SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
For Quarter Ended August 29, 1997
Commissions File #2-83667
THE QUICK & REILLY GROUP, INC.
State of Incorporation - Delaware
IRS Employer ID# - 13-3082841
230 South County Road
Palm Beach, FL 33480
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,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
THE QUICK & REILLY GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED August 29, 1997
INDEX
Page Number
Part I.
Item 1. Financial Statements
Consolidated Statements of
Financial Condition - August 29, 1997
(Unaudited) and February 28, 1997 1
Consolidated Statements of Income
(Unaudited) - Three Months Ended
August 29, 1997 and August 30, 1996 2
Consolidated Statements of Income
(Unaudited) - Six Months Ended
August 29, 1997 and August 30, 1996 3
Consolidated Statements of Cash
Flows (Unaudited) - Six Months Ended
August 29, 1997 and August 30, 1996 4
Notes to Consolidated Financial
Statements ( Unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
SIGNATURE PAGE
<TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
<CAPTION>
August 29, February 28,
(In thousands except share amounts) 1997 1997
-------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash & Cash Equivalents $86,221 $89,389
Receivable from Brokers, Dealers and
Clearing Organizations 2,771,516 2,618,325
Receivable From Customers 1,375,889 1,181,677
Securities Owned at Market Value -
U.S. Government 23,492 20,722
Municipal 120,247 103,057
Equities and Other 41,114 36,934
Exchange Memberships- At Cost
(Market Value $19,526 and $16,732) 5,033 5,033
Furniture, Equipment and Leasehold
Improvements- At Cost Less Accumulated
Depreciation and Amortization of $16,609
and $13,042 20,457 17,047
Other Assets 85,734 59,858
----------------------------------
TOTAL ASSETS $4,529,703 $4,132,042
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Money Borrowed From Banks $1,971 $8,600
Drafts Payable 47,634 50,342
Payable to Brokers, Dealers and Clearing
Organizations 3,414,932 3,079,657
Payable to Customers 512,411 507,884
Securities Sold, But Not Yet Purchased -
At Market Value 18,605 22,378
Income Taxes Payable 8,783 2,552
Accrued Expenses and Other Liabilities 96,708 86,077
------------------------------------
Total Liabilities 4,101,044 3,757,490
------------------------------------
Commitments and Contingencies
Put Options Issued on Company Stock 100 150
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
38,664,015 shares at August 29, 1997
and 37,925,555 shares at February 28, 1997 3,866 3,792
Paid-In Capital 89,702 73,825
Retained Earnings 335,427 297,863
-------------------------------------
428,995 375,480
Less: Common Stock in Treasury,
at Cost - 29,636 shares at
August 29, 1997 and 100,057 shares at
February 28, 1997 (436) (1,078)
-------------------------------------
TOTAL SHAREHOLDERS' EQUITY 428,559 374,402
TOTAL LIABILITIES AND -------------------------------------
SHAREHOLDERS' EQUITY
$4,529,703 $4,132,042
=====================================
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<CAPTION>
(In thousands, except per share amounts) Three Months Ended
------------------------------------
August 29, August 30,
1997 1996
------------------------------------
<S> <C> <C>
REVENUES
Commissions and Clearance Income $72,487 $56,390
Interest 64,044 44,963
Trading 29,608 12,234
Other 2,574 3,455
------------------------------------
Total Revenues 168,713 117,042
Interest Expense 45,415 30,811
------------------------------------
Net Revenues 123,298 86,231
------------------------------------
NON-INTEREST EXPENSES
Employee Compensation and Benefits 43,496 29,673
Brokerage, Exchange and Clearance Fees 7,703 4,205
Data Processing and Equipment Rental 11,424 7,489
Communication 1,258 1,180
Printing, Postage, Stationery and
Office Supplies 1,775 1,761
Advertising 3,327 1,732
Rent and Other Occupancy 3,353 2,199
Professional Services 1,755 979
Amortization of Intangibles 1,533 1,139
Other 6,788 5,390
------------------------------------
Total Non-Interest Expenses 82,412 55,747
------------------------------------
Income Before Provision for
Income Taxes 40,886 30,484
Provision for Income Taxes 17,647 11,837
------------------------------------
NET INCOME $23,239 $18,647
====================================
Earnings Per Share $0.602 $0.494
Weighted Average Number Of Shares
Outstanding During the Period 38,629 37,765
Cash Dividends Declared Per Share $0.060 $0.047
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<CAPTION>
(In thousands, except per share amounts) Six Months Ended
------------------------------------
August 29, August 30,
1997 1996
------------------------------------
<S> <C> <C>
REVENUES
Commissions and Clearance Income $133,523 $122,369
Interest 119,876 88,820
Trading 53,153 30,869
Other 3,440 7,267
------------------------------------
Total Revenues 309,992 249,325
Interest Expense 84,508 60,464
------------------------------------
Net Revenues 225,484 188,861
------------------------------------
NON-INTEREST EXPENSES
Employee Compensation and Benefits 81,150 63,451
Brokerage, Exchange and Clearance Fees 13,564 9,226
Data Processing and Equipment Rental 21,215 17,256
Communication 2,576 2,543
Printing, Postage, Stationery and
Office Supplies 3,935 3,643
Advertising 5,193 3,678
Rent and Other Occupancy 6,208 4,344
Professional Services 2,921 2,555
Amortization of Intangibles 3,065 2,280
Other 14,155 10,447
----------------------------------
Total Non-Interest Expenses 153,982 119,423
------------------------------------
Income Before Provision for
Income Taxes 71,502 69,438
Provision for Income Taxes 29,303 29,069
------------------------------------
NET INCOME $42,199 $40,369
====================================
Earnings Per Share $1.094 $1.069
Weighted Average Number Of Shares
Outstanding During the Period 38,588 37,765
Cash Dividends Declared Per Share $0.120 $0.100
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
The Quick & Reilly Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Six Months Ended
--------------------------------
August 29, August 30,
1997 1996
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $42,199 $40,369
Adjustments to Reconcile Net Income to
Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization 5,589 4,089
Decrease (Increase) in Operating Assets:
Receivable From Brokers, Dealers and
Clearing Organizations (153,191) 51,876
Receivable From Customers (194,212) 208,981
Securities Owned (24,140) 1,186
Other Assets (10,956) (2,600)
Increase (Decrease) in Operating Liabilities:
Money Borrowed From Banks (6,629) -
Drafts Payable (2,708) (54,160)
Payable to Brokers, Dealers and Clearing
Organizations 335,275 9,838
Payable to Customers 4,527 (272,322)
Securities Sold, But Not Yet Purchased (3,773) 2,397
Income Taxes Payable 6,231 (3,300)
Accrued Expenses and Other Liabilities 10,631 (6,379)
--------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 8,843 (20,025)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Dividends Paid on Common Stock (4,640) (3,776)
Payments for Purchase of Treasury Stock (606) (147)
Proceeds from Sale of Treasury Stock 1,147 -
Proceeds from Put Options Written 7 12
--------------------------------
NET CASH USED IN FINANCING ACTIVITIES (4,092) (3,911)
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Purchase of Furniture, Equipment
and Leasehold Improvements (5,919) (2,655)
Payment for Acquisition (2,000) -
--------------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,919) (2,655)
--------------------------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (3,168) (26,591)
--------------------------------
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD 89,389 133,287
--------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD $86,221 $106,696
================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid During the Period for-
Interest $81,710 $60,510
Income Taxes 25,130 33,303
Noncash Financing and Investing
Activities-
Issuance of Common Stock for
Intangible Assets $16,000 -
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying interim financial statements reflect all adjustments
which are, of a normal recurring nature, and, in the opinion of management,
necessary for a fair presentation of the interim periods presented. It is
recommended that these financial statements be read in conjunction with the
Company's Financial Statements and Notes thereto included in the 1997
Annual Report which is incorporated by reference on Form 10-K. Certain
amounts on the consolidated statements ofincome have been restated for the
three months and six months ended August 30, 1996, to conform with the
August 29, 1997 presentation.
2. Commitments and Contingencies
Margin requirements of approximately $145,270,000 with a clearing
corporation at August 29, 1997 have been satisfied by obtaining letters of
credit of $152,500,000 secured by customers' margin account securities.
In the ordinary course of their securities business, certain of the
Company's subsidiaries have been named defendants in a number of
lawsuits. In the opinion of management, based upon discussion with counsel,
the resolutions of such lawsuits will not in the aggregate have
a material adverse effect on the consolidated financial condition of the
Company or on its results of operations.
3. Income Taxes
For the three months ended August 29, 1997 and August 30, 1996,
the effective income tax rate differs from the expected federal statutory
rate applied to income before income taxes primarily due to state and local
taxes.
4. Net Capital Requirements
As registered broker-dealers and member firms of the New York Stock
Exchange, Inc. (the "NYSE"), four subsidiaries are subject to certain rules
of both the Securities and Exchange Commission and the NYSE. These rules
require registrants to maintain minimum levels of net capital, as defined,
and may restrict a member from expanding its business and declaring
dividends as its net capital approaches specified levels. At August 29,
1997, the subsidiaries had net capital, in the aggregate, of $219,230,000
which exceeded aggregate minimum net capital requirements by $183,415,000.
5. Dividends Declared
On June 24, 1997, the Board of Directors declared a cash dividend of
$0.06 per share payable on October 1, 1997 to holders of record on
September 2, 1997.
6. Subsequent Event
On September 17, 1997, the Company and Fleet Financial Group announced
a definitive agreement under which Fleet will acquire the Company in a stock
for stock transaction in which the Company's shareholders will receive a
fixed exchange ratio of.578 shares of Fleet common stock for each share
of The Quick & Reilly Group. The transaction, which is expected to be
accounted for as a pooling of interest, is expected to close in the first
quarter of 1998 subject to customary closing conditions and regulatory
approval, including the approval of the Company's shareholders.
Item 2. Management's Financial Discussion
Results of Operations:
Second Quarter Ended August 29, 1997 Compared to Second
Quarter Ended August 30, 1996.
Total revenues increased 44% to $168,713,000 while net revenues
(revenues net of interest expense) increased 43% to $123,298,000.
Expenses, not including interest, increased 48% to $82,412,000.
Pretax margin on net revenues decreased from 35% to 33%, while
the pretax margin on gross revenues decreased from 26% to 24%.
Net margin on net revenues decreased from 22% to 19%, while net
margin on gross revenues decreased from 16% to 14%. The Company's
effective tax rate was 43% for the current quarter versus 39% for the
same quarter last year, due to an adjustment in the second quarter
which increased the tax provision on the books of a subsidiary of the
Company.
Commissions and Clearance Income increased 29% to $72,487,000
reflecting increased trading volume. Interest income increased 42%
to $64,044,000 primarily due to increases in stock borrowing activities.
Trading increased 142% to $29,608,000 primarily due to the
over-the-counter trading of the Nash, Weiss & Co. subsidiary, acquired
in March, 1997, as well as trading increases at JJC Specialist Corp.
Other income decreased 25% to $2,574,000 primarily because brokerage
fees previously received from unrelated parties are eliminated in the
Company's consolidated results since the March, 1997 acquisition of
Nash, Weiss & Co.
Employee Compensation and Benefits increased 47% to $43,496,000
primarily due to the increased payroll costs associated with the
acquisition of Nash, Weiss & Co. and increases in incentive bonuses.
Brokerage, Exchange and Clearance Fees increased 83% to $7,703,000
primarily due to the increased volume and the brokerage fees paid by the
newly-acquired Nash, Weiss & Co. subsidiary. Data Processing and
Equipment Rental increased 53% to $11,424,000 due to increases in the
number of trades processed, increased expenditures for systems
improvements and enhancements, and the Nash, Weiss & Co.
acquisition with its equipment rental and quotes expenditures not
being reflected in last year's numbers. Communication expenses
increased 7% to $1,258,000 due to the increased volume. Advertising
increased 92% to $3,327,000 primarily due to increased commitments
for advertising in the Company's Quick & Reilly, Inc. subsidiary.
Rent and Other Occupancy increased 52% to $3,353,000 due to
increased occupancy costs in Quick & Reilly Inc.'s branch network,
increased depreciation charges and the additional occupancy costs
associated with the Nash, Weiss & Co. acquisition. Professional
Services increased 79% to $1,755,000 primarily due to increased legal and
consulting fees. Amortization of Intangibles increased 35% to $1,533,000
due to the amortization of intangible assets associated with the Nash,
Weiss & Co. acquisition. Other expenses increased 26% to $6,788,000
primarily due to increases in research expenditures and additional
miscellaneous expenses attributable to Nash, Weiss & Co.
Six Months Ended August 29, 1997 Compared to Six Months
Ended August 30, 1996.
Total revenues increased 24% to $309,992,000 while net revenues
(revenues net of interest expense) increased 19% to $225,484,000.
Expenses, not including interest, increased 29% to $153,982,000.
Pretax margin on net revenues decreased from 37% to 32%, while
the pretax margin on gross revenues decreased from 28% to 23%.
Net margin on net revenues decreased from 21% to 19%, while net
margin on gross revenues decreased from 16% to 14%. The Company's
effective tax rate was 41% for the current six month period versus 42%
for the same period last year.
Commissions and Clearance Income increased 9% to $133,523,000 primarily
due to an increase in the number of trades processed. Interest income
increased 35% to $119,876,000 primarily due to an increases in stock
borrowing activities. Trading increased 72% to $53,153,000 primarily due
to the over-the counter trading of the Nash, Weiss & Co. subsidiary,
acquired in March, 1997. Other income decreased 53% to $3,440,000 because
brokerage fees previously received from unrelated parties are now
eliminated in the Company's consolidated results since the March, 1997
acquisition of Nash, Weiss & Co.
Employee Compensation and Benefits increased 28% to $81,150,000
primarily due to the increased payroll costs associated with the acquisition
of Nash, Weiss & Co. Brokerage, Exchange and Clearance Fees increased
47% to $13,564,000 primarily due to the brokerage fees paid by the
newly-acquired Nash, Weiss & Co. subsidiary in March, 1997. Data
Processing and Equipment Rental increased 23% to $21,215,000 due to
increases in the number of trades processed, increased expenditures
for systems improvements and enhancements, and the Nash, Weiss
& Co. acquisition with its equipment rental and quotes expenditures
not being reflected in last year's numbers. Printing, Postage,
Stationery and Office Supplies increased 8% to $3,935,000 primarily
due to the increase in trading volume. Advertising increased 41% to
$5,193,000 primarily due to increased commitments for advertising
in the Company's Quick & Reilly, Inc. subsidiary. Rent and Other
Occupancy increased 43% to $6,208,000 due to increased occupancy
costs in Quick & Reilly Inc.'s branch network, increased depreciation
charges and the additional occupancy costs associated with the Nash,
Weiss & Co. acquisition. Professional Services increased 14% to
$2,921,000 primarily due to increased legal and consulting fees.
Amortization of Intangibles increased 34% to $3,065,000 due to
the amortization of intangible assets associated with the Nash, Weiss
& Co. acquisition. Other expenses increased 35% to $14,155,000
primarily due to increases in research expenditures and additional
miscellaneous expenses attributable to Nash, Weiss & Co.
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.
---------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
THE QUICK & REILLY GROUP, INC.
BY: -------------------
Leslie C. Quick, Jr.
Chairman of the Board
Chief Executive Officer
BY: -------------------
Thomas C. Quick
President
BY: -------------------
Robert J. Rabinoff
Controller
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-29-1997
<CASH> 86,221
<RECEIVABLES> 1,474,400
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 2,673,005
<INSTRUMENTS-OWNED> 184,853
<PP&E> 20,457
<TOTAL-ASSETS> 4,529,703
<SHORT-TERM> 0
<PAYABLES> 953,203
<REPOS-SOLD> 0
<SECURITIES-LOANED> 3,129,236
<INSTRUMENTS-SOLD> 18,605
<LONG-TERM> 0
0
0
<COMMON> 3,866
<OTHER-SE> 424,693
<TOTAL-LIABILITY-AND-EQUITY> 4,529,703
<TRADING-REVENUE> 29,608
<INTEREST-DIVIDENDS> 64,044
<COMMISSIONS> 72,487
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 2,808
<INTEREST-EXPENSE> 45,415
<COMPENSATION> 43,496
<INCOME-PRETAX> 40,886
<INCOME-PRE-EXTRAORDINARY> 40,886
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,239
<EPS-PRIMARY> 0.602
<EPS-DILUTED> 0.602
</TABLE>
