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 March 27, 1997 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) (813) 573-3800_______ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the close of the latest practicable date. 31,650,874 shares of Common Stock as of_May 6, 1997 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Form 10-Q for the Quarter Ended March 27, 1997 INDEX ----- PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Statement of Financial Condition as of March 27, 1997 (unaudited) and September 27, 1996 2 Consolidated Statement of Operations (unaudited) for the three and six month periods ended March 27, 1997 and March 29, 1996 3 Consolidated Statement of Cash Flows (unaudited) for the six months ended March 27, 1997 and March 29, 1996 4 Notes to Consolidated Financial Statements (unaudited) 5 Item 2. Management's Financial Discussion and Analysis 7 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 3: Amended and Restated Articles of Incorporation as filed on March 3, 1997 (filed electronically) Exhibit 11: Computation of Earnings Per Share 11 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 March 27, 1997. RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (in thousands, except share amounts) March 27, September 27, 1996 1997 (Unaudited) ---------------------------- ASSETS Cash and cash equivalents $ 297,719 $ 258,206 Assets segregated pursuant to Federal Regulations: Cash and cash equivalents 6,332 119 Securities purchased under agreements to resell 619,611 476,945 Securities owned: Trading and investment account securities 122,836 124,253 Available for sale securities 237,589 208,897 Receivables: Customers 545,182 459,180 Stock borrowed 1,012,445 864,140 Brokers, dealers and clearing organizations 29,137 24,306 Other 21,185 28,980 Investment in leveraged lease 21,347 20,318 Property and equipment, net 45,727 39,585 Deferred income taxes 21,595 21,189 Deposits with clearing organizations 20,873 22,044 Prepaid expenses and other assets 19,481 18,219 -------------------------- $3,021,059 $2,566,381 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable $ 20,096 $ 24,898 Payables: Customers 1,328,503 1,086,406 Stock loaned 995,106 848,595 Brokers, dealers and clearing organizations 65,852 56,928 Trade and other 61,001 54,007 Trading account securities sold but not yet purchased 64,544 57,210 Accrued compensation 86,661 101,300 Income taxes payable 18,675 10,405 -------------------------- 2,640,438 2,239,749 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 50,000,000 shares; issued 32,665,720 shares 326 217 Additional paid-in capital 51,145 50,271 Unrealized gain (loss) on securities available for sale, net of deferred taxes (901) (791) Retained earnings 339,443 289,096 -------------------------- 390,013 338,793 Less: 1,023,124 and 1,324,165 common shares in treasury,at cost (9,392) (12,161) -------------------------- 380,621 326,632 -------------------------- $3,021,059 $2,566,381 ========================== 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 Six Months Ended March 27, March 29, March 27, March 29, 1997 1996 1997 1996 ------------------------------------------- Revenues: Securities commissions $130,341 $110,572 $241,836 $202,342 Investment banking 24,119 10,593 42,029 21,678 Investment advisory fees 12,139 11,458 26,363 23,030 Interest 37,686 33,183 73,564 59,747 Correspondent clearing 1,202 971 2,236 1,847 Net trading and investment profits 4,022 3,430 8,711 6,209 Financial service fees 5,685 4,500 11,019 8,279 Gain on sale of interest in Liberty Investment Management, Inc. 30,646 - 30,646 - Other 4,155 4,012 8,410 7,613 -------------------------------------------- Total revenues 249,995 178,719 444,814 330,745 -------------------------------------------- Expenses: Employee compensation 132,465 106,060 247,781 195,473 Communications 9,207 7,990 17,068 14,789 Occupancy and equipment 6,633 6,128 12,817 12,199 Clearing and floor brokerage 3,102 2,927 5,505 5,306 Interest 25,068 22,277 48,547 38,913 Business development 4,712 3,859 9,427 7,864 Other 6,680 4,813 13,543 11,247 ------------------------------------------- Total expenses 187,867 154,054 354,688 285,791 ------------------------------------------- Income before provision for income taxes 62,128 24,665 90,126 44,954 Provision for income taxes 23,998 9,352 34,828 17,100 ------------------------------------------- Net income $ 38,130 $ 15,313 $ 55,298 $ 27,854 =========================================== Net income per share $ 1.18 $ .49 $ 1.72 $ .89 =========================================== Cash dividends declared per share $ .08 $_ .063 $ .153 $ .126 =========================================== Average common equivalent shares outstanding 32,273 31,546 32,065 31,442 =========================================== See Notes to Consolidated Financial Statements. RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (in thousands) Six Months Ended March 27, March 29, 1997 1996 -------------------------- Cash flows from operating activities: Net income $ 55,298 $ 27,854 -------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,224 5,581 (Increase) decrease in assets: Securities available for sale (28,692) (66,006) Short-term investments - 24,001 Receivables: Customers (86,002) (12,559) Stock borrowed (148,305) (426,746) Brokers, dealers and clearing organizations (4,831) (9,122) Other 7,795 3,325 Trading and investment account securities, net 8,751 14,053 Deferred income taxes (406) 449 Prepaid expenses and other assets (1,120) (3,705) Increase (decrease) in liabilities: Payables: Customers 242,097 193,522 Stock loaned 146,511 416,488 Brokers, dealers and clearing organizations 8,924 7,953 Trade and other 6,994 18,681 Accrued compensation (14,639) (9,496) Income taxes payable 8,270 (3,318) -------------------------- Total adjustments 151,571 153,101 -------------------------- Net cash provided by operating activities 206,869 180,955 -------------------------- Cash flows from investing activities: Additions to property and equipment, net (12,366) (2,747) -------------------------- Cash flows from financing activities: Repayments on notes (4,802) (86) Issuance of common stock 3,644 2,427 Cash dividends on common stock (4,838) (3,943) Cash paid for fractional shares (5) - Unrealized gain (loss) on securities available for sale, net (110) (736) -------------------------- Net cash used in financing activities (6,111) (2,338) -------------------------- Net increase in cash and cash equivalents 188,392 175,870 Cash and cash equivalents at beginning of period 735,270 420,379 --------------------------- Cash and cash equivalents at end of period $923,662 $596,249 =========================== Supplemental disclosures of cash flow information: Cash paid for interest $ 47,129 $ 36,188 =========================== Cash paid for taxes $ 26,964 $ 19,969 =========================== See Notes to Consolidated Financial Statements. RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 27, 1997 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 $10 million upon request. RJTCF, a wholly-owned subsidiary of the Company, is a sponsor of limited partnerships qualifying for low income housing tax credits. The borrowings are secured by properties under development. The commitment expires on November 30, 1997, at which time any outstanding balances will be due and payable. At March 27, 1997, there were loans of $700,000 outstanding. The Company is a defendant or co-defendant in various lawsuits incidental to its securities business. The Company is contesting the allegations in these cases and believes that there are meritorious defenses in each of these lawsuits. In view of the number and diversity of claims against the Company, the number of jurisdictions in which litigation is pending and the inherent difficulty of predicting the outcome of litigation and other claims, the Company cannot state with certainty what the eventual outcome of pending litigation or other claims will be. In the opinion of management, based on discussions with counsel, the outcome of these matters will not result in a material adverse effect on the financial position or results of operations. Capital Transactions The Company's Board of Directors has, from time to time, adopted resolutions authorizing the Company to repurchase its common stock for the funding of its incentive stock option and stock purchase plans and other corporate purposes. As of March 27, 1997, management has Board authorization to purchase up to 1,500,000 shares. At their meeting on February 14, 1997, the Company's Board of Directors declared a 3-for-2 stock split. The additional shares were distributed on April 3, 1997, to shareholders of record on March 7, 1997. All references in the consolidated financial statements to amounts per share and to the average number of shares outstanding have been restated to give retroactive effect to the stock split. Also at their meeting on February 14, 1997, the Board of Directors of the Company increased the quarterly cash dividend to $.08 per post-split share. Net Capital Requirements The broker-dealer subsidiaries of the Company are subject to the requirements of Rule 15c3-1 under the Securities Exchange Act of 1934. This rule requires that aggregate indebtedness, as defined, not exceed fifteen times net capital, as defined. Rule 15c3-1 also provides for an "alternative net capital requirement" which, if elected, requires that net capital be equal to the greater of $250,000 or two percent of aggregate debit items computed in applying the formula for determination of reserve requirements. The New York Stock Exchange may require a member organization to reduce its business if its net capital is less than four percent of aggregate debit items and may prohibit a member firm from expanding its business and declaring cash dividends if its net capital is less than five percent of aggregate debit items. The net capital positions of the Company's broker-dealer subsidiaries at March 27, 1997 were as follows (dollar amounts in thousands): Raymond James & Associates, Inc.: (alternative method elected) Net capital as a percent of aggregate debit items 21.00% Net capital $121,739 Required net capital $11,453 Investment Management & Research, Inc.: Ratio of aggregate indebtedness to net capital 1.40 Net capital $6,540 Required net capital $610 Robert Thomas Securities, Inc.: Ratio of aggregate indebtedness to net capital 3.12 Net capital $2,490 Required net capital $518 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 27, 1996.) Results of Operations - Three months ended March 27, 1997 compared with three months ended March 29, 1996. As previously announced, the Company completed the sale of its interest in Liberty Investment Management, Inc. ("Liberty") during the current quarter. Pursuant to an agreement executed in 1994, the Company was to receive, for the five years ending December 31, 1999, 50% of the revenues derived from institutional growth equity accounts previously managed by its Eagle Asset Management subsidiary. Liberty assumed management of approximately $4.3 billion of such accounts effective January 1, 1995, and this arrangement generated an average of approximately $2.4 million per quarter for the Company during calendar years 1995 and 1996. Liberty was sold to Goldman Sachs Asset Management in early January 1997, and the Company received $30.6 million, shown as a separate line item on the statement of operations, for its remaining three years' interest in account revenues and its option to purchase a 20% interest in Liberty at a future date. This transaction generated net income of $18.8 million, or $.58 per share. Excluding the one-time effect of the Liberty sale, revenues were $219,349,000, representing a 23% increase over last year's $178,719,000. Net income, also excluding the one-time gain on the sale of Liberty, was $19,341,000, the Company's second highest ever and a 26% increase over the $15,313,000 in the prior year. The Company's transaction volume set a record for the quarter; accordingly, securities commission revenues increased 18% over the same quarter of the prior year. Sales of equities and annuities were exceptionally strong. The 11% increase in number of account executives was complemented by increased productivity to attain the overall increase. Investment banking revenues increased as the number of offerings managed or co-managed doubled from 6 in the quarter ended March 1996 to 12 in the current quarter, with the dollar volume underwritten rising from $473 million to $733 million, a 55% increase. This quarter's investment banking revenues were further augmented by the recognition of revenues from the final settlements on some of the deals completed in the first quarter of this fiscal year. Beginning in the quarter ended March 1997, investment advisory fees no longer include the aforementioned fees received from Liberty. Excluding the fees recorded from Liberty in the prior year's quarter, investment advisory fees have increased approximately 28% due to increased assets under management as shown below. Both asset appreciation and record retail sales volumes have contributed to the increases. March 27, March 29, % Increase 1997 1996 (Decrease) ------------------------------------------ Assets Under Management (000's): Eagle Asset Management, Inc. $2,705,000 $2,104,000 29% Heritage Family of Mutual Funds 2,816,000 2,256,000 25% Investment Advisory Services 1,169,000 914,000 28% Awad and Associates Asset Mgnt. 545,000 432,000 26% Carillon Asset Management 43,000 60,000 (28)% ------------------------------------------ Total Financial Assets Under Management $7,279,000 $5,766,000 26% ========================================== Tangible Assets Under Mgnt. $1,843,909 $1,529,000 21% ========================================== Net interest income of $12.6 million was 16% higher than the prior year and established an eleventh consecutive quarterly record. Growth in customer deposit balances, in both the brokerage and banking subsidiaries, has continued at a rapid pace. Financial service fees continue to increase with the growth in the number of accounts which generate administrative fees for the Company such as IRA accounts, trust accounts and Passport (wrap fee) accounts. The largest portion of the increase in employee compensation continues to be in registered representative compensation, a direct result of increased securities commissions and investment banking revenues. In addition, departmental and Company-wide profit-based incentive compensation accruals increased commensurate with increased profitability (excluding the one-time Liberty gain), while administrative and clerical compensation continued to rise as additional staff were hired in order to support the Company's growth. Communications expenses include the expenses related to communicating with a larger sales force and client base, reflected in increased postage and printing costs and increased expenditures on computer equipment. Other expenses reflect increases resulting from overall firm growth. Results of Operations - Six months ended March 27, 1997 compared with six months ended March 29, 1996. Revenues for the six months ended March 27, 1997, exclusive of the Liberty sale, were up 25% to $414,168,000, while net income increased 31% to $36,509,000, or $1.14 per share. (The underlying reasons for most of the variances to the prior year period are substantially the same as the comparative quarterly discussion above and the statements contained in such foregoing discussion also apply to the six month comparison. Therefore, this section is limited to the discussion of additional factors influencing the comparative six month results.) Investment banking revenues are markedly higher in the current year as a result of two strong underwriting quarters. For the six months, the Company has managed or co-managed 33 offerings for a total of $3.4 billion raised versus 38 offerings with $2.7 billion raised in all of fiscal 1996. Due to the growth of assets under management, investment advisory fees exceeded the prior year figure in spite of the fact the prior year includes two quarters of fees from Liberty, while the current year includes only one quarter of these fees. Financial Condition The Company's total assets have increased significantly since fiscal year end, the combined result of increased matched-book stock loan program balances and increased customer cash balances, particularly in the client interest program. Customer cash balances are reflected as a customer payable, and the corresponding assets are either customer receivables (margin loans) or assets segregated pursuant to Federal Regulations. Liquidity and Capital Resources Net cash provided by operating activities for the six months was $206,869,000. The primary source of this increase was the aforementioned increased customer cash balances, which does not give rise to cash available for use in normal operations due to regulatory segregation requirements, and the proceeds received from the sale of Liberty. Investing and financing activities used $18,477,000 during the six months, the primary uses being the payment of cash dividends, repayments on bank loans and purchases of property and equipment, with an offsetting source being employee stock purchases and exercises of stock options. The Company has debt in the amount of $12,814,000 in the form of a mortgage on the first of its two current headquarters buildings. The second building was constructed using internally generated funds. During the current quarter, the Company commenced construction of a third building at its headquarters complex. The 270,000 square foot tower, including an adjacent parking garage, is scheduled for completion during the first quarter of calendar 1998. Construction will be financed with internal funds, and longer term financing plans have not yet been finalized. The Company has two committed lines of credit. During 1995, the parent company obtained an unsecured $50 million line for general corporate purposes. In addition, a $50 million line was established to finance Raymond James Credit Corporation, a Regulation G subsidiary organized to provide loans collateralized by restricted or control shares of public companies. The balance of $7,282,000 outstanding on this line is included in bank notes payable. In addition, Raymond James & Associates, Inc. has uncommitted lines of credit aggregating $255 million. The Company's broker-dealer subsidiaries are subject to requirements of the Securities and Exchange Commission relating to liquidity and capital standards (see Notes to Consolidated Financial Statements). 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. Item 4. Submission of Matters to a Vote of Security Holders The following matters were approved by shareholders at the Company's Annual Meeting of Shareholders held on February 13, 1997: 1. Election of Directors: Director For Against Abstain Jonathan A. Bulkley 16,621,455 8,319 36,369 Thomas S. Franke 16,620,805 8,969 36,369 Francis S. Godbold 16,620,635 9,139 36,369 M. Anthony Greene 16,621,723 8,051 36,369 Harvard H. Hill, Jr. 16,620,191 9,583 36,369 Huntington A. James 16,614,399 15,375 36,369 Thomas A. James 16,621,172 8,602 36,369 Paul W. Marshall 16,625,931 3,843 36,369 J. Stephen Putnam 16,620,436 9,338 36,369 Robert F. Shuck 16,621,834 7,940 36,369 Dennis W. Zank 16,597,896 31,878 36,369 2. Proposal to ratify Incentive Compensation Criteria for certain of the Company's executive officers: For 16,383,878 Against 170,824 Abstain 111,141 3. Proposal to ratify the selection of Price Waterhouse LLP as independent accountants of the Company for the fiscal year ending September 26, 1997: For 16,549,103 Against 32,867 Abstain 84,173 EXHIBIT 11 RAYMOND JAMES FINANCIAL, INC. COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts) Three Months Ended Six Months Ended March 27, March 29, March 27, March 29, 1997 1996 1997 1996 ------------------------------------------------- Net income $38,130 $15,313 $55,298 $27,854 ================================================= Average number of common shares and equivalents outstanding during the period 31,575 31,203 31,486 31,082 Additional shares assuming exercise of stock options (1) 698 343 579 360 ------------------------------------------------- Average number of common shares used to calculate earnings per share 32,273 31,546 32,065 31,442 ================================================= Net income per share $ 1.18 $ .49 $ 1.72 $ .89 ================================================= (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: May 9, 1997 /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