SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
For Quarter Ended November 28, 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 November 28, 1997
INDEX
Page Number
Part I.
Item 1. Financial Statements
Consolidated Statements of
Financial Condition -November 28, 1997
(Unaudited) and February 28, 1997 1
Consolidated Statements of Income
(Unaudited) - Three Months Ended
November 28, 1997 and November 29, 1996 2
Consolidated Statements of Income
(Unaudited) - Nine Months Ended
November 28, 1997 and November 29, 1996 3
Consolidated Statements of Cash
Flows (Unaudited) - Nine Months Ended
November 28, 1997 and November 29, 1996 4
Notes to Consolidated Financial
Statements ( Unaudited) 6
Item 2. Management's Financial Discussion 8
SIGNATURE PAGE
<TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
<CAPTION>
November 28, February 28,
(In thousands except share amounts) 1997 1997
-------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash & Cash Equivalents $92,960 $89,389
Receivable from Brokers, Dealers and Clearing Organizations 3,510,410 2,618,325
Receivable From Customers 1,558,215 1,181,677
Securities Owned at Market Value -
U.S. Government 43,353 20,722
Municipal 135,115 103,057
Equities and Other 50,454 36,934
Exchange Memberships- At Cost
(Market Value $20,060 and $16,732) 5,033 5,033
Furniture, Equipment and Leasehold
Improvements- At Cost Less Accumulated
Depreciation and Amortization of $18,137 and $13,042 20,776 17,047
Other Assets 95,511 59,858
-------------------------------------
TOTAL ASSETS $5,511,827 $4,132,042
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Money Borrowed From Banks $6,458 $8,600
Drafts Payable 58,173 50,342
Payable to Brokers, Dealers and Clearing Organizations 4,316,442 3,079,657
Payable to Customers 537,786 507,884
Securities Sold, But Not Yet Purchased - At Market Value 26,497 22,378
Income Taxes Payable 7,229 2,552
Accrued Expenses and Other Liabilities 116,609 86,077
-------------------------------------
Total Liabilities 5,069,194 3,757,490
-------------------------------------
Commitments and Contingencies
Put Options Issued on Company Stock - 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 November 28, 1997 and
37,925,555 shares at February 28, 1997 3,866 3,792
Paid-In Capital 83,514 73,825
Retained Earnings 356,324 297,863
-------------------------------------
443,704 375,480
Less: Common Stock in Treasury, at Cost - 29,636 shares
at November 28, 1997 and 100,057 shares at February 28, 1997 (1,071) (1,078)
-------------------------------------
TOTAL SHAREHOLDERS' EQUITY 442,633 374,402
-------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $5,511,827 $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 Net Income
(Unaudited)
<CAPTION>
(In thousands, except per share amounts) Three Months Ended
------------------------------------
November 28, November 29,
1997 1996
------------------------------------
<S> <C> <C>
REVENUES
Commissions and Clearance Income $73,984 $57,463
Interest 70,663 45,525
Trading 30,184 11,780
Other 2,275 3,291
------------------------------------
Total Revenues 177,106 118,059
Interest Expense 49,968 31,070
------------------------------------
Net Revenues 127,138 86,989
------------------------------------
NON-INTEREST EXPENSES
Employee Compensation and Benefits 45,715 29,908
Brokerage, Exchange and Clearance Fees 7,299 3,935
Data Processing and Equipment Rental 12,260 7,469
Communication 1,357 1,069
Printing, Postage, Stationery and Office Supplies 1,885 1,487
Advertising 2,862 2,092
Rent and Other Occupancy 3,362 2,386
Professional Services 1,713 1,012
Amortization of Intangibles 1,615 1,139
Other 8,218 5,779
------------------------------------
Total Non-Interest Expenses 86,286 56,276
------------------------------------
Income Before Provision for Income Taxes 40,852 30,713
Provision for Income Taxes 17,637 12,276
------------------------------------
NET INCOME $23,215 $18,437
====================================
Earnings Per Share $0.601 $0.488
Weighted Average Number Of Shares
Outstanding During the Period 38,634 37,759
Cash Dividends Declared Per Share $0.060 $0.053
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
Consolidated Statements of Net Income
(Unaudited)
<CAPTION>
(In thousands, except per share amounts) Nine Months Ended
------------------------------------
November 28, November 29,
1997 1996
------------------------------------
<S> <C> <C>
REVENUES
Commissions and Clearance Income $207,506 $179,833
Interest 190,539 134,345
Trading 83,337 42,649
Other 5,715 10,557
------------------------------------
Total Revenues 487,097 367,384
Interest Expense 134,476 91,533
------------------------------------
Net Revenues 352,621 275,851
------------------------------------
NON-INTEREST EXPENSES
Employee Compensation and Benefits 126,866 93,359
Brokerage, Exchange and Clearance Fees 20,862 13,161
Data Processing and Equipment Rental 33,475 24,725
Communication 3,933 3,612
Printing, Postage, Stationery and Office Supplies 5,820 5,130
Advertising 8,054 5,771
Rent and Other Occupancy 9,570 6,730
Professional Services 4,634 3,567
Amortization of Intangibles 4,680 3,419
Other 22,373 16,226
------------------------------------
Total Non-Interest Expenses 240,267 175,700
------------------------------------
Income Before Provision for Income Taxes 112,354 100,151
Provision for Income Taxes 46,940 41,344
------------------------------------
NET INCOME $65,414 $58,807
====================================
Earnings Per Share $1.695 $1.557
Weighted Average Number Of Shares
Outstanding During the Period 38,604 37,764
Cash Dividends Declared Per Share $0.180 $0.153
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
The Quick & Reilly Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
(In thousands) Nine Months Ended
----------------
November 28, November 29,
1997 1996
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $65,414 $58,807
Adjustments to Reconcile Net Income to
Net Cash Provided By (Used In) Operating Activities:
Depreciation and Amortization 8,489 6,209
Decrease (Increase) in Operating Assets:
Receivable From Brokers, Dealers and
Clearing Organizations (892,085) (422,417)
Receivable From Customers (376,538) 177,973
Securities Owned (68,209) (28,006)
Other Assets (22,357) 401
Increase (Decrease) in Operating Liabilities:
Money Borrowed From Banks (2,142) -
Drafts Payable 7,831 (28,549)
Payable to Brokers, Dealers and Clearing
Organizations 1,236,785 390,039
Payable to Customers 29,902 (194,802)
Securities Sold, But Not Yet Purchased 4,119 13,568
Income Taxes Payable 4,677 (1,201)
Accrued Expenses and Other Liabilities 30,532 (22,545)
--------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 26,418 (50,523)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Dividends Paid on Common Stock (6,958) (5,791)
Payments for Purchase of Treasury Stock (14,682) (147)
Proceeds from Sale of Treasury Stock 8,299 -
Proceeds from Put Options Written 8 12
--------------------------------
NET CASH USED IN FINANCING ACTIVITIES (13,333) (5,926)
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Purchase of Furniture, Equipment
and Leasehold Improvements (7,514) (4,019)
Payment for Acquisition (2,000) -
Payment for Purchase of Exchange Membership - (1,125)
--------------------------------
NET CASH USED IN INVESTING ACTIVITIES (9,514) (5,144)
--------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,571 (61,593)
--------------------------------
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD 89,389 133,287
--------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD $92,960 $71,694
================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid During the Period for-
Interest $127,807 $91,202
Income Taxes 41,036 42,937
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 of income have been restated
for the three months and nine months ended November 29, 1996, to
conform with the November 28, 1997 presentation.
2. Commitments and Contingencies
Margin requirements of approximately $125,439,000 with a clearing
corporation at November 28, 1997 have been satisfied by obtaining letters
of credit of $126,500,000 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 November 28, 1997 and November 29, 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"), five 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 November 28, 1997, the subsidiaries had net capital, in the aggregate, of
$226,049,000 which exceeded aggregate minimum net capital requirements by
$186,321,000.
5. Dividends Declared
On October 17, 1997 the Board of Directors declared a cash dividend of
$0.06 per share payable on January 2, 1998 to holders of record on
December 1, 1997.
6. Announced Merger with Fleet Financial Group
On September 17, 1997, the Company and Fleet Financial Group
announced a definitive agreement, approved by the Company's Board
of Directors, 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
common share of The Quick & Reilly Group. The transaction is expected
to be accounted for as a pooling of interest, and 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:
Third Quarter Ended November 28, 1997 Compared to Third Quarter Ended
November 29, 1996.
Total revenues increased 50% to $177,106,000 while net revenues (revenues
net of interest expense) increased 46% to $127,138,000. Expenses, not
including interest, increased 53% to $86,286,000. Pretax margin on net
revenues decreased from 35% to 32%, while the pretax margin on gross
revenues decreased from 26% to 23%. Net margin on net revenues decreased
from 21% to 18%, while net margin on total revenues decreased from 16%
to 13%. The Company's effective tax rate was 43% for the current quarter
versus 40% for the same quarter last year. Commissions and Clearance
Income increased 29% to $73,984,000 reflecting increased trading
volume. Interest income increased 55% to $70,663,000 primarily due to
increases in customer margin debits and stock borrowing activities. Trading
increased 156% to $30,184,000 primarily due to the over-the-counter trading
of the Nash, Weiss & Co. subsidiary, acquired in March, 1997, as well as
an 86% increase in trading profits at JJC Specialist Corp. Other income
decreased 31% to $2,275,000 primarily because brokerage fees previously
received from Nash, Weiss & Co. are now eliminated in the Company's
consolidated results since the March, 1997 acquisition.
Employee Compensation and Benefits increased 53% to $45,715,000 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 85% to $7,299,000 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 64% to
$12,260,000 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 27% to $1,357,000 due to the additional communication
costs in the Nash, Weiss & Co. subsidiary and due to the increased volume.
Printing, Postage, Stationery and Office Supplies increased 27% to
$1,885,000 reflecting the increased volume. Advertising increased 37% to
$2,862,000 primarily due to increased commitments for advertising in the
Company's Quick & Reilly, Inc. subsidiary. Rent and Other Occupancy
increased 41% to $3,362,000 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 69% to $1,713,000 primarily
due to increased legal and consulting fees. Amortization of Intangibles
increased 42% to $1,615,000 primarily due to the amortization of
intangible assets associated with the Nash, Weiss & Co. acquisition.
Other expenses increased 42% to $8,218,000 primarily due to increases in
research expenditures and additional miscellaneous expenses
attributable to Nash, Weiss & Co.
Nine Months Ended November 28, 1997 Compared to Nine Months Ended
November 29, 1996.
Total revenues increased 33% to $487,097,000 while net revenues
(revenues net of interest expense) increased 28% to $352,621,000.
Expenses, not including interest, increased 37% to $240,267,000.
Pretax margin on net revenues decreased from 36% to 32%, while the
pretax margin on gross revenues decreased from 27% to 23%. Net
margin on net revenues decreased from 21% to 19%, while net margin on
total revenues decreased from 16% to 13%. The Company's effective tax
rate was 42% for the current nine month period versus 41% for the same
period last year.
Commissions and Clearance Income increased 15% to $207,506,000 primarily
due to an increase in the number of trades processed. Interest income
increased 42% to $190,539,000 primarily due to an increases in stock
borrowing activities. Trading increased 95% to $83,337,000 primarily due
to the over-the counter trading of the Nash, Weiss & Co. subsidiary,
acquired in March, 1997 as well as due to a 28% increase in JJC
Specialist Corp.'s trading profits. Other income decreased 46% to $5,715,000
because brokerage fees previously received from Nash, Weiss & Co. are now
eliminated in the Company's consolidated results since the March, 1997
acquisition.
Employee Compensation and Benefits increased 36% to $126,866,000 primarily
due to the increased payroll costs associated with the acquisition of Nash,
Weiss & Co., as well as increases in incentive bonuses. Brokerage, Exchange
and Clearance Fees increased 59% to $20,862,000 primarily due to the
brokerage fees paid by the newly-acquired Nash, Weiss & Co. subsidiary
acquired in March, 1997. Data Processing and Equipment Rental increased 35%
to $33,475,000 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.
Communications increased 9% to $3,933,000 due to the additional
communication costs in the Nash, Weiss & Co. subsidiary and due to the
increased volume. Printing, Postage, Stationery and Office Supplies
increased 13% to $5,820,000 primarily due to the increase in
trading volume. Advertising increased 40% to $8,054,000 primarily due to
increased commitments for advertising in the Company's Quick & Reilly,
Inc. subsidiary. Rent and Other Occupancy increased 42% to $9,570,000
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 30% to $4,634,000 primarily due to increased
legal and consulting fees. Amortization of Intangibles increased 37% to
$4,680,000 primarily due to the amortization of intangible assets associated
with the Nash, Weiss & Co. acquisition. Other expenses increased 38% to
$22,373,000 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> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-28-1997
<CASH> 92,960
<RECEIVABLES> 1,027,252
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 4,041,373
<INSTRUMENTS-OWNED> 228,922
<PP&E> 20,776
<TOTAL-ASSETS> 5,511,904
<SHORT-TERM> 0
<PAYABLES> 1,652,844
<REPOS-SOLD> 0
<SECURITIES-LOANED> 3,389,930
<INSTRUMENTS-SOLD> 26,497
<LONG-TERM> 0
0
0
<COMMON> 3,866
<OTHER-SE> 438,767
<TOTAL-LIABILITY-AND-EQUITY> 5,511,904
<TRADING-REVENUE> 83,337
<INTEREST-DIVIDENDS> 190,539
<COMMISSIONS> 207,506
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 9,545
<INTEREST-EXPENSE> 134,476
<COMPENSATION> 126,866
<INCOME-PRETAX> 112,354
<INCOME-PRE-EXTRAORDINARY> 112,354
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,414
<EPS-PRIMARY> $ 1.70
<EPS-DILUTED> $ 1.70
</TABLE>
