FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________ to ________________
Commission file number 1-9109
------
RAYMOND JAMES FINANCIAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida No. 59-1517485
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
880 Carillon Parkway, St. Petersburg, Florida 33716
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(727) 573-3800
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No___
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the close of the latest practicable date.
45,959,225 shares of Common Stock as of February 4, 2000
--------------------------------------------------------
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
----------------------------------------------
Form 10-Q for the Quarter Ended December 31, 1999
-------------------------------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION
---------------------
PAGE
Item 1. Financial Statements
Consolidated Statement of Financial Condition as of
December 31, 1999 (unaudited) and September 24, 1999 2
Consolidated Statement of Operations (unaudited) for the
three month period ended December 31, 1999 and
December 24, 1998 3
Consolidated Statement of Cash Flows (unaudited) for the
three months ended December 31, 1999 and December 24, 1998 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Financial Discussion and Analysis 7
PART II. OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share 10
Exhibit 27: Financial Data Schedule - EDGAR version only
(filed electronically)
(b) Reports on Form 8-K: None
All other items required in Part II have been previously filed or
are not applicable for the quarter ended December 31, 1999.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
---------------------------------------------
(in thousands, except share amounts)
December 31, September 24,
1999 1999
------------ -------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 300,412 $ 250,855
Assets segregated pursuant to Federal Regulations:
Cash and cash equivalents 51 9
Securities purchased under agreements to resell 1,363,785 1,102,979
Securities owned:
Trading and investment account securities 153,019 180,967
Available for sale securities 434,227 400,143
Receivables:
Clients, net 1,740,490 1,447,618
Stock borrowed 1,368,695 1,277,692
Brokers, dealers and clearing organizations 62,386 34,670
Other 75,688 69,339
Investment in leveraged leases 24,055 23,950
Property and equipment, net 94,091 91,335
Deferred income taxes, net 40,582 39,631
Deposits with clearing organizations 24,034 24,634
Intangible assets 34,352 34,866
Prepaid expenses and other assets 43,251 52,027
----------- -----------
$5,759,118 $5,030,715
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 145,701 $ 201,504
Payables:
Clients 3,395,584 2,524,352
Stock loaned 1,283,939 1,378,821
Brokers, dealers and clearing organizations 40,582 55,722
Trade and other 121,921 101,772
Trading account securities sold but not yet
purchased 71,232 33,400
Accrued compensation and commissions 121,173 172,066
Income taxes payable 18,488 4,592
----------- -----------
5,198,620 4,472,229
----------- -----------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock; $.10 par value; authorized
10,000,000 shares; issued and outstanding
-0- shares - -
Common stock; $.01 par value; authorized
100,000,000 shares; issued 48,997,995 shares 490 490
Additional paid-in capital 57,044 58,023
Other comprehensive income (1,917) (1,076)
Retained earnings 554,207 530,885
----------- -----------
609,824 588,322
Less: 2,842,642 and 1,755,585 common shares
in treasury, at cost (49,326) (29,836)
----------- -----------
560,498 558,486
----------- -----------
$5,759,118 $5,030,715
=========== ===========
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended
-----------------------------
December 31, December 24,
1999 1998
------------ ------------
Revenues:
Securities commissions and fees $244,023 $164,259
Investment banking 16,158 11,530
Investment advisory fees 25,467 20,478
Interest 75,904 49,176
Correspondent clearing 1,316 1,068
Net trading profits 5,235 6,046
Financial service fees 10,095 7,221
Other 5,728 4,729
--------- ---------
Total revenues 383,926 264,507
--------- ---------
Expenses:
Employee compensation and benefits 237,791 162,556
Communications and information processing 14,110 10,761
Occupancy and equipment 11,944 9,858
Clearing and floor brokerage 3,282 2,760
Interest 48,883 31,841
Business development 10,479 9,128
Other 14,210 9,266
--------- ---------
Total expenses 340,699 236,170
--------- ---------
Income before provision for income taxes 43,227 28,337
Provision for income taxes 16,411 10,858
--------- ---------
Net income $ 26,816 $ 17,479
========= =========
Net income per share-basic $ .57 $ .36
========= =========
Net income per share-diluted $ .56 $ .36
========= =========
Cash dividends declared per
common share $ .075 $ .07
========= =========
Weighted average common shares
outstanding-basic 46,876 48,119
========= =========
Weighted average common and common
equivalent shares outstanding-diluted 47,498 49,115
========= =========
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(UNAUDITED)
(in thousands)
Three Months Ended
-----------------------------
December 31, December 24,
1999 1998
------------ ------------
Cash flows from operating activities:
Net income $ 26,816 $ 17,479
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,401 4,860
(Increase) decrease in assets:
Available for sale investments (34,084) 13,433
Deposits with clearing organizations 600 (458)
Receivables:
Clients, net (292,872) 45,221
Stock borrowed (91,003) (353,189)
Brokers, dealers and clearing organizations (27,716) 82,465
Other (6,349) 11,922
Trading account securities, net 65,780 (68,085)
Deferred income taxes (951) (23)
Prepaid expenses and other assets 9,185 (13,705)
Increase (decrease) in liabilities:
Payables:
Clients 871,232 134,576
Stock loaned (94,882) 340,424
Brokers, dealers and clearing organizations (15,140) 9,631
Trade and other 20,149 62,927
Accrued compensation (50,893) (37,035)
Income taxes payable 13,896 6,864
----------- -----------
Total adjustments 372,353 239,828
----------- -----------
Net cash provided by
operating activities 399,169 257,307
----------- -----------
Cash flows from investing activities:
Additions to property and equipment, net (8,157) (6,356)
----------- -----------
Net cash used in investing activities (8,157) (6,356)
----------- -----------
Cash flows from financing activities:
Borrowings from banks and financial institutions 51,351 20,000
Repayments on loans (107,154) (144)
Exercise of stock options and employee stock
purchases 1,560 2,212
Purchase of treasury stock (22,029) (4,430)
Sale of stock options - 502
Cash dividends on common stock (3,494) (3,370)
Currency translation (254) -
Unrealized AGS valuation account (587) (335)
----------- -----------
Net cash (used in) provided by financing activities (80,607) 14,435
----------- -----------
Net increase in cash and cash equivalents 310,405 265,386
Cash and cash equivalents at beginning of period 1,353,843 1,243,541
----------- -----------
Cash and cash equivalents at end of period $1,664,248 $1,508,927
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 36,425 $ 29,932
=========== ===========
Cash paid for taxes $ 3,467 $ 10,447
=========== ===========
See Notes to Consolidated Financial Statements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
December 31, 1999
-----------------
Basis of Consolidation
The consolidated financial statements include the accounts of Raymond
James Financial, Inc. and its consolidated subsidiaries (the "Company"). All
material intercompany balances and transactions have been eliminated in
consolidation. These statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. All such adjustments made are of a normal,
recurring nature. The nature of the Company's business is such that the
results of any interim period are not necessarily indicative of results for a
full year.
Commitments and Contingencies
The Company has committed to lend to, or guarantee other debt for, Raymond
James Tax Credit Funds, Inc. ("RJTCF") up to $45 million upon request. RJTCF,
a wholly-owned subsidiary of the Company, is a sponsor of limited partnerships
qualifying for low income housing tax credits. The borrowings are secured by
properties under development. The commitment expires in November 2000, at
which time any outstanding balances will be due and payable. At December 31,
1999, there were loans of $5,412,300 outstanding.
The Company has guaranteed lines of credit for their various foreign joint
ventures as follows: 2 lines of credit totaling $6 million in Turkey, 2 lines
of credit not to exceed $8 million in Argentina, $5 million line of credit and
a $325,000 letter of credit in India.
The Company is a defendant or co-defendant in various lawsuits incidental
to its securities business. The Company is contesting the allegations in these
cases and believes that there are meritorious defenses in each of these
lawsuits. In view of the number and diversity of claims against the Company,
the number of jurisdictions in which litigation is pending and the inherent
difficulty of predicting the outcome of litigation and other claims, the
Company cannot state with certainty what the eventual outcome of pending
litigation or other claims will be. In the opinion of management, based on
discussions with counsel, the outcome of these matters will not result in a
material adverse effect on the financial position or results of operations.
The Securities and Exchange Commission, the Internal Revenue Service and
the National Association of Securities Dealers, Inc. continue their review of
investment banking practices in connection with advance refunding transactions
for municipalities. Along with other participants, the Company continues to
cooperate in this investigation and does not anticipate that the resolution
will have a material effect on its business or operations.
Capital Transactions
The Company's Board of Directors has, from time to time, adopted
resolutions authorizing the Company to repurchase its common stock for the
funding of its incentive stock option and stock purchase plans and other
corporate purposes. In May 1999, the Board increased management's
authorization to 2,500,000 shares, of which 1,040,375 remained available to
purchase as of December 31, 1999.
At their meeting on November 19, 1999, the Board of Directors of the
Company increased the quarterly cash dividend to $.075 per share.
Net Capital Requirements
The broker-dealer subsidiaries of the Company are subject to the
requirements of Rule 15c3-under the Securities Exchange Act of 1934. This rule
requires that aggregate indebtedness, as defined, shall not exceed fifteen
times net capital, as defined. Rule 15c3-1 also provides for an "alternative
net capital requirement" which, if elected, requires that net capital be equal
to the greater of $250,000 or two percent of aggregate debit items computed in
applying the formula for determination of reserve requirements. The New York
Stock Exchange may require a member organization to reduce its business if its
net capital is less than four percent of aggregate debit items and may prohibit
a member firm from expanding its business and declaring cash dividends if its
net capital is less than five percent of aggregate debit items. The net
capital position of the Company's clearing broker-dealer subsidiary at December
31, 1999 was as follows (dollar amounts in thousands):
Raymond James & Associates, Inc.:
---------------------------------
(alternative method elected)
Net capital as a percent of aggregate debit items 15.14%
Net capital $254,653
Required net capital $33,638
All other broker-dealer subsidiaries were in compliance during the periods
presented.
Comprehensive Income
Total comprehensive income for the three months ended December 31, 1999 and
December 24, 1998 is as follows (in thousands):
Three Months Ended
---------------------------
December 31, December 24,
1999 1998
------------ ------------
Net income $ 26,816 $ 17,479
Accumulated other comprehensive income:
Unrealized gains(loss)
on securities, net of tax (1,663) (221)
Cumulative translation adjustment (254) -
Total comprehensive income $ 24,898 $ 17,258
========= =========
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
(Any statements containing forward looking information should be read in
conjunction with Management's Discussion and Analysis of Results of Operations
and Financial Condition in the Company's Annual Report on Form 10-K for the
year ended September 24, 1999).
Results of Operations - Three months ended December 31, 1999 compared with three
- --------------------- months ended December 24, 1998.
-------------------------------
Record quarterly revenues of $383,926,000 exceeded the December 1998
quarter's $264,507,000 by 45%. Net income of $26,816,000 also represented a
quarterly record and a 53% increase over the $17,479,000 in the prior year.
Net income per share of $.56 was a larger increase than that of net income due
to the impact of fewer shares outstanding as a result of the Company's
purchases of treasury shares.
On May 28, 1999 the Company purchased Roney & Co. ("Roney"). Immediately
subsequent to fiscal year end 1999, Roney was contributed to and merged into
RJA. Prior year results do not include Roney.
Continued active equity markets led to record quarterly transaction volume
and resultant commission revenues, with the latter increasing 49% over last
year's quarter. A 12% increase in the number of Financial Advisors (excluding
the addition of 320 brokers from the Roney acquisition) was complemented by
increased productivity and favorable market conditions to produce the overall
increase.
Although underwriting activity was improved from the extremely poor
comparable prior year quarter, it is still far below the levels experienced in
fiscal 1997 and 1998. The Company managed or co-managed 5 deals raising $266
million in the quarter ended December 1999 vs. 2 deals raising $71 million in
the quarter ended December 1998. Merger & acquisition fees were essentially
flat with the prior year.
Financial assets under management and the related investment advisory fees
continued their steady growth, as fees increased 24% over the prior year.
December 31, December 24, %Increase
1999 1998 (Decrease)
------------ ------------ ----------
Assets Under Management (000's):
Eagle Asset Management, Inc. $ 5,674,064 $ 5,489,741 3%
Heritage Family of Mutual Funds 5,405,093 3,939,815 37%
Investment Advisory Services 3,949,000 2,089,231 89%
Awad Asset Management 614,000 681,591 (10%)
----------- -----------
Total Financial Assets Under
Management $15,642,157 $12,200,378 28%
=========== ===========
Net interest income of $27 million established a quarterly record and was
56% higher than the comparable prior year quarter. A near doubling of margin
loan balances, including $215 million in margin balances from the Roney
acquisition, and continued growth in customer deposits continue to account for
most of the increase. Net interest income was also favorably impacted by the
merger of Roney into RJA, allowing the Roney margin balances to be financed
internally with customer cash balances rather than bank borrowings.
Financial service fees continue to increase with the growth in the number
of accounts which generate administrative or transaction fees for the Company
such as IRA annual account fees, transaction fees in Passport (wrap fee)
accounts, and money market distribution fees.
Other revenues include increased postage & handling fees related to
transaction volume.
The largest portion of the increase in employee compensation continues to
be in Financial Advisor compensation, a direct result of increased securities
commissions. In addition, administrative and clerical compensation has
increased due to an increased number of support and backoffice staff to
accommodate growth, including the establishment of a second operations center
at Roney's former headquarters in Detroit.
The increase in communications and information processing is the aggregate
result of several factors arising from the Company's general growth, including
increased telephone, higher postage, increased cost of market quotation
services, and computer maintenance.
Occupancy and equipment costs reflect the addition of the Roney branch
offices, the expansion of several other branch offices and the establishment of
a second operations center in Detroit.
Increased business development expenses include additional advertising for
brand recognition and recruiting purposes, travel expenses, and various costs
associated with general overall growth.
The increase in other expenses is primarily attributable to increased
legal expenses, settlements and accruals.
Segment Information
- -------------------
The Company's reportable segments are: retail distribution, institutional
distribution, investment banking, asset management and other. Segment data
include charges allocating corporate overhead to each segment. Intersegment
revenues and charges are eliminated between segments. The Company has not
disclosed asset information by segment as the information is not produced
internally.
Information concerning operations in these segments of business is as
follows:
Three Months Ended
----------------------------
December 31, December 24,
1999 1998
------------ ------------
Revenues: (000's)
- ---------
Retail distribution $279,244 $173,782
Institutional distribution 43,971 42,170
Investment banking 6,628 4,639
Asset management 26,472 21,392
Other 27,611 22,524
--------- ---------
Total $383,926 $264,507
========= =========
Pre-tax Income: (000's)
- ---------------
Retail distribution $ 34,814 $ 14,356
Institutional distribution 4,382 5,568
Investment banking (360) (1,146)
Asset management 5,343 4,566
Other (952) 4,993
--------- ---------
Total $ 43,227 $ 28,337
========= =========
Financial Condition
- -------------------
The Company's total assets have increased 14% since fiscal year end,
reaching $5.75 billion. The rise is due to the increase in stock borrow
balances, increased customer margin loan and cash balances. Customer cash
balances are reflected as a client payable. Customer margin loan balances are
included in client receivables.
In addition to the $39 million mortgage on the corporate headquarter
complex, loans payable at December 31, 1999 include $50 million to finance
customer borrowing in a finance subsidiary and a $50 million parent company
term loan.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities for the three months was
$399,169,000. The primary source was the aforementioned increased customer
cash balances net of increased customer margin loans.
Investing and financing activities used a net additional $88,764,000 over
the past three months. The use of cash was the repayment of short term
borrowings from banks under existing credit lines and the purchases of treasury
stock. The portion of the short term borrowings used to finance the purchase
of Roney was replaced by a three-year term loan.
The Company has a term loan and two lines of credit. The parent company
has a $50 million three-year term loan and a committed, unsecured $100 million
line for general corporate purposes. In addition, Raymond James Credit
Corporation, a finance subsidiary which provides loans collateralized by
restricted or control shares of public companies, has a $50 million line of
credit. Raymond James & Associates, Inc., the company's clearing broker-
dealer, also maintains uncommitted lines of credit aggregating $480 million
with commercial banks ($235,000,000 secured and $245,000,000 unsecured).
The Company's broker-dealer subsidiaries are subject to requirements of
the Securities and Exchange Commission relating to liquidity and capital
standards (see Notes to Consolidated Financial Statements).
Year 2000
- ---------
The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
computer systems to malfunction in the Year 2000 and lead to significant
business delays and disruptions in the U.S. and internationally.
The Company successfully completed all preparations for transition and
experienced no material problems during the first two weeks of securities
trading in 2000. Minor issues that were identified were quickly resolved. This
was consistent with the general experience of the securities industry.
Although there are additional dates in 2000 that could be affected by
these issues, the Company does not believe that it will experience any major
disruptions to its business activities.
Effects of Inflation
- --------------------
The Company's assets are primarily liquid in nature and are not
significantly affected by inflation. Management believes that the changes in
replacement cost of property and equipment would not materially affect
operating results. However, the rate of inflation affects the Company's
expenses, including employee compensation, communications and occupancy, which
may not be readily recoverable through charges for services provided by the
Company.
RAYMOND JAMES FINANCIAL, INC.
-----------------------------
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
(in thousands, except per share amounts)
Three Months Ended
--------------------------
December 31, December 24,
1999 1998
------------ ------------
Net income $26,816 $17,479
======= =======
Weighted average common - basic
shares outstanding 46,876 48,119
Additional shares assuming
exercise of stock
options and warrants(1) 622 996
------- -------
Weighted average common and
common equivalent shares - diluted(1) 47,498 49,115
======= =======
Net income per share-basic $ .57 $ .36
======= =======
Net income per share-diluted(1) $ .56 $ .36
======= =======
(1) Represents the number of shares of common stock issuable on the exercise
of dilutive employee stock options less the number of shares of common stock
which could have been purchased with the proceeds from the exercise of such
options.These purchases were assumed to have been made at the average market
price of the common stock during the period, or that part of the period for
which the option was outstanding.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RAYMOND JAMES FINANCIAL, INC.
-----------------------------
(Registrant)
Date: February 9, 2000 /s/ Thomas A. James
---------------- -----------------------------
Thomas A. James
Chairman and Chief
Executive Officer
/s/ Jeffrey P. Julien
-----------------------------
Jeffrey P. Julien
Vice President - Finance
and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-2000
<PERIOD-END> DEC-31-1999
<CASH> 300,463,000
<RECEIVABLES> 1,878,564,000
<SECURITIES-RESALE> 1,363,785,000
<SECURITIES-BORROWED> 1,368,695,000
<INSTRUMENTS-OWNED> 587,246,000
<PP&E> 94,091,000
<TOTAL-ASSETS> 5,759,118,000
<SHORT-TERM> 51,675,000
<PAYABLES> 3,558,087,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 1,283,939,000
<INSTRUMENTS-SOLD> 71,232,000
<LONG-TERM> 94,026,000
0
0
<COMMON> 490,000
<OTHER-SE> 560,008,000
<TOTAL-LIABILITY-AND-EQUITY> 5,759,118,000
<TRADING-REVENUE> 5,235,000
<INTEREST-DIVIDENDS> 75,904,000
<COMMISSIONS> 244,023,000
<INVESTMENT-BANKING-REVENUES> 16,158,000
<FEE-REVENUE> 35,562,000
<INTEREST-EXPENSE> 48,883,000
<COMPENSATION> 237,791,000
<INCOME-PRETAX> 43,227,000
<INCOME-PRE-EXTRAORDINARY> 43,227,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,816,000
<EPS-BASIC> .57
<EPS-DILUTED> .56
</TABLE>
