results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fiscal year ended February 28, 1997.
<PAGE>
PART II
Market for the Registrant's Common
Item 5. Equity and Related Shareholder Matters
The information required herein is reported on page 32 of the Company's
Annual Report to Shareholders for the year ended February 28, 1997, and is
incorporated herein by reference.
Item 6. Selected Financial Highlights
The information required herein is reported on page 1 of the Company's
Annual Report to Shareholders for the year ended February 28, 1997, and is
incorporated herein by reference.
Management's Discussion and Analysis of
Item 7. Financial Condition and Results of Operations
The information required herein is reported on pages 19 and 20 of the
Company's Annual Report to Shareholders for the year ended February 28, 1997,
and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information required herein is reported on pages 21 through 30 of
the Company's Annual Report to Shareholders for the year ended February 28,
1997, and is incorporated herein by reference.
Changes in and Disagreements with Accountants on
Item 9. Accounting and Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required herein related to the indemnification of
directors will be reported in the Company's definitive Proxy Statement for
the Annual Meeting of Shareholders to be held June 24, 1997, which will be
filed prior to June 24, 1997, and is incorporated herein by reference.
The Company's executive officers hold office until their respective
successors are duly elected and qualified, or until their earlier resignation
or removal. The executive officers devote substantially all of their
business efforts to the affairs of the Company. The following table sets forth
the name, age and position with the Company of the executive officers.
<TABLE>
<S> <C> <C>
Name Age Position
Leslie C. Quick, Jr. 71 Chairman of the Board of
Directors, Chief Executive
Officer, Chief Financial
Officer and Director
Thomas C. Quick 42 Director, President, Chief
Operating Officer
Leslie C. Quick III 44 Director, Vice President and
Treasurer
Peter Quick 41 Director and Vice President
Christopher C. Quick 40 Director and Vice President
Pascal J. Mercurio 58 Director and Vice President
</TABLE>
Leslie C. Quick, Jr. is the founder of the Company and served as
President from its organization in 1981 until June 1986 and as Chief Executive
Officer and Director from its organization in 1981 until present. In April
1983, he was elected Chairman of the Board of Directors of the Company. He
served as President and Chief Executive Officer of Q&R from its organization in
1974 until June 1986 and as a Director from 1974 until March 1993. He has
served as President and Chief Executive Officer of USCC from January 1979 to
May 1981, and as a Director from January 1979 to May 1993. Mr. Quick has
also served as Treasurer and a Director of JJC Specialist from September 1982
until March 1990, and as President and Chief Executive Officer from March 1983
until June 1986.
Thomas C. Quick, a son of Leslie C. Quick, Jr., became a Director of
the Company in July 1981 and was elected President and Chief Operating Officer
in March 1996. Mr. Quick has served as Vice President and Assistant
Treasurer and Director from July 1981 until his election as President and
Chief Operating Officer in March 1996. In addition, Mr. Quick has served as
Vice President and Director of USCC since May 1982. Mr. Quick joined Q&R in
1977, became Vice President and a Director in May 1981. He was elected
President of that Corporation in June 1986 and served in that position until
his election as Vice President in March 1996. He serves as a Director of
JJC Specialist.
Leslie C. Quick III, a son of Leslie C. Quick, Jr., has served as
Vice President since March 1994, Treasurer since February 1985 and as a Director
since July 1981. Mr. Quick served as President of the Company from June
1986 to March 1994, at which time he was elected President of USCC and became
Vice President of the Company. He also serves as Vice President, Treasurer,
Secretary and a Director of Q&R.
Peter Quick, a son of Leslie C. Quick, Jr., has served as Director
since November 1982 and as Vice President from June 1985. Mr. Quick served
as President of the Company from March 1994 to March 1996 at which time he
was elected President of Q&R and became Vice President of the Company. He
was named Vice President of USCC in May 1987. He served in that capacity until
May 1990 when he became President of USCC, which position he held until March
1994 when he was elected President of the Company and Vice President of USCC.
He serves as Vice President, Treasurer, Secretary and Director of JJC and
as President and Director of Q&R.
Christopher C. Quick, a son of Leslie C. Quick, Jr., has served as Vice
President of the Company since 1988 and as a Director since November 1982.
Mr. Quick has served as President of JJC Specialist since June 1986 and as a
Director since its organization in September 1982. From September 1982 until
June 1986, Mr. Quick served as Vice President - Trading of JJC Specialist.
He is a member of the NYSE and serves as a registered specialist in the
specialist book managed by JJC Specialist.
Pascal J. Mercurio has been a Director of the Company since July 1981
and a Director of Q&R since March 1980. He joined USCC as a Director and
Executive Vice President upon its organization in January 1979. Since that
time he has served in various capacities and in May 1990, he became USCC's
Chairman of the Board and Chief Executive Officer.
Item 11. Executive Compensation
The information required herein will be reported in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
June 24, 1997, which will be filed prior to June 24, 1997, and is
incorporated herein by reference.
Security Ownership of Certain Beneficial
Item 12. Owners and Management
The information required herein will be reported in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
June 24, 1997, which will be filed prior to June 24, 1997, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required herein will be reported in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
June 24, 1997, which will be filed prior to June 24, 1997, and is
incorporated herein by reference.
<PAGE>
PART IV
Exhibits, Financial Statement Schedules
Item 14. and Reports on Form 8-K
(a)(1) The following report and consolidated financial statements are
incorporated by reference from the Registrant's 1997 Annual Report to
Shareholders and filed as part of this Report:
Report of Independent Public Accountants
Consolidated Financial Statements:
Consolidated Statements of Financial Condition -
the last day of February, 1997 and 1996
Consolidated Statements of Income for the Fiscal Years
Ended the last day of February, 1997, 1996 and 1995
Consolidated Statements of Changes in
Shareholders' Equity for the Fiscal Years Ended the last
day of February, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Fiscal
Years Ended the last day of February, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(a)(2) The following is a list of financial statement schedules filed as part
of this report beginning on page 23:
Schedule I - Condensed Financial Information of Registrant
Report of Independent Public Accountants on Schedule
(a)(3) See accompanying Index to Exhibits
(b) No reports on Form 8-K were filed by the Registrant during the last
fiscal quarter of the fiscal year covered by this Report.
(c) The following is a list of all Exhibits filed as part of this Report:
<PAGE>
Exhibit Description Page
3.1 Amended By-Laws previously filed as Exhibit
4.2 to the Company's Registration Statement
on Form S-8, Registration No. 33-28345,
and is hereby incorporated by reference.
3.2 The Company's restated certificate of incorporation
was filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8, Registration No.
33-28345, and is hereby incorporated by reference.
4.1 Instruments defining the rights of security holders
were filed as Exhibits 4.1 and 4.2 to the Company's
Registration Statement on Form S-1,
Registration No. 2-83667, and Exhibit 4.3
to the Company's Registration Statement on Form S-8,
Registration No. 33-28345, and are hereby incorporated
by reference.
10.1* Quick & Reilly, Inc. Retirement Trust, filed as Exhibit
10.4 to the Company's Registration Statement on Form S-1,
Registration No. 2-83667, and is hereby incorporated
by reference.
10.2* U.S. Clearing Corp. Retirement Trust, filed as exhibit 10.5
to the Company's Registration Statement on Form S-1,
Registration No. 2-83667, and is hereby incorporated by
referenece.
10.3* Quick & Reilly Executive Incentive Compensation Plan.
10.4* Quick & Reilly Stock Option Plan
10.5* Plan and Agreememnt of Merger, dated March 7, 1997 by and
among Nash, Weiss and Company., The Quick & Reilly Group,
Inc., NW Acquisition Corp. and Lee S. Casty, filed as Exhibit
10.1 to the Company's Registration Statement on Form S-3,
Registraion No. 333-26553 and is hereby incorporated by
reference.
13.1 Annual Report to Shareholders for the year ended 31
February 28, 1997. With the exception of the information
incorporated by reference into Items 5, 6, 7, and 8 of
this Form 10-K, the Annual Report to Shareholders for
the year ended February 28, 1997 is not deemed filed as
part of this report for the purposes of Section 18 of the
Securities Exchange Act of 1934, as amended.
21.1 A list of the Company's subsidiaries. 70
23.1 Consent of Independent Public Accountants 71
* Denotes an Executive Compensation Plan
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE QUICK & REILLY GROUP, INC.
BY THOMAS C. QUICK /s/ Dated: May 15, 1997
Thomas C. Quick, President
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
LESLIE C. QUICK, JR. /s/ Dated: May 15, 1997
Leslie C. Quick, Jr.
Chairman of the Board of Directors
Chief Executive Officer, Chief
Financial Officer, and Director
THOMAS C. QUICK /s/ Dated: May 15, 1997
Thomas C. Quick, President, Chief
Operating Officer and Director
PETER QUICK /s/ Dated: May 15, 1997
Peter Quick
Vice President, Assistant Treasurer,
and Director
CHRISTOPHER C. QUICK /s/ Dated: May 15, 1997
Christopher C. Quick
Vice President and Director<PAGE>
LESLIE C. QUICK III /s/ Dated: May 15, 1997
Leslie C. Quick III
Vice President, Treasurer and Director
RICHARD G. BRODRICK /s/ Dated: May 15, 1997
Richard G. Brodrick
Director
THOMAS E. CHRISTMAN /s/ Dated: May 15, 1997
Thomas E. Christman
Director
ARLENE B. FRYER /s/ Dated: May 15, 1997
Arlene B. Fryer
Secretary and Director
HENRY P. KILROY /s/ Dated: May 15, 1997
Henry P. Kilroy
Director
JOHN P. LOWTH III /s/ Dated: May 15, 1997
John P. Lowth III
Director
CLIFFORD W. MAYS /s/ Dated: May 15, 1997
Clifford W. Mays
Director<PAGE>
PASCAL J. MERCURIO /s/ Dated: May 15, 1997
Pascal J. Mercurio
Vice President and Director
ROBERT J. RABINOFF /s/ Dated: May 15, 1997
Robert J. Rabinoff
Controller and Principal Accounting
Officer
<PAGE>
THE QUICK & REILLY GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Reference
Annual
Report to
Share-
Form holders
10-K (page)
Financial Statements
Consolidated Statements of Financial
Condition at the last day of February 1997
and 1996 21
For each of the three fiscal years in
the period ended the last day of February 1997:
Consolidated Statements of Income 22
Consolidated Statements of Changes in
Shareholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
Report of Independent Public Accountants 30
Supplementary Information:
Quarterly Financial Data (unaudited) 31
Common Stock Data 32
Schedules
Report of Independent Public Accountants on Schedule 28
I - Condensed Financial Information of Registrant 23-27<PAGE>
THE QUICK AND REILLY GROUP, INC.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
Information presented in the schedule pertains only to
continuing operations unless otherwise stated.
All other schedules are omitted because the required information is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
The consolidated financial statements and supplementary information
listed in the above index, which are included in the Annual Report to
Shareholders of The Quick & Reilly Group, Inc. for the fiscal year ended
February 28, 1997, are hereby incorporated by reference.
<TABLE>
Schedule I
(page 1)
<CAPTION>
Condensed Financial Information of Registrant
The Quick & Reilly Group, Inc.
(Parent Company Only)
Condensed Statements of Financial Condition
<S> <C> <C>
February 28, February 29,
1997 1996
ASSETS
Cash and Cash Equivalents $3,626,623 $3,982,600
Securities Owned - At Market Value 23,101 22,884
Receivable From Subsidiaries 1,092,201 4,961,579
Investments in Subsidiaries, at Equity 377,518,169 322,088,228
Other Assets 6,665,112 5,303,218
TOTAL ASSETS $388,925,206 $336,358,509
LIABILITIES AND SHAREHOLDERS' EQUITY
Payable to Subsidiaries $4,665,730 $2,846,755
Accrued Expenses and Other Liabilities 9,706,499 30,877,341
TOTAL LIABILITIES 14,372,229 33,724,096
Put Options Issued on Company Stock 150,000 470,000
Shareholders' Equity
Preferred Stock, $.01 Par Value;
Authorized 1,000,000 Shares,
None Issued and Outstanding - -
Common Stock, $.10 Par Value;
Authorized 60,000,000 Shares,
Issued and Outstanding
37,925,555 shares 3,792,557 3,792,557
Paid-in Capital 73,824,990 73,198,078
Retained Earnings 297,863,413 226,425,263
375,480,960 303,415,898
Less: Common Stock in Treasury
at Cost- 100,057 in 1997 and
159,217 shares in 1996 (1,077,983) (1,251,485)
TOTAL SHAREHOLDERS' EQUITY 374,402,977 302,164,413
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $388,925,206 $336,358,509
<F1>
See Notes to Condensed Financial Information
</TABLE>
<TABLE>
Schedule I
(Page 2)
<CAPTION>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE QUICK & REILLY, GROUP, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF INCOME
<S> <C> <C> <C>
Fiscal Year Ended the Last Day of February
1997 1996 1995
REVENUES
Management fees from
Subsidiaries $4,240,000 $9,308,000 $2,548,997
Interest from
Subsidiaries 80,000 1,228,667 1,560,000
Other 895,924 1,590,614 1,021,505
5,215,924 12,127,281 5,130,502
EXPENSES
Employee Compensation
and Benefits 3,250,581 2,583,619 1,860,293
Interest 0 241 1,153
Rent and Other
Occupancy 73,244 73,453 71,952
Professional Services 262,204 195,080 284,212
Royalty Payments to
Subsidiary 106,275 0 0
Other 476,366 591,489 562,573
4,168,670 3,443,882 2,780,183
INCOME BEFORE PROVISION
FOR INCOME TAXES AND
EQUITY IN EARNINGS OF
SUBSIDIARIES 1,047,254 8,683,399 2,350,319
Provision for Income Taxes 308,595 2,896,329 471,854
INCOME BEFORE EQUITY IN
EARNINGS OF SUBSIDIARIES 738,659 5,787,070 1,878,465
Equity in Earnings of
Subsidiaries 81,280,825 63,656,502 39,582,306
NET INCOME $82,019,484 $69,443,572 $41,460,771
<F1>
See Notes to Condensed Financial Information
</TABLE>
<TABLE>
SCHEDULE I
(Page 3)
<CAPTION>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE QUICK & REILLY GROUP, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
Fiscal Year Ended the Last Day of February
1997 1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $82,019,484 $69,443,572 $41,460,771
Adjustments to
Reconcile Net Income to
Net Cash Provided By
(Used in) Operating
Activities:
Equity in Earnings
of Subsidiaries (81,280,825) (63,656,502) (39,582,306)
(Increase) Decrease in
Operating Assets:
Securities Owned (217) 21,143,104 2,440,576
Receivable From
Subsidiaries 3,869,378 (3,458,535) (206,194)
Other Assets (1,361,894) (971,714) (80,901)
Increase (Decrease) in
Operating Liabilities:
Payable to Subsidiaries 1,818,975 446,431 (874,225)
Accrued Expenses and
Other Liabilities (21,170,842) 26,338,142 458,800
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES (16,105,941) 49,284,498 3,616,521
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash Dividends Paid on
Common Stock (10,581,334) (8,866,159) (7,208,638)
Payment for Purchase
of Treasury Stock (696,962) (51,875) (2,341,938)
Proceeds From Sale of
Treasury Stock 1,149,875 5,185,176 -
Proceeds from Expired
Put Options 27,501 55,967 -
NET CASH USED IN FINANCING
ACTIVITIES (10,100,920) (3,676,891) (9,550,576)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in Investment
in Subsidiaries (34,568,635) (90,429,698) -
Cash Dividends Received
From Subsidiaries 60,419,519 42,509,708 10,750,000
NET CASH PROVIDED BY
(USED IN) INVESTING
ACTIVITIES 25,850,884 (47,919,990) 10,750,000
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (355,977) (2,312,383) 4,815,945
CASH AND CASH EQUIVALENTS AT
THE BEGINNING OF THE YEAR 3,982,600 6,294,983 1,479,038
CASH AND CASH
EQUIVALENTS AT THE
END OF THE YEAR $3,626,623 $3,982,600 $6,294,983
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash Paid During the Year for:
Interest $ - $ 214 $ 1,153
Income Taxes 412,675 598,292 351,077
Noncash Financing and Investing
Activities:
Issuance of Common Stock
Pursuant to Acquisition $ - $1,000,000 $ -
<F1>
See Notes to Condensed Financial Information
</TABLE>
Schedule I
(Page 4)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE QUICK & REILLY GROUP, INC.
(Parent Company Only)
NOTES TO CONDENSED FINANCIAL INFORMATION
NOTE 1 - DIVIDENDS RECEIVED FROM SUBSIDIARIES
The Quick & Reilly Group, Inc. received from its consolidated
subsidiaries cash dividends of approximately $60,420,000 for the fiscal
year ended February 28, 1997 and $42,510,000 and $10,750,000 for each of
the fiscal years ended the last day of February 1996 and 1995, respectively.
NOTE 2 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The condensed financial information of The Quick & Reilly, Group, Inc.
(Parent Company Only) should be read in conjunction with the consolidated
financial statements of The Quick & Reilly Group, Inc. and Subsidiaries and
the notes thereto incorporated by reference in this report.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Quick & Reilly Group, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in The Quick & Reilly Group, Inc. and
Subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated April 17, 1997. Our audits
were made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the index on page 21 is presented for the
purpose of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
New York, New York
April 17, 1997
The Quick & Reilly Group, Inc. and Subsidiaries
Selected Financial Highlights
Fiscal Year Ended the Last Day of February
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $507,032 $443,865 $309,851 $265,196 $195,934
Net Revenues 379,412 324,600 231,416 226,405 171,696
Income Before Provision for
Income Taxes 139,176 122,215 80,402 79,897 52,196
Net Income 82,019 69,443 41,461 42,491 28,695
Earnings Per Share (1) 2.17 1.85 1.11 1.12 0.78
Cash Dividends Per Share (1) 0.28 0.23 0.19 0.17 0.13
Total Assets 4,132,042 3,522,903 2,581,880 2,476,855 1,376,965
Total Liabilities 3,757,490 3,220,269 2,345,012 2,271,897 1,207,639
Total Shareholders' Equity 374,402 302,164 236,868 204,958 169,326
Book Value Per Share (1) 9.90 8.00 6.34 5.44 4.50
</TABLE>
<F1>
(1) All per share data have been restated to reflect the three-for-two stock
split paid on March 25, 1997.
The Quick & Reilly Group, Inc. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Description of Business
The Quick & Reilly Group, Inc. (the "Company") is a holding company owning all
the capital stock of its primary subsidiaries: Quick & Reilly, Inc., U.S.
Clearing Corp., JJC Specialist Corp. and Nash, Weiss & Co.
Quick & Reilly, Inc.("Q&R") was incorporated in New York on March 1, 1974,
and became the first New York Stock Exchange, Inc. ("NYSE") member organization
to offer substantially discounted commission rates to individual investors
following the elimination of fixed commission rates by the Securities and
Exchange Commission ("SEC") on May 1, 1975.
U.S. Clearing Corp. ("U.S. Clearing") was incorporated in New York on
December 22, 1978, and began clearing customer trades in March 1979. In 1992,
U.S. Clearing established its institutional sales operation. On January 23,
1996, U.S. Clearing formed a subsidiary, Quick & Reilly Limited, to arrange
transactions in U.S. Securities for institutional investors in the United
Kingdom and Switzerland. Quick & Reilly Limited became a member of the
Securities and Futures Authority of the United Kingdom on July 3, 1996, and
maintains offices in London, England and Zurich, Switzerland.
JJC Specialist Corp. ("JJC Specialist") was incorporated in New York on
September 10, 1982, and conducts specialist operations on the floor of the NYSE.
In October 1995, JJC Specialist acquired the specialist operations of MMS&N, LLC
("MMS&N").
In March 1997, the Company acquired Nash, Weiss & Co. ("Nash, Weiss"), an
over-the-counter market maker (see note 16 to the Consolidated Financial
Statements).
Q&R, U.S. Clearing and JJC Specialist are member organizations of the NYSE
and are registered broker-dealers with the SEC. Nash, Weiss is a registered
broker-dealer with the SEC. Q&R, U.S. Clearing and Nash, Weiss are members of
the National Association of Securities Dealers. U.S. Clearing is also a member
of the American Stock Exchange, Boston Stock Exchange, Pacific Stock Exchange,
Philadelphia Stock Exchange, Chicago Stock Exchange and Chicago Board Options
Exchange. Q&R, U.S. Clearing, JJC Specialist and Nash, Weiss are members of the
Securities Investors Protection Corporation, which provides protection for
customer accounts up to $500,000 per customer, with a limitation of $100,000 on
claims for cash balances. U.S. Clearing has also arranged for an additional
$49.5 million protection per customer on securities through Aetna Casualty &
Surety Co.
Results of Operations
Comparison of 1997 and 1996 Results
Fiscal 1997 Revenues of the Company increased 14% compared with fiscal 1996,
while Net Revenues increased 17%. Commissions and Clearance Income increased 19%
compared with 1996, due to increased trading volume in the securities markets
and increased floor brokerage income in JJC Specialist primarily due to the
inclusion of a full year's operating results for MMS&N in the current fiscal
year. Interest Income increased 8% primarily due to increased customer margin
debits and stock borrowing activities as well as an increase in interest rates.
Interest Expense increased 7% primarily due to stock lending activities and an
increase in interest rates. Trading income increased 13% primarily due to the
inclusion of a full year's operating results for MMS&N in the current fiscal
year. Other Revenues increased 20% primarily due to increased fee income.
Total Non-Interest Expenses increased 19% for fiscal 1997 compared with
fiscal 1996. Employee Compensation and Benefits increased 20% due to increases
in incentive bonuses and the increase in personnel at JJC Specialist due to the
inclusion of a full year's operating results for MMS&N in the current fiscal
year. Data Processing and Equipment Rental increased 34% primarily due to the
increased trading volume as well as the development of new accounting and data
base systems. Brokerage, Exchange and Clearance Fees increased 4% due to the
increased trading volume. Printing, Postage, Stationery and Office Supplies
decreased 10% due to improved and more efficient purchasing procedures. Rent and
Other Occupancy increased 24% primarily due to the expansion of Q&R, U.S.
Clearing and JJC Specialist office and operational space in New York City.
Professional Services increased 72% primarily due to increased consulting fees
for the new accounting systems being implemented for the various subsidiaries,
as well as for Q&R's upgrade of its marketing data base and implementation of
its Internet trading system. Communication costs increased 12% primarily due to
the increased volume and the increase in trading activity at the Easy Trade and
twenty four hour brokerage operations at Q&R. Amortization of Intangible Assets
increased 43% primarily due to the JJC Specialist acquisition of MMS&N in
October 1995. Other expenses increased 11% primarily due to the increased
volume.
Comparison of 1996 and 1995 Results
Fiscal 1996 Revenues of the Company increased 43% compared with fiscal 1995,
while Net Revenues increased 40%. Commissions and Clearance Income increased 42%
compared with 1995, due to increased volume in the securities markets and the
October 1995 acquisition of the specialist operations of MMS&N by JJC
Specialist. Interest Income increased 40% primarily due to increased customer
margin debits and stock borrowing activities. Interest Expense increased 52%,
primarily due to stock lending activities. Trading Income increased 62%
primarily due to the acquisition of the specialist operations of MMS&N by JJC
Specialist and increased trading revenue by U.S. Clearing. Other Revenues
increased 49%, primarily due to increased fee income.
Total Non-Interest Expenses increased 34% for fiscal 1996 compared with
fiscal 1995. Employee Compensation and Benefits increased 28%, primarily due to
increases in incentive bonuses and the increase in personnel at JJC Specialist
due to the acquisition of MMS&N in October 1995. Data Processing and Equipment
Rental increased 41%, primarily due to the increased trading volume, as did
Brokerage, Exchange, and Clearance Fees, increasing by 36%. Printing, Postage,
Stationery and Office Supplies increased by 26%, due to the increase in trading
volume as well as the increase in postage rates. Advertising increased 60%,
primarily due to the increased commitments of the Q&R advertising campaigns.
Rent and Other Occupancy increased 25%, primarily due to the opening of new Q&R
branch offices and the expansion of JJC Specialist's office and operational
space. Communication costs increased 45% primarily due to the establishment of
the Easy Trade and twenty four hour brokerage operations at Q&R and the
increased volume. Amortization of Intangible Assets increased 53%, due to the
three broker-dealer acquisitions during the fiscal year. Other expenses
increased 62%, primarily due to the increased volume and management's commitment
to expand the various subsidiaries' businesses.
Liquidity and Capital Resources
Management of the Company believes that funds generated from operations will
provide it with sufficient resources to meet all present and reasonably
foreseeable future capital needs.
The Company's assets are highly liquid and consist mainly of cash or assets
readily convertible into cash. The Company utilizes bank borrowings, securities
lending activities, customers' free credit balances and other payables, as well
as the Company's equity capital to finance receivables from customers. The
secured financings are collateralized primarily by customer securities pledged.
Customer receivables are secured by customer securities held as collateral.
Receivables and payables with other broker-dealers represent either current open
transactions that usually settle within a few days or securities lending and
borrowing activities that are collateralized and normally can be closed out
within a few days.
The Company's primary subsidiaries are subject to regulatory net capital
requirements which are designed to measure the general financial integrity and
liquidity of broker-dealers. Under the SEC's net capital requirements, Q&R, U.S.
Clearing and JJC Specialist may not (a)pay or permit the payment or withdrawal
of any subordinated debt, if payment would cause net capital to fall below
certain specified levels; (b) permit equity capital to be removed if, after
giving effect to such payment, withdrawal or removal, either the aggregate
indebtedness of Q&R would exceed 10 times its net capital or the net capital of
Q&R would fail to equal 1.2 times its minimum required net capital or for U.S.
Clearing would be less than 5% of its aggregate debit balances arising from
customer transactions or net capital of U.S. Clearing would fail to equal 1.2
times its minimum required net capital; or (c) permit equity withdrawals,
unsecured loans or advances, to certain related parties without prior approval
of the SEC or its designated examining authority if the withdrawal would cause
net capital to fall below certain specified levels. Additionally, JJC Specialist
must comply with the net liquid asset requirements of the NYSE. These
restrictions have not had, and are not expected to have, any impact on the
ability of the Company to meet its obligations. As of the last day of February,
1997 and 1996, the Company's principal subsidiaries had aggregate net capital of
$238,966,000 and $196,501,000, respectively, which exceeded their aggregate
minimum net capital requirements by $179,139,000 and $139,726,000, respectively.
Effects of Inflation
The Company's assets are not significantly affected by
inflation because they are primarily monetary and liquid. In addition, large
investments in fixed assets are not required because the nature of the Company's
business is to provide services. Management believes that the replacement costs
of furniture, equipment and leasehold improvements in the Company's principal
and branch offices would not materially affect operations. However, the rate of
inflation affects the Company's expenses such as employee compensation, rent,
communications and other expenses, which may not be readily recoverable in the
prices of services offered by the Company. To the extent inflation results in
rising interest rates and has other adverse effects upon the securities markets,
it may adversely affect the Company's financial position and results of
operations.
The Quick & Reilly Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
FEBRUARY 28, February 29,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 89,389 $ 133,287
Receivable from Brokers, Dealers
and Clearing Organization 2,618,325 1,926,583
Receivable from Customers-
Net of Allowance for Doubtful Accounts of
$5,785 in 1997 and $6,087 in 1996 1,181,677 1,223,184
Securities Owned- At Market Value
U.S. Governments 20,722 10,989
Municipals 103,057 93,841
Equities and Other 36,934 50,643
Exchange Memberships- At Cost
(Market Value $16,732 in 1997
and $14,692 in 1996) 5,033 3,908
Furniture, Equipment and Leasehold
Improvements- At Cost Less
Accumulated Depreciation and Amortization
of $13,042 in 1997 and $9,462 in 1996 17,047 15,307
Other Assets 59,858 65,161
----------- ----------
TOTAL ASSETS $4,132,042 $3,522,903
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Money Borrowed from Banks $ 8,600 $ 1,000
Drafts Payable 50,342 81,331
Payable to Brokers, Dealers
and Clearing Organizations 3,079,657 2,340,739
Payable to Customers 507,884 680,790
Securities Sold, But Not Yet
Purchased- At Market Value 22,378 14,847
Income Taxes Payable 2,552 6,608
Accrued Expenses and Other Liabilities 86,077 94,954
--------- --------
TOTAL LIABILITIES 3,757,490 3,220,269
--------- --------
Commitments and Contingencies
Put Options Issued on Company Stock 150 470
Shareholders' Equity:
Preferred Stock, $.01 par value;
authorized 1,000,000 shares,
none issued and outstanding - -
Common Stock, $.10 par value;
authorized 60,000,000 shares,
issued and outstanding 37,925,555 shares 3,792 3,792
Paid-in Capital 73,825 73,198
Retained Earnings 297,863 226,425
--------- --------
375,480 303,415
Less: Common Stock in Treasury,
at Cost - 100,057 shares in 1997 and
159,217 shares in 1996 (1,078) (1,251)
--------- --------
TOTAL SHAREHOLDERS' EQUITY 374,402 302,164
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $4,132,042 $3,522,903
========== ==========
<F1>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended the Last Day of February
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Commissions and Clearance Income $246,708 $206,562 $145,649
Interest 186,639 172,824 123,668
Trading 59,526 52,648 32,584
Other 14,159 11,831 7,950
-------- -------- --------
Total Revenues 507,032 443,865 309,851
Interest Expense 127,620 119,265 78,435
-------- -------- --------
Net Revenues 379,412 324,600 231,416
-------- -------- --------
NON-INTEREST EXPENSES
Employee Compensation and Benefits 127,273 105,739 82,785
Data Processing and Equipment Rental 33,387 24,947 17,736
Brokerage, Exchange and Clearance Fees 18,140 17,455 12,821
Rent and Other Occupancy 9,042 7,307 5,838
Advertising 8,360 8,342 5,218
Printing, Postage, Stationery
and Office Supplies 7,012 7,827 6,208
Professional Services 5,234 3,040 2,881
Communication 4,935 4,424 3,043
Amortization of Intangibles 4,557 3,189 2,081
Other 22,296 20,115 12,403
-------- -------- --------
Total Non-Interest Expenses 240,236 202,385 151,014
-------- -------- --------
Income Before Provision for
Income Taxes 139,176 122,215 80,402
Provision for Income Taxes 57,157 52,772 38,941
-------- -------- --------
NET INCOME $ 82,019 $ 69,443 $ 41,461
======== ======== ========
Earnings Per Share $ 2.17 $ 1.85 $ 1.11
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
Common Stock Paid-in Retained Treasury
Total Shares Amount Capital Earnings Stock
------ ---------- ------ ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS'
EQUITY -
FEBRUARY 28, 1994 $204,958 25,283,860 $2,528 $72,775 $131,585 $(1,930)
Effect of Three-
for-Two Stock
Split Paid on
March 25, 1997 - 12,641,695 1,264 (1,264) - -
-------- ---------- ------ ------- --------- -------
SHAREHOLDERS'
EQUITY -
FEBRUARY 28,
1994
RETROACTIVELY
RESTATED 204,958 37,925,555 3,792 71,511 131,585 (1,930)
Cash Dividends
on Common Stock (7,209) - - - (7,209) -
Purchase of
Treasury Stock (2,342) - - - - (2,342)
Net Income 41,461 - - - 41,461 -
--------- ---------- ------ ------- --------- -------
SHAREHOLDERS'
EQUITY -
FEBRUARY 28,
1995 236,868 37,925,555 3,792 71,511 165,837 (4,272)
Cash Dividends
on Common Stock (8,855) - - - (8,855) -
Cash Paid in Lieu
of Shares Issued
On Account of Two
Three-For-Two
Stock Splits (11) - - (11) - -
Purchase of
Treasury Stock (52) - - - - (52)
Sale of Treasury
Stock Under Stock
Option Plan and
Related Tax
Benefits 5,185 - - 2,112 - 3,073
Proceeds From Put
Options Written
and Expired 56 - - 56 - -
Put Options Issued
on Company Stock (470) - - (470) - -
Net Income 69,443 - - - 69,443 -
--------- ---------- ------ ------- --------- -------
SHAREHOLDERS'
EQUITY -
FEBRUARY 29,
1996 302,164 37,925,555 3,792 73,198 226,425 (1,251)
Cash Dividends
on Common Stock (10,581) - - - (10,581) -
Purchase of
Treasury Stock (697) - - - - (697)
Sale of Treasury
Stock Under Stock
Option Plan and
Related Tax
Benefits 1,149 - - 279 - 870
Proceeds From Put
Options Written
and Expired 28 - - 28 - -
Put Options
Issued On
Company Stock (150) - - (150) - -
Put Options Issued
On Company Stock
in Previous Year
and Expired
This Year 470 - - 470 - -
Net Income 82,019 - - - 82,019 -
--------- ---------- ------ ------- --------- -------
SHAREHOLDERS'
EQUITY -
FEBRUARY 28,
1997 $374,402 37,925,555 $3,792 $73,825 $297,863 $(1,078)
========== ========== ====== ======= ======== =======
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended the Last Day of February
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income $ 82,019 $ 69,443 $ 41,461
Adjustments to Reconcile Net
Income to Net Cash Provided
By (Used in) Operating Activities:
Depreciation and Amortization 8,297 5,668 3,503
Decreases (Increases) in Operating
Assets:
Receivable From Brokers, Dealers
and Clearing Organizations (691,742) (320,373) 4,485
Receivable From Customers 41,507 (422,300) (69,531)
Securities Owned (5,240) (49,057) (41,630)
Other Assets 714 (4,614) (980)
Increases (Decreases) in
Operating Liabilities:
Money Borrowed From Banks 7,600 (6,797) (30,206)
Drafts Payable (30,989) 46,809 (12,030)
Payable to Brokers, Dealers
and Clearing Organizations 738,918 519,588 62,413
Payable to Customers (172,906) 271,230 32,991
Securities Sold, But Not
Yet Purchased 7,531 1,929 4,859
Income Taxes Payable (4,056) 2,965 1,941
Accrued Expenses and
Other Liabilities (8,877) 39,533 13,147
-------- -------- -------
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES (27,224) 154,024 10,423
-------- -------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Cash Dividends Paid on
Common Stock and Cash Paid
in Lieu of Shares Issue (10,581) (8,866) (7,209)
Payments for Purchase of
Treasury Stock (697) (52) (2,342)
Proceeds From Sale of
Treasury Stock 1,149 5,185 -
Proceeds From Put Options
Written and Expired 28 56 -
-------- -------- -------
NET CASH USED IN
FINANCING ACTIVITIES (10,101) (3,677) (9,551)
-------- -------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Payment for Purchase of
Exchange Membership (1,125) - -
Payments for Purchase of
Furniture, Equipment and
Leasehold Improvements (5,448) (11,398) (1,833)
Payments for Acquisitions - (46,525) -
-------- -------- -------
NET CASH USED IN
INVESTING ACTIVITIES (6,573) (57,923) (1,833)
-------- -------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (43,898) 92,424 (961)
-------- -------- -------
CASH AND CASH EQUIVALENTS
AT THE BEGINNING OF THE YEAR 133,287 40,863 41,824
-------- -------- -------
CASH AND CASH EQUIVALENTS
AT THE END OF THE YEAR $ 89,389 $133,287 $ 40,863
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash Paid During the Year for-
Interest $125,527 $117,850 $69,282
Income Taxes 56,733 48,120 29,569
Noncash Financing and Investing
Activities
Issuance of Common Stock for
Noncash Net Assets and
Intangible Assets - $ 1000 -
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The consolidated
financial statements include the accounts of The Quick & Reilly Group, Inc. (the
"Company") and its wholly owned subsidiaries which include Quick & Reilly, Inc.,
("Q&R"), a broker-dealer providing discount brokerage services; U.S. Clearing
Corp., ("USCC"), a broker-dealer providing securities clearance for Q&R and JJC
Specialist Corp. ("JJC Specialist"), as well as for other correspondent
broker-dealers; and JJC Specialist, a broker-dealer that is a specialist on the
floor of the New York Stock Exchange, Inc. (the "primary subsidiaries"). All
material intercompany transactions have been eliminated.
Customer transactions are recorded on a settlement date basis. Proprietary
transactions, commission and clearance revenues and the related expenses are
recorded on a trade date basis.
Securities owned and securities sold, but not yet purchased, are valued at
market and the resulting unrealized gains and losses are reflected in the
consolidated statements of income.
Intangible assets are being amortized on a straight-line basis over three
to fifteen years. Office furniture and equipment are depreciated on a
straight-line basis over three to eight years. Leasehold improvements are
amortized over the lives of the related leases.
The Company considers short-term, highly liquid investments to be cash
equivalents.
Certain amounts have been restated for the fiscal years ended the last day
of February 1996 and 1995, to conform with the February 28, 1997, presentation.
The preparation of the financial statements requires management to make
certain estimates and assumptions that affect the reported amounts in the
accompanying consolidated financial statements. Management does not believe that
actual results will differ materially from these estimates.
During the fiscal year ended February 28, 1997, the Company adopted
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," which was effective for fiscal years beginning
after December 15, 1995. The statement encourages the use of a fair-value-based
method of accounting for stock-based awards under which the fair value of stock
options is determined on the date of grant and expensed over the vesting period.
Companies may, however, continue to measure compensation costs for those plans
using the method prescribed by Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees." Companies that continue to
apply APB No. 25 are required to include pro forma disclosures of net earnings
and net earnings per share as if the fair-value-based method of accounting had
been applied. The Company has elected to account for such plans under the
provisions of APB No. 25.
On March 25, 1997, the Company effected a three-for-two stock split. All
per share amounts for earnings and cash dividends for the fiscal years ended the
last day of February 1997, 1996 and 1995 have been adjusted to give effect to
this transaction. In addition, the number of Common Stock shares outstanding,
and related dollar amounts of Common Stock and Paid-in Capital as shown on the
Consolidated Statements of Financial Condition on the last day of February 1997
and 1996 and the Consolidated Statements of Changes in Shareholders' Equity on
the last day of February 1997, 1996 and 1995 have been retroactively restated to
give effect to this transaction.
NOTE 2 - ACQUISITIONS
During the fiscal year ended February 29, 1996, Q&R acquired the assets of
three retail broker dealers and JJC Specialist acquired the operations of a
specialist firm, for cash and shares of the Company's common stock. The major
portion of the purchase prices have been allocated to various intangible assets,
including customer lists, goodwill and covenants not to compete, which are
reflected in Other Assets at $42,117,000 and $45,218,000, net of accumulated
amortization of $4,406,000 and $1,305,000 at February 28, 1997, and February 29,
1996, respectively.
During the fiscal year ended February 28, 1994, Q&R acquired the assets of
a broker-dealer for cash. The major portion of the purchase price has been
allocated to customer lists, goodwill, and covenants not to compete ("Intangible
Assets") which are reflected in Other Assets at $2,549,000 and $2,775,000 net of
accumulated amortization of $851,000 and $625,000 at February 28, 1997, and
February 29, 1996, respectively. During the fiscal year ended February 28, 1993,
JJC Specialist acquired through merger the specialist firm of Stokes, Hoyt &
Co., and renamed it JJC Specialist Partners. The Company issued shares of its
common stock to the sellers valued as of the closing date of the transaction in
December 1992. The major portion of the purchase price has been allocated to
goodwill and covenants not to compete. Goodwill is reflected in Other Assets in
the amount of $997,000 and $2,193,000, net of accumulated amortization of
$4,984,000 and $3,788,000 at February 28, 1997, and February 29, 1996,
respectively. Covenants not to compete have been fully amortized at both
February 28, 1997, and February 29, 1996.
The acquisitions were accounted for under the purchase method of accounting
and the consolidated financial statements include the results of operations of
the businesses acquired from the date of acquisition.
NOTE 3 - RECEIVABLE FROM AND PAYABLE TO
BROKERS, DEALERS AND CLEARING ORGANIZATIONS
Amounts receivable from and payable to brokers, dealers and clearing
organizations include (in thousands):
February 28, February 29,
1997 1996
---------- ----------
Receivable:
Securities Borrowed ........................... $2,536,621 $1,837,018
Securities Failed to Deliver .................. 20,749 23,575
Clearing Organizations and Other .............. 60,955 65,990
--------- ----------
$2,618,325 $1,926,583
========== ==========
Payable:
Securities Loaned ............................. $2,885,738 $2,065,112
Securities Failed to Receive .................. 11,083 10,970
Clearing Organizations and Other .............. 182,836 264,657
.............................................. ---------- ----------
$3,079,657 $2,340,739
========== ==========
As these amounts are short-term in nature, their carrying amount is a
reasonable estimate of fair market value.
NOTE 4 - RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
The amounts shown represent the dollar balances receivable from and payable to
customers in connection with securities, cash and margin transactions. Customer
receivables are collateralized by securities, the value of which is not
reflected in the consolidated financial statements. As these amounts are
short-term in nature, their carrying amounts are reasonable estimates of fair
market value.
NOTE 5 - MONEY BORROWED FROM BANKS
Money borrowed from banks in the amount of $8,600,000 and $1,000,000 at February
28, 1997 and February 29, 1996, respectively, is fully collateralized by
securities owned by customers and noncustomers. These borrowings are payable on
demand and generally bear interest at the brokers' call rate. The average
borrowings during fiscal 1997 and 1996 were $5,481,000 and $8,078,000,
respectively. The weighted average interest rates during fiscal 1997 and 1996
were 5.82% and 5.86%, respectively. As these borrowings are short-term in nature
and bear market rates of interest, their carrying amounts are reasonable
estimates of fair market value.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company and its primary subsidiaries occupy office premises under
noncancellable leases expiring at various dates through January 31, 2008. Future
minimum aggregate rentals, excluding escalations, under the leases are
$4,947,000; $4,323,000; $4,080,000; $3,939,000 and $3,585,000 for each of the
fiscal years ending the last day of February 1998 through 2002, and $4,531,000
thereafter. The leases contain provisions for rent escalations based on
increases in costs incurred by the lessor. Rental expense under the leases was
$5,448,000, $4,755,000 and $3,780,000 for the fiscal years ended the last day of
February 1997, 1996 and 1995, respectively.
Margin requirements of approximately $85,052,000 with a clearing
corporation at February 28, 1997, have been satisfied by obtaining letters of
credit with face amounts totaling $83,000,000 and other deposits. The letters of
credit are secured by customers' margin securities.
In the ordinary course of their securities business, certain of the
Company's primary subsidiaries have been named as defendants in a number of
legal actions. In the opinion of management, based on discussions with counsel,
the resolution of such actions will not have a material adverse effect on the
consolidated financial condition of the Company or on its results of operations.
NOTE 7 - EARNINGS PER SHARE
Earnings per share have been calculated by dividing net income by the weighted
average number of shares outstanding for the fiscal year. Stock options issued
pursuant to The Quick & Reilly Group, Inc. Stock Option Plan are common stock
equivalents. For the fiscal years ended on the last day of February 1997, 1996
and 1995, earnings per share have not been adjusted for the effect of any
outstanding stock options as the impact is immaterial; however, they have been
retroactively adjusted to reflect the three-for-two stock split declared and
paid in March, 1997. The weighted average shares outstanding were 37,764,962;
37,477,765 and 37,483,185 for the fiscal years ended the last day of February
1997, 1996 and 1995, respectively.
NOTE 8 - INTEREST
Interest Income is comprised of the following (in thousands):
Fiscal Year Ended February
1997 1996 1995
-------- -------- --------
Interest on Securities Borrowed ............... $ 94,895 $ 93,899 $ 64,892
Interest on Customer
Margin Balances .............................. 81,220 70,590 54,273
Other Interest Income ......................... 10,524 8,335 4,503
-------- -------- --------
$186,639 $172,824 $123,668
======== ======== ========
Interest Expense is comprised of the following (in thousands):
Fiscal Year Ended February
1997 1996 1995
-------- -------- -------
Interest on Securities Loaned ................. $110,446 $103,507 $68,533
Interest on Customer
Credit Balances .............................. 16,176 14,877 9,158
Money Borrowed From Banks ..................... 969 849 714
Other Interest Expense ........................ 29 32 30
-------- -------- -------
$127,620 $119,265 $78,435
======== ======== =======
NOTE 9 - PENSION AND PROFIT SHARING PLANS
The Company and its primary subsidiaries have adopted defined contribution
pension and profit sharing plans covering all full-time employees who have
completed one year of service. The pension plans provide for the employer to
contribute an amount based on a percentage of compensation as defined in the
plan agreements. The profit sharing plans provide for the employer to contribute
an amount out of its current profits, as defined in the plan agreements, or
accumulated earned surplus as determined by its Board of Directors. Voluntary
contributions from the participants may not exceed ten percent of compensation
paid to them during the plan year. For the fiscal years ended the last day of
February 1997, 1996 and 1995, the Company and its primary subsidiaries
contributed, in the aggregate $4,049,000, $3,768,000 and $3,365,000,
respectively, to the plans. The Company and its primary subsidiaries also have
noncontributory 401(k) plans covering all full-time employees.
The Company and its primary subsidiaries participate in The Quick & Reilly
Group, Inc. Employee Benefit Plan (the "Benefit Plan"). The Benefit Plan,
established on September 1, 1992, provides health benefits to eligible employees
and their families. The Benefit Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974. For the fiscal years ended the
last day of February, 1997, 1996 and 1995, the Company and its primary
subsidiaries contributed, in the aggregate, $809,000, $10,000 and $2,276,000,
respectively, to the Benefit Plan.
NOTE 10 - INCOME TAXES
The Company and its subsidiaries file a consolidated federal tax return. Each
subsidiary is charged or credited with an amount equal to its separate tax
liability or benefit as if it were filing on an individual company basis.
The effective tax rates differ from the federal statutory rate applied to
income before income taxes as follows:
Fiscal Year Ended February
--------------------------
1997 1996 1995
--- --- ---
Federal Statutory Income
Tax Rate .................................... 35% 35% 35%
State and Local Taxes,
Net of Federal Tax Benefits ................. 10% 11% 14%
Other ........................................ (4%) (3%) (1%)
--- --- ---
Effective Income Tax Rate .................... 41% 43% 48%
== == ==
Income taxes consist of the following (in thousands):
Fiscal Year Ended February
--------------------------
1997 1996 1995
------- ------- -------
Federal ...................................... $36,101 $33,159 $23,681
State and Local .............................. 21,056 19,613 15,260
------- ------- -------
$57,157 $52,772 $38,941
======= ======= =======
The deferred income tax provision (benefit) consists of the following (in
thousands):
Fiscal Year Ended February
1997 1996 1995
------ ----- -----
Valuation of securities owned ................ $ (177) $ 671 $(264)
Reserves not currently
deductible .................................. (2,330) (817) (46)
------ ----- -----
$(2,507) $(146) $(310)
======= ===== =====
The following deferred tax assets are reflected in Other Assets (in thousands):
February 28, February 29,
1997 1996
-------- --------
Deferred Tax Assets:
Valuation of securities owned ............... $ 56 $ 0
Reserves not currently deductible ........... 4,469 2,139
-------- --------
$4,525 $2,139
======== ========
The following deferred tax liabilities are reflected in Accrued Expenses and
Other Liabilities (in thousands):
February 28, February 29,
1997 1996
-------- --------
Deferred Tax Liability:
Valuation of securities owned ............... $167 $288
======== ========
NOTE 11 - CAPITAL REQUIREMENTS
As registered broker-dealers and member firms of the NYSE, the primary
subsidiaries are subject to certain capital rules of both the SEC and the NYSE.
These rules require registrants to maintain minimum levels of net capital, as
defined, and may require a member to reduce its business or prohibit a member
from expanding its business and declaring dividends as its net capital
approaches specified minimum levels. As of February 28, 1997, and February 29,
1996, the primary subsidiaries had net capital, in the aggregate of $238,966,000
and $196,501,000, respectively, which exceeded aggregate minimum net capital
requirements by $179,139,000 and $139,726,000, respectively. While the primary
subsidiaries' aggregate equity capital is includable in net capital, $80,376,000
is not available for payment of cash dividends and advances to the Company. As
of February 28, 1997, this limitation does not restrict the Company from
declaring its regular dividends to its shareholders.
NOTE 12 - STOCK OPTION PLAN
On May 7, 1996, the Company amended The Quick & Reilly Group, Inc. Stock Option
Plan ("the Plan"), to (a) increase to number of shares of common stock to
4,720,937 (b) provide that options may be granted for up to ten years and may be
subjected to certain vesting requirements determined by the Board of Directors
and (c) limit the number of shares to 100,000 which may be granted in any fiscal
year to any one optionee. Pursuant to the Plan, all options are granted at not
less than fair market value on the date of grant and for a term determined from
time to time by the Board, but in no event shall an option be granted for a term
of more than ten years, subject to earlier termination. All options outstanding
on the last day of February 1997, 1996 and 1995 are exercisable. The number of
shares of common stock authorized under the Plan has been increased to
7,081,405, to reflect the three-for-two stock split paid in March, 1997, which
has been retroactively applied. On March 15, 1997, six officers of the Company
were granted options at fair market value to purchase 75,000 shares each of the
Company's common stock.
The following summarizes shares outstanding under the Plan at February 28,
1997, February 29, 1996 and February 28, 1995, and changes during the fiscal
years ended on these dates:
STOCK OPTION Market Price
--------------------
Number of
Shares Per Share Total
-----------------------------------
Outstanding at
February 28, 1994 ..................... 558,141 $ 8.41 $ 4,693,000
Granted at $8.07 per share ............. 186,047 $ 7.74 1,440,000
Granted at $10.81 per share ............ 101,250 $ 8.19 829,000
---------
Outstanding at
February 28, 1995 ..................... 845,438 $10.37 $ 8,768,000
Granted at $10.81 per share ............ 50,625 $17.17 869,000
Exercised at $10.81 per share .......... (50,625) $15.88 804,000
Exercised at $10.81 per share .......... (101,250) $19.89 2,014,000
Exercised at $6.10 per share ........... (186,047) $15.75 2,930,000
---------
Outstanding at
February 29, 1996 ..................... 558,141 $17.50 $ 9,767,000
Granted at $16.25 per share ............ 487,500 $16.25 7,922,000
Granted at $19.75 per share ............ 127,500 $19.75 2,518,000
Exercised at $6.22 per share ........... (36,046) $24.83 895,000
Exercised at $6.22 per share ........... (18,750) $26.33 494,000
Exercised at $6.22 per share ........... (15,000) $25.42 381,000
Exercised at $6.22 per share ........... (18,750) $24.50 459,000
---------
Outstanding at
February 28, 1997 ..................... 1,084,595 $23.33 $25,304,000
=========
Available for grant at
February 28, 1997 ..................... 2,876,387
=========
The quantity of stock options granted as well as the related exercise
prices have been retroactively adjusted to reflect the three-for-two stock split
paid on March 25, 1997.
The per share weighted average fair value of stock options granted during
the fiscal years ended February 28, 1997, and February 29, 1996, was $5.86 and
$3.44, respectively. The fair value of stock options was determined by using the
Black Scholes option-pricing model which values options based on the stock price
at the date of grant, the expected life of the option, the estimated volatility
of the stock, expected dividend payments, and the risk free interest rate over
the expected life of the option. The following assumptions were used in the
pricing model: risk free interest rate of 6.2%; expected dividend yield of 1.9%;
expected option life of five and ten years and expected volatility of 30.68%.
The Company applies APB No. 25 in accounting for its stock option plan and,
accordingly, no compensation cost has been recognized in the Company's
consolidated financial statements for stock options granted under the Plan. If,
under SFAS 123, the Company determined compensation cost based on the fair value
at the grant date for its stock options, net earnings and earnings per share
would have been reduced to the pro forma amount indicated below:
Fiscal Year Ended February
--------------------------
(In thousands, except per share amounts) 1997 1996
------- -------
Net earnings
As reported ....................................... $82,019 $69,443
Pro forma ......................................... $79,893 $69,344
Primary earnings per share
As reported ....................................... $ 2.17 $ 1.85
Pro forma ......................................... $ 2.08 $ 1.85
Under SFAS 123, stock options granted prior to fiscal year 1996 are not
required to be included as compensation in determining pro forma net earnings.
NOTE 13 - PUT OPTIONS ON COMMON STOCK
At February 29, 1996, the Company had outstanding listed put options on
33,000 shares of its common stock. During the fiscal year ended February 28,
1997, the Company sold listed put options on an additional 52,500 shares of its
common stock. The put options give the holders the right to require the Company
to repurchase shares of its common stock at specified prices. Proceeds of
$27,500 from the sale of put options were credited to Paid-in Capital. The
amount that the Company would be obligated to pay to repurchase shares of it
common stock if all outstanding put options at February 28, 1997, were exercised
is recorded in a temporary equity account.
Options on 70,500 shares expired unexercised during the fiscal year ended
February 28, 1997, as the price of the Company's stock was in excess of the
strike price at maturity. Options on 7,500 shares were exercised in August 1996.
The remaining options on 7,500 shares expired in April of 1997 at a strike price
of $20.00 per share. The quantity of shares of common stock related to listed
put options has been retroactively adjusted to reflect the three-for-two stock
split paid on March 25, 1997.
NOTE 14 - SEGMENT REPORTING
The Company, through its primary subsidiaries, operates predominately in the
securities industry. Operations in the securities industry include agency and
principal transactions, as well as other securities-related financial services.
NOTE 15 - FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
In the normal course of business, the primary subsidiaries' securities
activities involve execution, settlement and financing of various securities
transactions for a nationwide customer and noncustomer client base, as well as
specialist trading activities with counterparties. These activities may expose
the primary subsidiaries to risk in the event customers, other broker-dealers,
banks, depositories or clearing organizations are unable to fulfill contractual
obligations.
The primary subsidiaries conduct business with broker-dealers, clearing
organizations and depositories. Banking activities are conducted mainly with
commercial banks throughout the country primarily to support customer securities
activities.
For transactions in which the primary subsidiaries extend credit to
customers and noncustomers, the primary subsidiaries seek to control the risks
associated with these activities by requiring the maintenance of margin
collateral in compliance with various regulatory and internal guidelines. The
primary subsidiaries monitor required margin levels daily and, pursuant to such
guidelines, request the deposit of additional collateral or reduce securities
positions when necessary. In addition, the primary subsidiaries' correspondent
broker-dealers may be required to maintain deposits relating to security
clearance activities.
The primary subsidiaries record clearance of securities transactions on a
settlement date basis, which is generally three business days after trade date.
They are therefore exposed to off-balance-sheet risk of loss on unsettled
transactions in the event customers and other counterparties are unable to
fulfill contractual obligations. The Company's primary subsidiaries are also
exposed to off-balance-sheet risk of loss should the value of securities sold,
but not yet purchased, rise.
The Company's primary subsidiaries' financing and securities lending
activities require them to pledge securities as collateral for various secured
financing sources such as bank loans, securities loaned and letters of credit.
In the event the counterparty is unable to meet its contractual obligations, the
primary subsidiaries may be exposed to off-balance-sheet risk of acquiring
securities at prevailing market prices. They monitor the credit standing of
counterparties with whom they conduct business. Risk is further controlled by
monitoring the market value of securities pledged on a daily basis and by
requiring adjustments of collateral level in the event of excess market exposure
or by instituting securities buy-in procedures when required.
NOTE 16 - SUBSEQUENT EVENT
On March 7, 1997, Nash, Weiss & Co. ("Nash, Weiss"), a registered broker-dealer
engaged solely in the business of providing market making services in securities
traded in the over-the-counter market, was acquired by the Company. Nash, Weiss
has retained its name. The acquisition has been accounted for using the purchase
method and is considered to be a tax-free reorganization pursuant to Section 368
of the Internal Revenue Code. Each of the 100 shares of Nash, Weiss issued and
outstanding immediately prior to the acquisition was exchanged for 4,923 shares
of the Company at a price of 32 1/2, which approximated the market price on the
date of closing. Goodwill was created in the amount of $16,000,000 and will be
amortized over a period of ten years. Subsequent to March 7, 1997, an additional
2,461 shares of the Company were issued for each of the Nash, Weiss shares
issued and outstanding because of the effect of the three-for-two stock split of
the Company's common shares paid on March 25, 1997.
NOTE 17 - PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," and SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which provide for prospective application
of certain transactions at January 1, 1997 and January 1, 1998. The provisions
provide recognition criteria for financial assets and liabilities and collateral
received or pledged. The impact of current provisions of SFAS No. 125 has not
been material and the deferral of certain provisions of SFAS No. 125 is not
anticipated to have a material effect on the financial condition of the Company.
The FASB issued SFAS No. 128, "Earnings per Share", which will be effective
with the Company's consolidated financial statements for the year ending
February 28, 1998. Under this standard, the Company will replace its disclosure
of "primary" earnings per share with "basic" earnings per share. Basic earnings
per share excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Upon adoption of the standard, prior period amounts must be
restated. The impact on previously reported primary earnings per share will be
immaterial.
The Quick & Reilly Group, Inc. and Subsidiaries
QUARTERLY FINANCIAL DATA
(In Thousands, Except Per Share Amounts)
For the Fiscal Year Ended February 28, 1997
(Unaudited)
---------------------------------------
Quarter
---------------------------------------
First Second Third Fourth
-------- -------- -------- --------
Revenues ............................... $132,283 $117,042 $118,059 $139,648
Interest Expense ...................... 29,653 30,810 31,070 36,087
-------- -------- -------- --------
Net Revenues ........................... 102,630 86,232 86,989 103,561
Total Non-Interest Expense ............. 63,676 55,748 56,276 64,536
Income Before Provision for Income Taxes 38,954 30,484 30,713 39,025
Net Income ............................. 21,722 18,648 18,437 23,212
Earnings Per Share (1) ................. $ 0.58 $ 0.49 $ 0.49 $ 0.61
For the Fiscal Year Ended February 29, 1996
(Unaudited)
---------------------------------------
Quarter
---------------------------------------
First Second Third Fourth
-------- -------- -------- --------
Revenues ............................... $99,851 $105,331 $109,010 $129,673
Interest Expense ...................... 32,386 28,889 29,923 28,067
-------- -------- -------- --------
Net Revenues ........................... 67,465 76,442 79,087 101,606
Total Non-Interest Expense ............. 42,490 47,697 50,629 61,569
Income Before Provision for Income Taxes 24,975 28,745 28,458 40,037
Net Income ............................. 13,567 15,347 15,132 25,397
Earnings Per Share (1) ................. $ 0.36 $ 0.41 $ 0.41 $ 0.67
(1) See Note 7 to Consolidated Financial Statements for the method of
calculating earnings per share.
Exhibit 22.1
The Subsidiaries of The Quick & Reilly Group, Inc.
Quick & Reilly, Inc.
U.S. Clearing Corp.
JJC Specialist Corp.
Nash, Weiss & Co.
Q&R Charter, Inc.
Q&R Capital Corp.
Quick & Reilly Tara Corp.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated April 17, 1997 on the consolidated financial statements
(and schedule) of The Quick & Reilly Group, Inc. and subsidiaries incorporated
by reference (included) in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-3 (Nos. 33-63950, 33-64053, and 33-26533) and
Registration Statements on Form S-8 (Nos. 33-28345 and 333-10173).
Arthur Andersen LLP
New York, NY
May 28, 1997
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<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 89389
<RECEIVABLES> 1,263,381
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 2,536,621
<INSTRUMENTS-OWNED> 160,713
<PP&E> 17,047
<TOTAL-ASSETS> 4,132,042
<SHORT-TERM> 58,942
<PAYABLES> 790,582
<REPOS-SOLD> 0
<SECURITIES-LOANED> 2,885,738
<INSTRUMENTS-SOLD> 22,378
<LONG-TERM> 0
0
0
<COMMON> 3,792
<OTHER-SE> 370,610
<TOTAL-LIABILITY-AND-EQUITY> 4,132,042
<TRADING-REVENUE> 59,526
<INTEREST-DIVIDENDS> 186,639
<COMMISSIONS> 246,708
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 13,313
<INTEREST-EXPENSE> 127,620
<COMPENSATION> 127,273
<INCOME-PRETAX> 139,176
<INCOME-PRE-EXTRAORDINARY> 139,176
<EXTRAORDINARY> 0
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