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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one) FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended SEPTEMBER 27, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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)
Registrant's telephone number, including area code (813) 573-3800
-----------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ---------------------------- -----------------------------------------
Common Stock, $.01 Par Value 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 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]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 13, 1996: $284,886,701.
Number of common shares outstanding (December 13, 1996): 20,970,681
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held on February 13,
1997. (The Company intends to file with the Commission a definitive proxy
statement pursuant to Regulation 14A prior to January 24, 1997.)
PART I
ITEM 1. BUSINESS
(a) GENERAL DESCRIPTION OF BUSINESS
Raymond James Financial, Inc. ("RJF") is a Florida-based holding company
that was incorporated in 1974 as a successor to its predecessor corporation
founded in 1962. Its principal subsidiaries include Raymond James & Associates,
Inc. ("RJA"), Investment Management & Research, Inc. ("IM&R"), Robert Thomas
Securities, Inc. ("RTS"), Eagle Asset Management, Inc. ("Eagle"), Heritage Asset
Management, Inc. ("Heritage") and Raymond James Bank, FSB. All of these
subsidiaries are wholly-owned by RJF. RJF and its subsidiaries are hereinafter
collectively referred to as the "Company".
RJF's principal subsidiary, RJA, was organized in Florida in 1962. RJA is
a regional securities brokerage firm engaged in most aspects of the securities
business. All but 11 of RJA's 42 retail branch offices are located in Florida,
and the Company is the largest brokerage and investment firm headquartered in
that state. RJA also has 16 institutional sales offices, 7 of which are located
in Europe. RJA is a member of the New York Stock Exchange ("NYSE") and other
principal stock and option exchanges.
IM&R was formed in 1973 as an independent contractor financial planning
organization and participates in the distribution of all products and services
offered by RJA to its retail customers through its 439 offices and 78 satellite
offices in all 50 states. IM&R is a member of the National Association of
Securities Dealers ("NASD") and Securities Investor Protection Corporation
("SIPC"), but not of any exchange, as it clears its trades on a fully-disclosed
basis through RJA.
RTS was organized in 1981. It serves independent contractor brokers who do
a majority of their business in individual securities and currently operates 299
branch offices and 106 satellite offices in 48 states. RTS, like IM&R, is a
member of the NASD and SIPC, but not of any exchange, as it also clears all of
its business on a fully-disclosed basis through RJA.
Eagle was formed in 1984 as a registered investment advisor and at
September 27, 1996 had approximately $2.4 billion of client assets under
management. Prior to the inception of Eagle, the asset management operation had
been a division of RJA.
Heritage was organized in 1985 to act as the manager of the Company's
internally sponsored Heritage family of mutual funds. At September 27, 1996 the
eleven funds managed by Heritage had a total of approximately $2.4 billion in
assets.
Raymond James Bank was formed in 1994 in conjunction with the purchase
from the RTC of the deposits of a failed thrift. Its primary purpose is to
provide traditional banking products and services to the clients of the
Company's broker-dealer subsidiaries. At September 27, 1996, Raymond James Bank
had $227 million in assets.
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(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's operations consist of various financial services provided to
its clients. The following table shows revenues by source for the last three
years:
YEAR ENDED
--------------------------------------------------------------------
Sept. 27, Sept. 29, Sept. 30,
1996 % 1995 % 1994 %
-------- ------ -------- ------ -------- ------
(dollar amounts in thousands)
SECURITIES COMMISSIONS:
Listed products $ 90,536 12.5 $ 82,738 14.9 $ 68,938 13.6
Over-the-counter .. 133,543 18.5 110,062 19.9 92,609 18.3
Mutual funds 96,099 13.3 68,994 12.4 76,115 15.0
Asset management .. 45,005 6.2 31,159 5.6 27,202 5.4
Annuities and other
insurance products 56,964 7.9 34,238 6.2 36,199 7.1
Other 340 0.1 356 .1 2,130 .4
-------- ------ -------- ------ -------- ------
Total 422,487 58.5 327,547 59.1 303,193 59.8
-------- ------ -------- ------ -------- ------
INVESTMENT BANKING:
Corporate finance
(including underwriting
sales credits) 67,799 9.4 38,262 6.9 54,238 10.7
Limited partnerships 4,797 0.7 4,742 .9 5,981 1.2
-------- ----- -------- ----- -------- -----
Total 72,596 10.1 43,004 7.8 60,219 11.9
-------- ----- -------- ----- -------- -----
INVESTMENT ADVISORY FEES 50,715 7.0 42,922 7.7 51,153 10.1
INTEREST 126,453 17.5 97,211 17.5 58,542 11.5
CORRESPONDENT CLEARING 3,985 0.6 3,721 .7 3,866 .8
NET TRADING PROFITS 12,243 1.7 12,637 2.3 6,843 1.3
FINANCIAL SERVICE FEES 18,191 2.5 14,740 2.7 13,446 2.7
OTHER 15,082 2.1 12,288 2.2 9,874 1.9
-------- ----- -------- ----- -------- -----
Total revenues $721,752 100.0 $554,070 100.0 $507,136 100.0
======== ===== ======== ===== ======== =====
SECURITIES COMMISSIONS BY
BROKER-DEALER:
Raymond James & Associates,
Inc. $190,042 45.0 $146,004 44.6 $130,565 43.1
Investment Management &
Research, Inc. 149,181 35.3 118,738 36.3 114,506 37.8
Robert Thomas Securities,
Inc. 83,264 19.7 62,805 19.1 58,122 19.1
-------- ----- -------- ----- -------- -----
Total $422,487 100.0 $327,547 100.0 $303,193 100.0
======== ===== ======== ===== ======== =====
(c) NARRATIVE DESCRIPTION OF BUSINESS
At September 27, 1996 the Company employed 2,986 individuals. RJA employed 2,445
of these individuals, 510 of whom were full-time retail account executives. In
addition, 1,993 full-time retail account executives were affiliated with the
Company as independent contractors through IM&R and RTS. Through its
broker-dealer subsidiaries, the Company provides securities services to
approximately 500,000 client accounts. No single client accounts for a material
percentage of the Company's total business.
2
RAYMOND JAMES & ASSOCIATES, INC.
RJA's activities in the securities business include retail and
institutional securities brokerage, origination and distribution of limited
partnership interests, management of and participation in underwritings of
equity and fixed income securities, market making in corporate and municipal
securities, origination, distribution and management of mutual funds and unit
trusts, and research and investment advisory services. RJA also offers financial
planning services for individuals and provides clearing services for IM&R, RTS
and other unaffiliated broker-dealers. For the year ended September 27, 1996 the
revenues of RJA accounted for 62% of the consolidated revenues of the Company.
RJA is a member of the NYSE, American Stock Exchange, Philadelphia Stock
Exchange, Chicago Board Options Exchange, New York Futures Exchange, Pacific
Exchange and Chicago Stock Exchange. It is also a member of the Securities
Industry Association, NASD and SIPC. SIPC provides insurance protection for
customers' accounts of up to $500,000 each (limited to $100,000 for claims for
cash) in the event of the Company's liquidation. In addition, RJA carries up to
$24,500,000 per account of excess customer insurance.
BROKERAGE TRANSACTIONS. RJA provides securities brokerage services to both
retail and institutional customers. RJA charges commissions to its retail
customers, on both exchange and over-the-counter transactions, in accordance
with its established commission schedule. In certain instances, varying
discounts from the schedule are given, generally based upon the customer's level
of business, the trade size and other relevant factors. RJA discounts its
commissions substantially on institutional transactions based on trade size and
the amount of business conducted annually with each institution.
Customers' transactions in securities are effected on either a cash or
margin basis. In margin transactions, the customer pays a portion of the
purchase price, and RJA makes a loan to the customer for the balance,
collateralized by the securities purchased or by other securities owned by the
customer. Interest is charged to customers on the amount borrowed to finance
margin transactions. The financing of margin purchases is an important source of
revenue to RJA, since the interest rate paid by the customer on funds loaned by
RJA exceeds RJA's cost of short-term funds. The interest rates charged to
customers on such loans depend on the average margin loan balance in the
customer's account and range from prime plus 1% to prime minus .75%.
Typically, secured bank borrowings and equity capital are the primary
sources of funds to finance customers' margin account borrowings. Since the
inception of the Credit Interest Program in 1981, however, the Company's primary
source of funds to finance customers' margin account balances has been cash
balances in customers' accounts which are awaiting investment. In addition,
pursuant to written agreements with customers, broker-dealers are permitted by
Securities and Exchange Commission ("SEC") and NYSE rules to lend customer
securities in margin accounts to other brokers. SEC regulations, however,
restrict the use of customers' funds derived from pledging and lending
customers' securities, as well as funds awaiting investment, to the financing of
margin account balances, and to the extent not so used, such funds are required
to be deposited in a special account for the benefit of customers. The
regulations also require broker-dealers, within designated periods of time, to
obtain possession or
3
control of, and to segregate, customers' fully paid and excess margin
securities.
OVER-THE-COUNTER AND OTHER TRADING. Trading securities in the
over-the-counter ("OTC") market involves the purchase of securities from, and
the sale of securities to, clients of the Company or other dealers who may be
purchasing or selling securities for their own account or acting as agent for
their clients. Profits and losses are derived from the spreads between bid and
asked prices, as well as market trends for the individual securities during the
holding period. RJA makes markets in corporate stocks and bonds, municipal bonds
and various government securities. At September 27, 1996 RJA made markets in 198
common stocks traded in the OTC market. Most of these are companies with whom
RJA has an investment banking relationship or companies whose securities are
followed by RJA Research.
RJA frequently acts as agent in the execution of OTC orders for its
customers and as such transacts these trades with other dealers. When RJA
receives a customer order in a security in which it makes a market, it may act
as principal if it matches or improves upon the best price in the dealer market,
plus or minus a mark-up or mark-down not exceeding the equivalent agency
commission charge. Recently adopted regulations require that customer limit
orders be satisfied prior to the brokerage firm buying securities into their own
inventory at the same price.
STOCK BORROW/STOCK LOAN PROGRAM. This program involves the borrowing and
lending of securities from and to other broker-dealers and other financial
institutions. The borrower of the securities puts up a cash deposit, commonly
102% of the market value of the securities. This deposit, which is adjusted
daily to reflect changes in current market value, earns interest at a negotiated
rate, typically .2% to .5% below what the lender of the securities can earn on
the funds.
MUTUAL FUNDS. RJA sells a number of professionally managed, load mutual
funds and offers, in addition, a selection of no-load funds. RJA maintains
dealer-sales agreements with most major distributors of mutual fund shares sold
through broker-dealers. Commissions on such sales generally range from 1% to 5%
of the dollar value of the transaction. Alternative sales compensation
structures typically include front-end charges, "back-end" or deferred sales
charges, and an annual charge in the form of a fund expense.
At September 27, 1996, the Company had eleven internally sponsored mutual
funds for which RJA acts as distributor. (See Heritage Asset Management, Inc.
description on pages 7 & 8.) As the distributor of these funds, RJA has the
right to enter into dealer agreements with other broker-dealers for the sale of
Heritage funds to their clients.
ASSET MANAGEMENT SERVICES ("AMS"). RJA formed this department in April
1990 to encompass several programs involving portfolio management, primarily
Investment Advisory Services ("IAS"), the Passport Program ("Passport"), the
Managed Investment Program ("MIP") and the Preferred Portfolio Account ("PPA").
IAS, which commenced operations in August 1987, assists clients in selecting
portfolio managers, establishes custodial facilities, monitors performance of
client accounts, provides clients with accounting and other administrative
services and assists portfolio managers with certain trading management
activities. IAS earns fees generally ranging from .5%-1.0% of asset balances per
annum, a substantial portion of
4
which is paid to portfolio managers who direct the investment of the client's
account. At September 27, 1996, this program had approximately $980 million in
assets under management through agreements with 22 independent investment
advisors. In addition, two proprietary asset managers, Awad and Associates Asset
Management ("AWAD") and Carillon Asset Management ("Carillon"), are offered
through this program.
Passport is a non-discretionary advisory fee alternative that allows
clients of RJA, IM&R and RTS to pay a quarterly fee plus low transaction charges
in lieu of commissions. Fees are based on the individual account size and are
also dependent on the type of securities in the account. In addition, AMS
collects an administrative fee of up to .2% of asset balances annually, for
which clients receive a quarterly performance report and other services. As of
September 27, 1996, Passport had approximately $1.3 billion in assets serviced
by account executives.
MIP is a program that allows selected account executives to manage
customer portfolios on a discretionary, wrap fee basis. The account executives
must satisfy certain criteria and complete educational courses to be selected
for this program. Fees are dependent on the size of the account and the type of
securities in the account. AMS establishes custodial facilities, monitors
performance of client portfolios, provides clients with accounting and other
administrative services and assists the account executives with certain trading
management activities. AMS collects an administrative fee of up to .2% of asset
balances. As of September 27, 1996, MIP had approximately $92 million in assets
serviced by fourteen account executives.
PPA is another non-discretionary wrap fee pricing alternative that allows
clients to pay a quarterly fee in lieu of commissions. Unlike Passport, no
transaction charge is imposed. The fee structure and services provided by AMS
are similar to Passport and MIP. As of September 27, 1996, PPA had approximately
$56 million in assets.
AWAD is primarily a small and mid-cap equity portfolio management division
of RJA which was formed in March of 1992. Clients pay fees and/or commissions
for management of their accounts. Present fees range from .5% to 1.0% of asset
balances annually. In addition to private accounts, AWAD also manages a portion
of the Heritage Small Cap Stock Fund Portfolio. AWAD, which is offered through
the IAS program, had approximately $560 million under management at September
27, 1996.
Carillon commenced operations in 1993. Carillon manages approximately $50
million for private accounts investing exclusively in closed-end funds.
Fees are currently .375% of assets annually.
In addition to the foregoing programs, AMS also monitors various outside
money managers that are not a part of the IAS program.
INSTITUTIONAL SALES, TRADING AND RESEARCH. RJA has a domestic staff of 144
professionals who provide research, sales and execution services to RJA's
institutional clients. In addition, RJA services 7 institutional sales offices
located in Europe which have 45 account executives. RJA's research is focused on
the identification of industries and companies which its staff believe are
undervalued and/or have above average growth potential. These professionals also
attempt to provide general coverage on public companies located in Florida and
throughout the southeastern United
5
States. Proprietary research reports, supplemented by research purchased from
outside services, are also provided to retail clients.
INVESTMENT BANKING GROUP. The 55 professionals of RJA's Investment Banking
Group, located primarily in St. Petersburg with satellite offices in Atlanta,
Boston, Dallas, and Houston, operate in two distinct areas. The Corporate
Finance Department is involved in a variety of activities including public and
private debt and equity financing for corporate clients, merger and acquisition
consulting services, fairness opinions and evaluations. The Real Estate
Investment Banking Department originates, syndicates, markets and monitors the
performance of public and private limited partnerships, primarily in the real
estate and equipment leasing industries. An active secondary trading market is
also maintained for the purchase and resale of public limited partnership units.
RJA's affiliates frequently act as a general or co-general partner for the
limited partnerships the Company syndicates and/or manages. See the description
of the Company's other subsidiaries on page 10.
SYNDICATE DEPARTMENT. The Syndicate Department coordinates the
distribution of newly issued securities to institutional and retail investors.
They handle public offerings that are managed or co-managed by RJA as well as
selling group and syndicate participations managed by other firms. This
department primarily deals with equity underwritings and brokered certificate of
deposit offerings.
FIXED INCOME DEPARTMENT. Through the Fixed Income Department, RJA
distributes both taxable and tax-exempt fixed income products to its
institutional and retail clients. These products include municipal, corporate,
government and mortgage-backed bonds, preferred stock and unit investment
trusts. RJA carries inventory positions of taxable and municipal securities in
both the primary and secondary market. The department's Public Finance Division,
operating out of 6 offices located throughout the State of Florida as well as
Atlanta and Birmingham, acts as financial advisor or underwriter to various
municipal agencies or political subdivisions. RJA also acts as an underwriter or
selling group member for corporate bonds, agency bonds, preferred stock and unit
investment trusts. When underwriting new issue securities, RJA agrees to
purchase the issue through a negotiated sale or submits a competitive bid. In
addition to St. Petersburg, the Fixed Income Department maintains institutional
sales and trading offices in New York, Chicago, Los Angeles, Houston, Boston,
Washington D.C., and Dublin, Ohio. To assist our institutional clients, the
department's Fixed Income Research Group provides value-added services and
publishes research reports containing both specific product information and
information on topics of interest such as market and regulatory developments.
OPERATIONS AND ADMINISTRATION. RJA's operations/administrative personnel
are responsible for the execution of orders, processing of securities
transactions, custody of customer securities, receipt, identification and
delivery of funds and securities, compliance with regulatory and legal
requirements, internal financial accounting and controls and general office
administration for most of the Company's operations.
6
INVESTMENT MANAGEMENT & RESEARCH, INC.
IM&R participates in the distribution of all the products and services
offered by RJA to its retail customers through 1,071 independent contractor
registered representatives in 517 offices and satellite offices throughout all
50 states. The number of registered representatives in these offices ranges from
1 to 21. Such representatives devote all or substantially all of their time to
the sale of securities and, while these independent contractors must conduct all
securities business through IM&R, their contracts permit them to conduct
insurance, real estate brokerage, accounting services or other business for
their clients or for their own account. Many IM&R registered representatives are
better characterized as financial planners than as stock brokers, although they
are not required to conduct their business as financial planners. Independent
contractors are responsible for all of their direct costs.
ROBERT THOMAS SECURITIES, INC.
RTS has 922 full-time independent contractor registered representatives in
48 states who offer securities and investment advice to individuals and
institutions through a network of 405 branch offices and satellite offices. Of
these branches, 101 are located within depository institutions (banks, savings
and loans and credit unions). RTS representatives offer the full range of
securities products and services of RJA. RTS branches have the independence to
set their own commissions on agency business within regulatory guidelines. RTS
branches and their registered personnel may offer non-securities financial
products (i.e., life insurance) to customers outside of their relationship with
RTS.
EAGLE ASSET MANAGEMENT, INC.
Eagle is a registered investment advisor with approximately $2.4 billion
under management at September 27, 1996. Eagle's clients include pension and
profit sharing plans, retirement funds, foundations, endowments, trusts and
individuals. Accounts are managed on a discretionary basis in accordance with
the investment objective(s) specified by the client. Eagle manages approximately
$400 million for 173 institutional clients and $2.0 billion for 7,658 retail
accounts.
Eagle's investment management fee generally ranges from .25%-1.0% of asset
balances per year depending upon the size and investment objective of the
account. In addition to the management fees, clients are required to pay
brokerage commissions (or a fee in lieu thereof) for transactions in their
account.
HERITAGE ASSET MANAGEMENT, INC.
Heritage is the manager of the internally sponsored Heritage family of
mutual funds, currently consisting of Heritage Cash Trust (a money market fund
with taxable and tax-exempt portfolios), Heritage Capital Appreciation Trust (a
mutual fund seeking long-term appreciation), Heritage Income-Growth Trust (a
mutual fund seeking long-term total return with approximately equal emphasis on
current income and capital appreciation), Heritage Income Trust (a trust
consisting of the High Yield Bond Fund which seeks high current income and the
Intermediate Government Fund which seeks
7
high current income consistent with the preservation of capital), Heritage
Series Trust (a trust consisting of the Small Cap Stock Fund which seeks
long-term capital appreciation through investments in small capitalization
stocks, the Value Equity Fund which seeks long-term capital appreciation and
secondarily current income, and the Growth Equity Fund which seeks growth
through long-term capital appreciation), and the Heritage U.S. Government Income
Fund (a closed-end fund seeking high current income with the potential for
capital appreciation). Heritage also serves as the administrator for the
Heritage Series Trust-Eagle International Equity Portfolio, which seeks
long-term capital appreciation through investments in international stocks.
Heritage serves as the transfer agent for all Heritage open-end funds and as
fund accountant for all Heritage open-end funds except for the Eagle
International Equity Portfolio; however, custody of all assets is maintained by
State Street Bank, Boston, Mass. Net assets at September 27, 1996 were as
follows (in thousands):
Heritage Cash Trust:
Money Market Fund $1,679,652
Municipal Money Market Fund 319,880
Heritage Capital Appreciation Trust 74,306
Heritage Income-Growth Trust 48,867
Heritage Income Trust:
High Yield Bond Fund 39,703
Intermediate Government Fund 18,117
Heritage Series Trust:
Small Cap Stock Fund 120,430
Value Equity Fund 24,870
Eagle International Equity Portfolio 3,975
Growth Equity Fund 15,544
Heritage U.S. Government Income Fund 37,326
----------
$2,382,670
==========
Portfolio management for the Growth Equity Fund and the Income-Growth
Trust is subcontracted to Eagle. Portfolio management for the Small Cap Stock
Fund is subcontracted to AWAD and Eagle. Portfolio management for the Capital
Appreciation Trust is subcontracted to Liberty Investment Management, Inc. (See
Notes to Consolidated Financial Statements.)
PLANNING CORPORATION OF AMERICA
Planning Corporation of America ("PCA"), a wholly-owned subsidiary of RJA,
is a general insurance agency and represents a number of insurance companies.
PCA provides products and marketing support for a broad range of insurance
products, principally fixed and variable annuities, all forms of life insurance,
disability insurance and long-term care coverage to the account executives of
the Company's broker-dealer subsidiaries.
RJ PROPERTIES, INC.
RJ Properties, Inc. ("RJP"), headquartered in Atlanta, Georgia, acts as a
general or co-general partner for private and public limited partnerships
currently owning 33 apartment properties and 5 shopping centers. RJP acquires
properties for syndications for which it serves as a
8
general partner and receives acquisition fees and residual interests in profits
and proceeds from future sales of the projects. Through its subsidiary, Raymond
James Realty Advisors, RJP acts as the advisor for real estate portfolios of
institutional clients. At September 27, 1996, RJP acted as advisor for
approximately $837 million of such assets. In addition, RJP performs the
property management function for certain properties owned either by partnerships
in which RJP is a general partner or properties in portfolios of institutional
clients. At September 27, 1996, RJP had 32 properties with a total of 7,087
apartment units under management. The Company owns 85% of the outstanding shares
of RJP. Mr. Francis S. Godbold, President and a Director of the Company, owns
7.5%, and Mr. J. Robert Love, President of RJP, owns the remaining 7.5%.
RAYMOND JAMES TRUST COMPANY
SOUND TRUST COMPANY
Raymond James Trust Company was chartered in 1992 and opened for business
in September 1992. This wholly-owned subsidiary of the Company was formed
primarily to provide personal trust services to existing clients of the
broker-dealer subsidiaries. Portfolio management of trust assets is generally
subcontracted to the asset management operations of the Company. In October 1993
the Company acquired a second trust company, Sound Trust Company, in Tacoma,
Washington. This subsidiary provides personal trust services primarily to
broker-dealer clients outside the State of Florida. These two subsidiaries had a
combined total of $297 million in client assets at September 27, 1996.
RAYMOND JAMES BANK, FSB
Raymond James Bank, FSB, ("RJ Bank") was chartered as a federal savings
bank on May 6, 1994, in conjunction with the acquisition of deposits of certain
branches of a failed thrift from the Resolution Trust Corporation. As a member
of the Federal Deposit Insurance Corporation ("FDIC"), RJ Bank offers
FDIC-insured deposit and residential lending products to clients of the
broker-dealer subsidiaries and directly to the public within its assessment
area. At September 27, 1996, RJ Bank had total assets of approximately $227
million.
RAYMOND JAMES INTERNATIONAL HOLDINGS, INC.
Raymond James International Holdings, Inc. is a Delaware corporation
formed in 1994 to house the Company's foreign operations. To date, operations
consist of joint venture investments in broker-dealers in India and South
Africa, as well as participation in asset management companies in Dublin and
Paris.
9
OTHER SUBSIDIARIES
Over time, the Company has formed several subsidiaries to act as general
or co-general partner for various public and private limited partnerships
syndicated by RJA. These subsidiaries include:
SUBSIDIARY TYPE OF PARTNERSHIP(S)
---------------------------- --------------------------------
RJ Leasing, Inc. Equipment leasing
RJ Leasing - 2, Inc. Equipment leasing
RJ Equities, Inc. Real estate
RJ Health Properties, Inc. Nursing homes
RJ Credit Partners, Inc. Government subsidized apartments
Raymond James Partners, Inc. Various
RJ Medical Investors, Inc. Nursing homes
RJ Partners, Inc. Various
The Company has several other subsidiaries, but their activities are not
material to the Company's operations.
COMPETITION
The Company's subsidiaries compete with many larger, better capitalized
providers of financial services, including other securities firms, some of which
are affiliated with major financial services companies, insurance companies,
banking institutions and other organizations. They also compete with a number of
firms offering discount brokerage services, usually with lower levels of
service, to individual customers. The Company's subsidiaries compete principally
on the basis of service, product selection, location and reputation in local
markets.
SECURITIES VOLUME AND PRICES
The securities industry can be subject to substantial fluctuations in
volume of securities transactions. These fluctuations can occur on a daily basis
as well as over longer periods as a result of national and international
economic and political events, and broad trends in business and finance. Reduced
volume generally results in lower brokerage and investment banking revenues.
Profitability is adversely affected in periods of reduced volume because fixed
costs remain relatively unchanged. To the extent that purchases of securities
are permitted to be made on margin, securities firms also are subject to risks
inherent in extending credit, especially during periods of rapidly declining
securities prices, in that a market decline could reduce collateral value below
the amount of a customer's indebtedness.
REGULATION
The securities industry in the United States is subject to extensive
regulation under federal and state laws. The Securities and Exchange Commission
("SEC") is the federal agency charged with administration of the federal
securities laws. Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations, principally the NASD and the NYSE.
These self-regulatory organizations adopt rules (which are subject to approval
by the SEC) for governing the industry and
10
conduct periodic examinations of member broker-dealers. Securities firms are
also subject to regulation by state securities commissions in the states in
which they are registered. RJA, IM&R and RTS are currently registered in all 50
states.
The regulations to which broker-dealers are subject cover all aspects of
the securities business, including sales methods, trade practices among
broker-dealers, capital structure of securities firms, record keeping and the
conduct of directors, officers and employees. Additional legislation, changes in
rules promulgated by the SEC and by self-regulatory organizations or changes in
the interpretation or enforcement of existing laws and rules often directly
affect the method of operation and profitability of broker-dealers. The SEC and
the self-regulatory organizations may conduct administrative proceedings which
can result in censure, fine, suspension or expulsion of a broker-dealer, its
officers or employees. The principal purpose of regulation and discipline of
broker-dealers is the protection of customers and the securities markets rather
than protection of creditors and shareholders of broker-dealers.
See Notes 12 and 13 of the Notes to Consolidated Financial Statements for
further description of certain SEC regulations.
ITEM 2. PROPERTIES
Properties owned by the Company at September 27, 1996 include a 310,000
square foot headquarters complex (two buildings) and the 86,000 square foot
former headquarters building, both located in St. Petersburg, Florida. The
former headquarters building is presently unoccupied and available for sale or
lease. In addition, the Company leases 74,000 square feet in a nearby office
building. The Company owns 13.87 acres (28.97 acres as of December 13, 1996)
near the current headquarters for long-term growth purposes and is planning
construction of a third headquarters building. The RJA branch office building in
Crystal River, Florida, is owned by the Company; all other RJA branches are
leased with various expiration dates through 2002. The IM&R and RJP headquarters
offices in Atlanta, Georgia are also under leases. See Notes 4 and 9 of the
Notes to Consolidated Financial Statements for further information regarding the
Company's leases.
Leases for branch offices of IM&R and RTS are the responsibility of the
respective independent contractor registered representatives.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant or co-defendant in various lawsuits incidental
to its securities business. The Company is contesting the allegations of the
complaints 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 consolidated financial position or results of
operations of the Company.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is traded on the NYSE under the symbol "RJF".
The following table sets forth for the periods indicated the high and low prices
for the common stock.
1996 1995
----------------- ----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
First Quarter $25-1/4 $20-1/8 $15-1/2 $13-1/4
Second Quarter 23-3/8 19 18 13-3/4
Third Quarter 23-1/2 20-1/2 20-1/2 16-1/4
Fourth Quarter 24-3/8 19-3/4 22-5/8 18-1/2
Since the Company initiated payment of a cash dividend in 1985, there have
been thirteen increases in the dividend rate, five of which were in the form of
stock splits and stock dividends. The dividend rate in fiscal 1996 was $.095 per
quarter; the dividend rate was raised to $.11 for the first quarter of fiscal
1997.
The payment of dividends on the Company's common stock is subject to the
availability of funds from the Company's subsidiaries, including the
broker-dealer subsidiaries which may be subject to restrictions under the net
capital rules of the SEC and the NYSE. Such restrictions have never become
applicable with respect to the Company's dividend payments. (See Note 12 of the
Notes to Consolidated Financial Statements.)
At December 13, 1996 there were approximately 7,800 holders of the
Company's common stock.
12
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
YEAR ENDED
--------------------------------------------------------------
SEPT. 27, SEPT. 29, SEPT. 30, SEPT. 24, SEPT. 25,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
OPERATING RESULTS:
Revenues $ 721,752 $ 554,070 $ 507,136 $ 451,747 $ 361,134
Net income $ 65,978 $ 46,141 $ 42,069 $ 49,347 $ 41,022
Net income per share:*
Primary $ 3.14 $ 2.23 $ 1.97 $ 2.28 $ 1.89
Fully diluted $ 3.12 $ 2.21 $ 1.97 $ 2.27 $ 1.89
Weighted average shares
outstanding:*
Primary 21,025 20,705 21,359 21,623 21,737
Fully diluted 21,116 20,877 21,359 21,713 21,737
Cash dividends declared
per share* $ .38 $ .36 $ .32 $ .21 $ .16
FINANCIAL CONDITION:
Total assets $2,566,381 $2,012,715 $1,698,262 $1,447,570 $ 806,230
Long-term debt $ 12,909 $ 13,084 $ 13,243 $ 13,387 $ 13,518
Shareholders' equity $ 326,632 $ 266,193 $ 227,452 $ 205,565 $ 160,935
Shares outstanding* 20,894 20,614 20,494 21,316 21,225
Equity per share
at end of period* $ 15.63 $ 12.91 $ 11.09 $ 9.64 $ 7.58
* Gives effect to the common stock splits paid on February 3, 1992 and
November 15, 1993.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - THREE YEARS ENDED SEPTEMBER 27, 1996
Fiscal 1996 was the Company's twelfth consecutive year of record revenues.
More importantly, earnings also reached a new record level as, a very favorable
equity market spurred investor and capital markets activity.
Fiscal 1995 was a mixed year, with the first six months a continuation of
1994's subdued market conditions in a period of rising interest rates. The
second half of fiscal 1995 saw a dramatic turnaround, with a return to declining
interest rates and a vibrant, rapidly rising stock market.
Fiscal 1994 was a mirror image of 1995, with the first half a continuation
of the ebullient 1993 conditions and a dramatic slowdown occurring in the second
half as interest rates began a rapid ascent.
YEAR ENDED
---------------------------------------------------
SEPT. 27, % INCR. SEPT. 29, % INCR. SEPT. 30,
1996 (DECR.) 1995 (DECR.) 1994
--------- ------- --------- ------- ---------
Revenues: (000's) (000's) (000's)
Securities commissions $422,487 29% $327,547 8% $303,193
Investment banking 72,596 69% 43,004 (29%) 60,219
Investment advisory fees 50,715 18% 42,922 (16%) 51,153
Interest 126,453 30% 97,211 66% 58,542
Correspondent clearing 3,985 7% 3,721 (4%) 3,866
Net trading profits 12,243 (3%) 12,637 85% 6,843
Financial service fees 18,191 23% 14,740 10% 13,446
Other 15,082 23% 12,288 24% 9,874
-------- -------- --------
$721,752 30% $554,070 9% $507,136
======== ======== ========
Continued strength of the securities markets and record transaction volume
in fiscal 1996 resulted in increased securities commissions from the sales of
all lines of products, with the largest increases in absolute terms in mutual
funds, over-the-counter stocks and annuities. While the sales force grew at an
acceptable rate over fiscal 1995, as illustrated below, the increased
productivity of existing account executives provided a significant portion of
the increased commission revenues.
Despite the volatility of the markets in fiscal 1995, the Company managed
to realize a modest rate of increase over 1994 in securities commission
revenues. From a product line perspective, the largest volume increase, by a
wide margin, was in equities.
YEAR ENDED
--------------------------------------------------------
SEPT. 27, SEPT. 29, % INCR. SEPT. 30,
1996 % INCR. 1995 (DECR.) 1994
--------- -------- --------- --------- ---------
Number of retail account executives
at yearend 2,503 9% 2,288 4% 2,207
Retail commission revenues (000's) $332,722 26% $264,211 12% $236,548
Number of institutional salesmen
at yearend 129 10% 117 13% 104
Institutional commission revenues
(000's) $ 89,765 42% $ 63,336 (5%) $ 66,645
Number of trades processed 2,526,000 20% 2,104,000 12% 1,878,000
14
Fiscal 1996 was a year of record equity underwriting levels and merger and
acquisition activity, particularly in our fourth fiscal quarter. Investment
banking revenues, including new issue sales credits, increased 69% over the
prior year to a record $72.6 million after a decline from fiscal 1994 to 1995.
Fiscal 1994 and 1995 revenues each reflected partial years of slower market
conditions. The number of managed or co-managed underwritings and the dollar
volume of these transactions were as follows: 1996 - 38 offerings for $2.7
billion; 1995 - 24 offerings for $1.4 billion; and 1994 - 35 offerings for $2.2
billion. In addition, merger and acquisition fees have increased each year
during this period to $12 million in 1996 from $4.9 million in 1995 and $3.7
million in 1994.
Assets under management showed a strong increase during fiscal 1996 as a
result of net new account sales and appreciation of existing accounts. The
decline in investment advisory fees from 1994 to 1995 reflects the fees on the
$4.3 billion in assets previously managed by Eagle for which management was
assumed by Liberty Investment Management, Inc. ("Liberty") beginning on January
1, 1995. As described in Note 15 of the Notes to Consolidated Financial
Statements, the Company has received 50% of the fees from these accounts while
bearing none of the expenses. This was to continue through December 31, 1999,
however, subsequent to fiscal 1996 yearend, Liberty entered into an agreement
for the sale of Liberty's assets to a third party, scheduled to close in January
1997. Accordingly, the Company will receive a lump sum settlement for its
remaining 3 years' interest in Liberty's revenues, as well as for its option to
purchase 20% of Liberty at a future date.
As shown in the table below, the Company's various asset management
operations have had somewhat disparate growth rates:
SEPT. 27, % INCR. SEPT. 29, % INCR. SEPT. 30,
1996 (DECR.) 1995 (DECR.) 1994
----------- ---- ---------- ---- ----------
(000's) (000's) (000's)
Eagle Asset Management $ 2,388,922 29% $1,856,284 (70%) $6,129,827
Heritage Family of Mutual Funds 2,382,670 24% 1,921,377 30% 1,479,711
Investment Advisory Services 980,415 17% 836,065 10% 763,313
Awad and Associates Asset Management 490,477 48% 331,236 64% 202,301
Focus Investment Advisors -- -- -- (100%) 50,775
Carillon Asset Management 50,795 (28%) 70,217 (25%) 93,636
----------- ---------- ----------
Subtotal 6,293,279 25% 5,015,179 (42%) 8,719,563
Liberty Investment Management, Inc. 5,468,913 14% 4,806,210 --
----------- ---------- ----------
Total Financial Assets Under
Management $11,762,192 20% $9,821,389 13% $8,719,563
=========== ========== ==========
During 1995, real estate assets under management increased significantly
and continued to grow in fiscal 1996, as the Company's RJ Properties subsidiary
has become a recognized manager of institutional real estate portfolios.
Including partnerships for which the Company's various subsidiaries act as
general or co-general partner, total tangible assets under management at yearend
for 1996, 1995 and 1994 were $1.6 billion, $1.3 billion and $980 million,
respectively.
15
Net interest income is a growing source of earnings. A large majority of
the increase has been a result of the dramatic growth in retail brokerage
account balances, including resultant segregated account assets. The major
components of interest earnings are as follows:
YEAR ENDED
---------------------------------------------------------
SEPT. 27, SEPT. 29, SEPT. 30,
1996 1995 1994
--------- --------- ---------
(balances in 000's)
Margin balances:
Average balance $386,422 $337,969 $298,674
Average rate 8.2% 8.3% 6.3%
-------- -------- --------
$31,529 $27,974 $18,875
Stock borrowed:
Average balance 947,412 761,204 955,597
Average rate 4.7% 4.8% 2.8%
-------- -------- --------
44,361 36,228 26,625
Assets segregated pursuant
to Federal Regulations:
Average balance 452,710 294,664 132,169
Average rate 5.4% 5.7% 3.9%
-------- -------- --------
24,538 16,813 5,184
Raymond James Bank, FSB 11,980 7,197 597
Other interest revenue 14,045 8,999 7,261
------- -------- --------
Total interest revenue 126,453 97,211 58,542
------- -------- --------
Credit interest program:
Average balance 678,910 482,985 303,123
Average rate 4.8% 5.1% 3.3%
-------- -------- --------
32,374 24,625 9,908
Stock loaned:
Average balance 941,937 765,799 955,328
Average rate 4.4% 4.4% 2.6%
-------- -------- --------
41,165 33,867 24,584
Raymond James Bank,FSB 7,782 4,268 221
Other interest expense 2,150 1,998 1,441
-------- -------- --------
Total interest expense 83,471 64,758 36,154
-------- -------- --------
Net interest $ 42,982 $ 32,453 $ 22,388
======== ======== ========
Net trading profits remained consistent in total from fiscal 1995 to 1996.
These profits arose primarily from over-the-counter equity inventory positions
as the equity markets continued to rise and record volume generated higher
spread retention. In addition, 1996 is the first year of trading profits from
the newly acquired specialist operations. The large improvement in trading
results from fiscal 1994 to 1995 is a reflection of the difficult environment
for fixed income securities during 1994.
The increase in financial service fees in both fiscal 1996 and 1995 is a
result of the growth of the Company's retail client base. Examples of items in
this category are IRA account fees, transfer and postage fees, passport
transaction fees and money market distribution and processing fees.
The increase in other income from 1995 to 1996 was due to increased floor
brokerage revenues as the Company increased its number of floor traders during
this active market period. In addition, the Company's RJ Properties subsidiary
16
has increased substantially the number of apartment units for which it receives
property management fees.
YEAR ENDED
--------------------------------------------------------
SEPT. 27, % INCR. SEPT. 29, % INCR. SEPT. 30,
1996 1995 (DECR.) 1994
--------- ------- --------- ------- ---------
(000's) (000's) (000's)
Expenses:
Employee compensation:
Sales commissions $294,031 33% $221,629 1% $219,291
Administrative and benefit
costs 80,092 12% 71,364 8% 65,895
Incentive compensation 49,781 49% 33,433 2% 32,893
-------- -------- --------
Total employee compensation 423,904 30% 326,426 3% 318,079
-------- -------- --------
Communications 30,585 19% 25,619 (3%) 26,420
Occupancy and equipment 23,927 10% 21,653 37% 15,758
Clearance and floor brokerage 10,098 22% 8,257 8% 7,644
Interest 83,471 29% 64,758 79% 36,154
Business development 16,053 13% 14,210 - 14,220
Other 25,189 35% 18,688 (14%) 21,644
-------- -------- --------
$613,227 28% $479,611 9% $439,919
======== ======== ========
Since several of the expense line items are explained by the fluctuation
in related revenues and others were relatively constant or experienced a general
corporate growth rate during this three year period, the following discussion
will focus on the expense items not falling into either of these two categories.
Incentive compensation expenses are based on departmental, subsidiary and
firm-wide profitability and reflect the record earnings in fiscal 1996.
The increase in communications expense in fiscal 1996 reflects the costs
of increased automation: software, communication and archival equipment,
satellites and quote services. General increased business volume also resulted
in increased telephone, printing and supplies costs.
The occupancy and equipment expense increase between fiscal 1994 and 1995
is a result of increased and upgraded retail office space and account executive
workstations, the latter being depreciated over very short periods (e.g. two
years) for financial statement purposes.
The fluctuation in other expense is primarily the result of the timing of
legal expenses and settlements. In addition, there was a one-time FDIC
assessment of approximately $600,000 for RJ Bank in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities during the current year was
$394,531,000. Cash was generated by increased customer balances in the credit
interest program and by fluctuations in various asset and liability accounts.
Investing activities required $84,342,000 during fiscal 1996. Net
additions to fixed assets consumed $10,093,000, the majority of which was for
the purchase of computers and office furniture and equipment. Net purchases of
investments consumed $74,249,000. These investments were primarily
mortgage-backed securities purchased by RJ Bank.
17
Financing activities provided $4,702,000, primarily the result of
borrowings from banks and employee stock purchases and exercise of stock
options.
The Company has notes payable consisting of long-term debt in the amount
of $12.9 million in the form of a mortgage on its headquarters office building
and a balance of $11.9 million on the Raymond James Credit Corporation line of
credit.
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. In addition, RJA has
uncommitted lines of credit aggregating $255,000,000.
The Company's broker-dealer subsidiaries are subject to requirements of
the SEC relating to liquidity and capital standards (see Notes to Consolidated
Financial Statements).
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
During fiscal 1996, the Financial Accounting Standards Board issued
Statement No. 123 "Accounting for Stock-Based Compensation" ("FAS 123") and No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("FAS 125").
The Company will adopt FAS 123 in fiscal year 1997. FAS 123 is not
expected to have a material impact on the Company's financial position or
results of operations but will require several disclosures regarding the
Company's stock option and employee stock purchase plans.
The impact of adopting FAS 125 is not anticipated to be material to the
Company's financial position or results of operation. The Company plans to adopt
the provisions of FAS 125 when required, beginning in fiscal 1997.
EFFECTS OF INFLATION
The Company's assets are primarily liquid in nature and are not
significantly affected by inflation. Management believes that the 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.
FACTORS AFFECTING "FORWARD-LOOKING STATEMENTS"
From time to time, the Company may publish "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, or make oral
statements that constitute forward-looking statements. These forward-looking
statements may relate to such matters as anticipated financial performance,
future revenues or earnings, business prospects, projected ventures, new
products, anticipated market performance, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company cautions readers that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward-
18
looking statements. These risks and uncertainties, many of which are beyond the
Company's control, include, but are not limited to: (i) transaction volume in
the securities markets, (ii) the volatility of the securities markets, (iii)
fluctuations in interest rates, (iv) changes in regulatory requirements which
could affect the cost of doing business, (v) fluctuations in currency rates,
(vi) general economic conditions, both domestic and international, (vii) changes
in the rate of inflation and related impact on securities markets, (viii)
competition from existing financial institutions and other new participants in
the securities markets, (ix) legal developments affecting the litigation
experience of the securities industry, and (x) changes in federal and state tax
laws which could affect the popularity of products sold by the Company. The
Company does not undertake any obligation to publicly update or revise any
forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial statements, schedules and exhibits filed under this item
are listed in the index appearing on page F-1 of this report.
(b) QUARTERLY FINANCIAL INFORMATION
(In thousands, except share amounts)
1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ---- -------- -------- -------- --------
Revenues $152,026 $178,719 $198,194 $192,813
Income before income taxes 20,288 24,665 30,522 33,050
Net income 12,541 15,313 18,582 19,542
Net income per share .60 .73 .88 .93
1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ---- -------- -------- -------- --------
Revenues $115,712 $125,678 $148,943 $163,737
Income before income taxes 12,524 16,295 21,670 23,970
Net income 7,891 10,100 13,838 14,312
Net income per share .38 .49 .67 .69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the registrant (including its significant
subsidiaries) who are not Directors of the registrant are as follows:
Lynn Pippenger 58 Treasurer, Senior Vice President -
Finance of RJA, Secretary and/or
and Treasurer Director of certain
RJF subsidiaries.
Jeffrey P. Julien 40 Vice President - Finance and Chief
Financial Officer, Director and/or
officer of certain RJF subsidiaries.
Barry S. Augenbraun 57 Senior Vice President and Corporate
Secretary.
Mary Jean Kissner 39 Vice President and Tax Manager.
Jennifer Ackart 32 Controller.
The information required by Item 10 relating to Directors of the registrant is
incorporated herein by reference to the registrant's definitive proxy statement
for the 1997 Annual Meeting of Shareholders. Such proxy statement will be filed
with the SEC prior to January 24, 1997.
ITEMS 11,12 AND 13.
The information required by Items 11, 12 and 13 is incorporated herein by
reference to the registrant's definitive proxy statement for the 1997 Annual
Meeting of Shareholders. Such proxy statement will be filed with the SEC prior
to January 24, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Financial statement schedules required by this Item are listed in the
index appearing on page F-1 of this report.
(b) No reports on Form 8-K were filed during the fiscal year ended
September 27, 1996.
(c) Exhibits required by this Item are listed in the index on page F-2.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of St.
Petersburg, State of Florida, on the 20th day of December, 1996.
RAYMOND JAMES FINANCIAL, INC.
By /s/ THOMAS A. JAMES
--------------------------
Thomas A. James, Chairman
Pursuant to the requirements 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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ THOMAS A. JAMES Chairman and Chief December 20, 1996
- --------------------------- Executive Officer
Thomas A. James
/s/ FRANCIS S. GODBOLD President and Director December 20, 1996
- ---------------------------
Francis S. Godbold
/s/ M. ANTHONY GREENE Executive Vice President December 20, 1996
- --------------------------- and Director
M. Anthony Greene
/s/ ROBERT F. SHUCK Vice Chairman and Director December 20, 1996
- ---------------------------
Robert F. Shuck
/s/ JEFFREY P. JULIEN Vice President - Finance December 20, 1996
- --------------------------- (Chief Financial Officer)
Jeffrey P. Julien
/s/ JENNIFER C. ACKART Controller (Chief December 20, 1996
- --------------------------- Accounting Officer)
Jennifer C. Ackart
/s/ JONATHAN A. BULKLEY Director December 20, 1996
- ---------------------------
Jonathan A. Bulkley
/s/ HERBERT E. EHLERS Director December 20, 1996
- ---------------------------
Herbert E. Ehlers
/s/ THOMAS S. FRANKE Director December 20, 1996
- ---------------------------
Thomas S. Franke
/s/ HARVARD H. HILL, JR. Director December 20, 1996
- ---------------------------
Harvard H. Hill, Jr.
/s/ CHRISTOPHER W. JAMES Director December 20, 1996
- ---------------------------
Christopher W. James
Director December 20, 1996
- ---------------------------
Paul W. Marshall
/S/ J. STEPHEN PUTNAM Executive Vice President December 20, 1996
- --------------------------- and Director
J. Stephen Putnam
/S/ DENNIS W. ZANK Director December 20, 1996
- ---------------------------
Dennis W. Zank
21
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
FINANCIAL STATEMENTS PAGE(S)
- -------------------- -------
Report and Consent of Independent Certified Public
Accountants F-3
Consolidated Statement of Financial Condition
as of September 27, 1996 and September 29, 1995 F-4
Consolidated Statement of Income for the Three Years
Ended September 27, 1996 F-5
Consolidated Statement of Changes in Shareholders' Equity
for the Three Years Ended September 27, 1996 F-6
Consolidated Statement of Cash Flows for the
Three Years Ended September 27, 1996 F-7-8
Summary of Significant Accounting Policies F-9-12
Notes to Consolidated Financial Statements F-13-22
F - 1
EXHIBITS PAGE(S)
- -------- -------
3.1 Certificate Incorporation of RJ Financial Corp. as filed
on January 24, 1974, and amendments thereto filed on
March 26, 1974, May 16, 1983, June 2, 1983, February 20,
1987, June 13, 1991, March 8, 1993, and February 28, 1994. X-1-36
3.2 By-Laws of the Company, incorporated by reference to
Exhibit 3(b) to Registration statements on form S-1,
No. 2-84010.
10.1 Raymond James Financial, Inc. Amended Stock Option Plan
for Outside Directors, dated December 12, 1986, incorporated
by reference to Exhibit 4.1(b) to Registration Statement on
Form S-8, No. 33-38350.
10.2 Raymond James Financial, Inc. 1992 Incentive Stock Option
Plan effective August 20, 1992, incorporated by reference
to Exhibit 4.1 to Registration Statement on From S-8,
No. 33-60608.
10.3 Raymond James Financial, Inc. Deferred Management Bonus
Plan, effective as of October 1, 1989. X-37-49
10.4 Employment contract with Corporate Secretary effective
as of October 21, 1996. X-50-51
10.5 Termination and Release Agreement between Liberty Asset
Management, Inc. and Raymond James Financial, Inc. X-52-64
11 Computation of Earnings per Share X-65
21 List of Subsidiaries X-66
23 Independent Auditor's Consent X-67
27 Financial Data Schedule (for SEC use only)
SCHEDULES AND EXHIBITS EXCLUDED
All schedules and exhibits not included are not applicable, not required or
would contain information which is included in the Consolidated Financial
Statements, Summary of Significant Accounting Policies, or the
Notes to Consolidated Financial Statements.
F - 2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Raymond James Financial, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing on page F-1 present fairly, in all material respects, the financial
position of Raymond James Financial, Inc. and its subsidiaries at September 27,
1996 and September 29, 1995, and the results of their operations and their cash
flows for each of the three years in the period ended September 27, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Tampa, Florida
November 18, 1996
F - 3
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(in thousands, except share amounts)
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
ASSETS
Cash and cash equivalents $ 258,206 $ 86,417
Assets segregated pursuant to Federal Regulations:
Cash and cash equivalents 119 3,158
Securities purchased under agreements to resell 476,945 330,804
Short-term investments -- 34,017
Securities owned:
Trading and investment account securities 124,253 74,815
Available for sale securities 208,897 114,941
Held to maturity securities -- 11,210
Receivables:
Customers 459,180 397,201
Stock borrowed 864,140 775,288
Brokers, dealers and clearing organizations 24,306 49,135
Other 28,980 24,886
Investment in leveraged leases 20,318 10,581
Property and equipment, net 39,585 40,946
Deferred income taxes 21,189 20,980
Deposits with clearing organizations 22,044 22,157
Prepaid expenses and other assets 18,219 16,179
----------- -----------
$ 2,566,381 $ 2,012,715
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 24,898 $ 15,594
Payables:
Customers 1,086,406 774,476
Stock loaned 848,595 785,784
Brokers, dealers and clearing organizations 56,928 17,542
Trade and other 54,007 56,211
Trading account securities sold but not yet
purchased 57,210 17,377
Accrued compensation 101,300 73,367
Income taxes payable 10,405 6,171
----------- -----------
2,239,749 1,746,522
----------- -----------
Commitments and contingencies (Note 9)
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 21,777,271 shares 217 217
Additional paid-in capital 50,271 50,685
Unrealized gain (loss) on securities available
for sale, net of deferred taxes (791) 146
Retained earnings 289,096 231,029
----------- -----------
338,793 282,077
Less: 882,811 and 1,163,573 common shares
in treasury, at cost (12,161) (15,884)
----------- -----------
326,632 266,193
----------- -----------
$ 2,566,381 $ 2,012,715
=========== ===========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are integral parts of
these financial statements.
F - 4
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
YEAR ENDED
--------------------------------------------
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 30,
1996 1995 1994
------------- ------------- -------------
Revenues:
Securities commissions $422,487 $327,547 $303,193
Investment banking 72,596 43,004 60,219
Investment advisory fees 50,715 42,922 51,153
Interest 126,453 97,211 58,542
Correspondent clearing 3,985 3,721 3,866
Net trading profits 12,243 12,637 6,843
Financial service fees 18,191 14,740 13,446
Other 15,082 12,288 9,874
-------- -------- --------
721,752 554,070 507,136
-------- -------- --------
Expenses:
Employee compensation 423,904 326,426 318,079
Communications 30,585 25,619 26,420
Occupancy and equipment 23,927 21,653 15,758
Clearance and floor brokerage 10,098 8,257 7,644
Interest 83,471 64,758 36,154
Business development 16,053 14,210 14,220
Other 25,189 18,688 21,644
-------- -------- --------
613,227 479,611 439,919
-------- -------- --------
Income before provision for
income taxes 108,525 74,459 67,217
Provision for income taxes 42,547 28,318 25,148
-------- -------- --------
Net income $ 65,978 $ 46,141 $ 42,069
======== ======== ========
Net income per share $ 3.14 $ 2.23 $ 1.97
======== ======== ========
Average common and common
equivalent shares outstanding 21,025 20,705 21,359
======== ======== ========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are integral parts of
these financial statements.
F - 5
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except per share amounts)
UNREALIZED
GAIN (LOSS) TREASURY STOCK
PREFERRED STOCK COMMON STOCK ADDITIONAL ON SECURITIES -----------------
--------------- --------------- PAID-IN RETAINED AVAILABLE COMMON SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS FOR SALE SHARES AMOUNT EQUITY
------ ------ ------ ------ ---------- -------- ------------- ------ -------- -------------
Balances at September 24,
1993 - - 21,777 $217 $52,141 $156,949 - (462) $ (3,742) $205,565
Net income 42,069 42,069
Cash dividends - common
stock ($.32 per share) (6,733) (6,733)
Purchase of treasury
shares (1,113) (16,604) (16,604)
Employee stock purchases 442 165 1,789 2,231
Exercise of stock
options (632) 127 1,137 505
Sale of put options 202 202
Tax benefit related to
Non-qualified option
exercises 222 222
Cash Paid for fractional
shares (5) - (5)
Balances at
------ ------ ------ ------ ---------- -------- ------------- ------ -------- -------------
September 30, 1994 - - 21,777 217 52,375 192,280 - (1,283) (17,420) 227,452
------ ------ ------ ------ ---------- -------- ------------- ------ -------- -------------
Net income 46,141 46,141
Cash dividends - common
stock ($.36 per share) (7,392) (7,392)
Purchase of treasury shares (234) (3,296) (3,296)
Employee stock purchases 139 107 1,455 1,594
Exercise of stock options (1,974) 247 3,377 1,403
Tax benefit related to
Non-qualified option
exercises 145 145
Net unrealized gain on
securities available
for sale $ 146 146
------ ------ ------ ------ ---------- -------- ------------- ------ -------- -------------
Balances at
September 29, 1995 - - 21,777 217 50,685 231,029 146 (1,163) (15,884) 266,193
------ ------ ------ ------ ---------- -------- ------------- ------ -------- -------------
Net income 65,978 65,978
Cash dividends - common
stock ($.38 per share) (7,911) (7,911)
Purchase of treasury
shares (18) (367) (367)
Employee stock purchases 585 106 1,455 2,040
Exercise of stock options (1,250) 192 2,635 1,385
Tax benefit related to
Non-qualified option
exercises 251
Net unrealized (loss) on
securities available
for sale (937) (937)
------ ------ ------ ------ ---------- -------- ------------- ------ -------- -------------
Balances at
September 27, 1996 - - 21,777 $217 $50,271 $289,096 $(791) (883) $(12,161) $326,632
------ ------ ------ ------ ---------- -------- ------------- ------ -------- -------------
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are integral parts of
these financial statements.
F - 6
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(continued on next page)
YEAR ENDED
-------------------------------------------
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 30,
1996 1995 1994
------------- ------------- -------------
Cash flows from operating
activities:
Net income $ 65,978 $ 46,141 $ 42,069
-------- -------- --------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 11,299 9,673 7,011
Unrealized loss (gain) and
premium amortization on
securities 152 (1,033) (716)
Gain on sale of securities (199) (489) -
Gain on sale of property and
equipment 155 117 128
Provision for bad debts 27 234 (25)
Provision for other accruals (1,690) 2,890 5,041
Decrease (increase) in assets:
Short-term investments 34,017 500 20,490
Securities and investments (12,963) (13,905)
Receivables:
Customers (62,006) (49,358) (80,712)
Stock borrowed (88,852) (28,016) 16,106
Brokers, dealers and clearing
organizations 24,829 (34,725) 17,588
Other (4,094) (10,243) 10,579
Trading and investment account
securities, net (18,992) 50,260 (64,202)
Deferred income taxes (209) (396) (2,690)
Prepaid expenses and other
assets (11,664) (2,689) 2,683
Increase (decrease) in
liabilities:
Payables:
Customers 311,930 257,682 183,835
Stock loaned 62,811 14,118 20,226
Brokers, dealers and clearing
organizations 39,386 (6,295) 7,870
Trade and other (514) 6,510 359
Accrued compensation 27,933 13,853 (2,706)
Income taxes payable 4,234 258 (2,384)
-------- -------- --------
Total adjustments 328,553 209,888 124,576
-------- -------- --------
Net cash provided by operating
activities 394,531 256,029 166,645
-------- -------- --------
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are integral parts of
these financial statements.
F - 7
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(continued from preceding page)
YEAR ENDED
-------------------------------------------
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 30,
1996 1995 1994
------------- ------------- -------------
Cash flows from investing activities:
Additions to property and equipment (10,093) (9,646) (14,677)
Sales of property and equipment -- 990 627
Sales of securities 51,050 28,805 5,076
Purchases of securities (167,512) (92,926) (63,303)
Purchases of held to maturity
securities 0 (8,033) --
Security maturations and repayments 42,213 23,157 --
--------- --------- ---------
Net cash used in investing activities (84,342) (57,653) (72,277)
--------- --------- ---------
Cash flows from financing activities:
Repayments on mortgage note (2,686) (159) (144)
Borrowings from banks 11,990 2,510
Exercise of stock options and
employee stock purchases 3,676 3,142 2,958
Purchase of treasury stock (367) (3,296) (16,604)
Cash dividends on common stock (7,911) (7,392) (6,733)
Sale of stock options -- -- 202
Cash paid for fractional shares -- -- (5)
--------- --------- ---------
Net cash provided by (used in)
financing activities 4,702 (5,195) (20,326)
--------- --------- ---------
Net increase in cash and cash
equivalents 314,891 193,181 74,042
Cash and cash equivalents at
beginning of year 420,379 227,198 153,156
--------- --------- ---------
Cash and cash equivalents at end of
year $ 735,270 $ 420,379 $ 227,198
========= ========= =========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 88,599 $ 57,834 $ 36,663
========= ========= =========
Cash paid for taxes $ 41,371 $ 29,216 $ 30,033
========= ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are integral parts of
these financial statements.
F - 8
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Raymond James Financial, Inc. is a holding company which, through its
subsidiaries, is engaged principally in the securities brokerage business,
including the underwriting, distribution, trading and brokerage of equity and
debt securities and the sale of mutual funds and other investment products. In
addition, it provides investment management services for retail and
institutional customers and banking services for retail customers. The
accounting and reporting policies of Raymond James Financial, Inc. and its
subsidiaries (the "Company") conform to generally accepted accounting
principles, the more significant of which are summarized below:
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Raymond
James Financial, Inc. and its subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation. The consolidated
subsidiaries at September 27, 1996 are as follows:
Raymond James & Associates, Inc. RJ Government Securities, Inc.
Investment Management & Research, Inc. RJ Health Properties, Inc.
Robert Thomas Securities, Inc. RJ Leasing, Inc.
Eagle Asset Management, Inc. RJ Leasing - 2, Inc.
Heritage Asset Management, Inc. RJ Medical Investors, Inc.
Raymond James Trust Company RJ Mortgage Acceptance Corporation
Raymond James Bank, FSB RJ Partners, Inc.
Sound Trust Company RJ Realty, Inc.
Planning Corporation of America RJ Specialist, Inc.
RJ Properties, Inc. RJ Washington Square
Gateway Assignor Corporation, Inc. Raymond James Credit Corporation, Inc.
Heritage International, Ltd. Raymond James International
Raymond James International, Ltd. Holdings, Inc.
PCAF, Inc. Raymond James Mortgage Capital,
RJA Municipal ABS, Inc. Inc.
RJ Communication, Inc. Raymond James Partners, Inc.
RJ Credit Partners, Inc. Raymond James Realty Advisors, Inc.
RJ Equities, Inc. Value Partners, Inc.
RJ Equities - 2, Inc.
All consolidated subsidiaries are 100% owned by the Company except for RJ
Properties, Inc., which is 85% owned.
REPORTING PERIOD
The Company's fiscal year ends on the last Friday in September of each
year.
RECOGNITION OF REVENUES
Securities transactions and related commission revenues and expenses are
recorded on a trade date basis for fiscal years 1996 and 1995 and on a
settlement date basis for fiscal year 1994, which was not materially different
from trade date.
F - 9
Revenues from limited partnerships and investment banking are recorded at
the time the transaction is completed and the related income is reasonably
determinable. Investment banking revenues include sales credits earned in
connection with the distribution of the underwritten securities.
The Company earns an advisory fee based on a client's portfolio value on
portfolios managed by its investment advisory subsidiaries. These fees are
recorded under the accrual method. In addition, on certain portfolios, the
Company earns performance fees which are recorded when earned.
MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an initial
maturity of three months or less to be cash equivalents for purposes of the
consolidated statement of cash flows. These consist primarily of U.S. Treasury
securities and are stated at cost, which approximates market at fiscal yearend.
It is the Company's policy to obtain possession and control of securities
purchased under resale agreements. The net fair value of securities purchased
under resale agreements approximates their carrying value, as such financial
instruments are predominantly short-term in nature. The Company monitors the
risk of loss by assessing the market value of the underlying securities as
compared to the related receivable or payable, including accrued interest, and
requests additional collateral where deemed appropriate. At September 27, 1996,
there were no agreements with any individual counterparties where the risk of
loss exceeded 10% of shareholders' equity.
SHORT-TERM INVESTMENTS
Short-term investments segregated pursuant to Federal Regulations are
stated at market.
SECURITIES OWNED
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115"),
as of October 1, 1994. FAS 115 requires investments in debt and equity
securities to be classified as either "held to maturity," "trading," or
"available for sale." The accounting treatment for unrealized gains and losses
on those securities is then determined by the classification chosen. The trading
and investment account securities held by the brokerage
F - 10
subsidiaries are classified as trading. Investment account securities not
readily marketable are carried at estimated fair value as determined by
management with unrealized gains and losses included in earnings. Trading
securities are carried at market value with realized and unrealized gains and
losses included in earnings. Securities available for sale are carried at fair
value, with unrealized gains and losses reported as a separate component of
shareholders' equity, net of deferred taxes, and realized gains and losses,
determined on a specific identification basis, included in earnings.
Securities classified as held to maturity are carried at amortized cost
and adjusted for premium amortization or discount accretion with realized gains
and losses included in earnings. At September 29, 1995, Raymond James Bank, FSB,
held one FHLMC mortgage-backed security in its held to maturity portfolio with
an amortized cost of $2,800,000 and an estimated market value of $2,865,000, and
the parent company held U.S. Treasury Notes and municipal bonds with an
amortized cost of $8,410,000 and an estimated market value of $8,475,000. U.S.
Treasury Notes with an amortized cost of $3,003,000 matured within the year. In
November, 1995 the Company took advantage of a one-time opportunity and
reclassified all securities classified as held to maturity to available for
sale. At September 27, 1996, the Company had no securities classified as held to
maturity.
For fiscal year 1994, trading and investment account securities are
recorded at market value with unrealized appreciation or depreciation reflected
in income currently. Other short-term investments are stated at amortized cost,
which approximates market value at fiscal yearend.
PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are stated at cost less
accumulated depreciation. Depreciation of assets is provided principally using
the straight-line method for financial reporting purposes over the estimated
useful lives of the assets, which range from two to seven years for furniture
and equipment and fifteen to thirty-one years for buildings and land
improvements. Leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or the estimated useful lives of the
assets. For income tax purposes, assets are depreciated using accelerated
methods.
Additions, improvements and expenditures for repairs and maintenance that
significantly extend the useful life of an asset are capitalized. Other
expenditures for repairs and maintenance are charged to operations in the period
incurred. Gains and losses on disposals of fixed assets are reflected in income
in the period incurred.
GOODWILL
Goodwill is stated at cost less accumulated amortization. Amortization of
goodwill is provided using the straight-line method for financial reporting
purposes over three to ten years. Goodwill is reflected in prepaid expenses and
other assets.
F - 11
CORRESPONDENT CLEARING
Under clearing agreements, the Company clears trades for unaffiliated
correspondent brokers and retains a portion of commissions as a fee for its
services. The Company records clearing charges net of commissions remitted.
Total commissions generated by correspondents were $18,742,000, $16,155,000 and
$17,232,000, and commissions remitted totaled $14,757,000, $12,434,000 and
$13,366,000 for the years ended September 27, 1996, September 29, 1995 and
September 30, 1994, respectively.
INCOME TAXES
The Company utilizes the asset and liability approach defined in Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
financial statement amounts and the tax bases of assets and liabilities.
NET INCOME PER SHARE
Earnings per share are computed using weighted average common stock and
common stock equivalents outstanding. Common stock equivalents include shares
issuable under stock options and are determined under the treasury stock method.
All per share amounts have been restated to give retroactive effect to the
common stock dividend on November 15, 1993.
RECLASSIFICATIONS
Certain amounts from prior years have been reclassified for consistency
with current year presentation. These reclassifications were not material to the
consolidated financial statements.
F - 12
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - RECEIVABLES FROM AND PAYABLES TO CUSTOMERS:
Receivables from and payables to customers include amounts arising from
normal cash and margin transactions. Securities owned by brokerage customers are
held as collateral for receivables. Such collateral is not reflected in the
accompanying consolidated financial statements. The amount receivable from
customers is shown net of an allowance for doubtful accounts of approximately
$1,204,000 and $1,177,000 as of September 27, 1996 and September 29, 1995,
respectively. The Company pays interest at varying rates for qualifying customer
funds on deposit awaiting reinvestment. Such funds on deposit totaled
$755,281,000 and $571,628,000 at September 27, 1996 and September 29, 1995,
respectively. Other funds on deposit on which the Company does not pay interest
totaled $130,547,000 and $101,160,000 at September 27, 1996 and September 29,
1995, respectively. Unsecured receivables, other than affiliated company amounts
which are eliminated in consolidation, are not significant.
NOTE 2 - TRADING AND INVESTMENT ACCOUNT SECURITIES (IN THOUSANDS):
SEPTEMBER 27, 1996 SEPTEMBER 29, 1995
------------------------ ------------------------
SECURITIES SECURITIES
SOLD BUT SOLD BUT
SECURITIES NOT YET SECURITIES NOT YET
OWNED PURCHASED OWNED PURCHASED
---------- ---------- ----------- ----------
Marketable:
Stocks and warrants $ 12,341 $11,177 $ 14,348 $ 10,897
Municipal obligations 72,881 454 20,366 979
Corporate obligations 7,894 1,536 11,346 434
Government obligations 26,086 44,031 15,611 5,067
Other 4,904 12 11,229 -
Non-marketable 147 - 1,915 -
------- ------- -------- --------
$124,253 $57,210 $ 74,815 $ 17,377
======== ======= ======== ========
NOTE 3 - AVAILABLE FOR SALE SECURITIES (IN THOUSANDS):
The amortized cost and estimated market values of securities available for
sale at September 27, 1996 are as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------------
Mortgage-backed securities:
FNMA $ 75,014 $ 194 $ (433) $ 74,775
FHLMC 95,076 206 (246) 95,036
GNMA 29,053 - (949) 28,104
U.S. Treasury Securities 11,047 24 (98) 10,973
Stocks 5 4 - 9
-------- -------- ------ --------
$210,195 $ 428 $(1,726) $208,897
======== ======== ======== ========
F - 13
The amortized cost and estimated market values of securities available for
sale at September 29, 1995 are as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Mortgage-backed securities:
FNMA $ 38,912 $182 $ (10) $ 39,084
FHLMC 44,837 157 (85) 44,909
GNMA 15,183 42 (31) 15,194
CMO 771 - (2) 769
U.S. Treasury securities 10,013 57 (5) 10,065
U.S. government agency
obligations 4,988 - (68) 4,920
-------- ---- ----- --------
$114,704 $438 $(201) $114,941
======== ==== ===== ========
The U.S. Treasury securities and U.S. government agency obligations mature
after one year and within 5 years.
NOTE 4 - LEVERAGED LEASES (IN THOUSANDS):
On September 24, 1993, the Company became the lessor in their first
leveraged commercial aircraft transaction with a major domestic airline. On June
27, 1996, the Company entered into their second such transaction. The Company's
combined equity investments represented 21% of the aggregate purchase prices;
the remaining 79% was funded by public debt issues in the form of equipment
trust certificates. The residual values of the aircrafts at the end of an
average lease term of 20 years is projected to be an average of 10% of the
original cost.
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
Rents receivable (net of principal and
interest on the non-recourse debt) $ 21,056 $ 9,793
Unguaranteed residual values 10,719 2,026
Unearned income (11,457) (1,238)
-------- --------
Investment in leveraged leases 20,318 10,581
Deferred taxes arising from leveraged
leases (13,414) (8,617)
-------- --------
Net investment in leveraged leases $ 6,904 $ 1,964
======== ========
NOTE 5 - PROPERTY AND EQUIPMENT (IN THOUSANDS):
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
Land $ 6,287 $ 6,287
Buildings and improvements 26,626 26,643
Furniture, fixtures, equipment
and leasehold improvements 63,280 53,946
------- -------
96,193 86,876
Less: accumulated depreciation
and amortization (56,608) (45,930)
------- -------
$39,585 $40,946
======= =======
F - 14
NOTE 6 - BORROWINGS:
The mortgage note payable requires monthly principal and interest payments
of approximately $120,000 with a balloon payment due December 1, 1997. The
mortgage bears interest at 9.75% and is secured by land, buildings and
improvements with a net book value of $9,595,570 at September 27, 1996.
Principal maturities under this mortgage note payable for the succeeding five
fiscal years are as follows: 1997 - $193,000; 1998 - $12,716,000; 1999 and
beyond - $0.
The Company currently has two $50 million committed lines of credit with
commercial banks. Borrowings under the lines of credit bear interest at various
rates (Fed Funds plus 2%, the lesser of prime rate or Fed Funds plus 1/2%, or
LIBOR plus 3/4%). One of these lines of credit requires that the Company
maintain certain net worth levels, limit other leases and debt and requires the
Company to follow certain other sound business practices. The Company paid
$64,000 and $100,000 in loan commitment fees during fiscal years 1996 and 1995,
respectively. There were borrowings of $11,989,000 at September 27, 1996 at 6.2%
on one of the lines of credit. All borrowings on this line of credit were
collateralized by customer securities with a maximum loan to value of fifty
percent. The interest rate on these borrowings was the one-month LIBOR rate plus
.75%, and ranged from 6.1% to 6.8% during 1996. At September 29, 1995, there
were borrowings of $2,510,000 at 8.2%, collateralized by mortgage loans with a
fair value of $7,376,000, outstanding on a separate $50 million line of credit
for the mortgage companies which was terminated during fiscal 1996. During 1996,
there were maximum borrowings of $2,510,000 on this line of credit,
collateralized by mortgage loans. The interest rate on these borrowings was Fed
Funds plus 2% and ranged 7.6% to 8.3% in 1996 and from 7.5% to 8.2% during 1995.
The Company also maintains uncommitted lines of credit aggregating
$255,000,000 with commercial banks ($200,000,000 secured and $55,000,000
unsecured). Borrowings under the lines of credit bear interest, at the Company's
option, at the bank's prime rate, Fed Funds rate plus 1 1/4%, or LIBOR plus
3/4%. There were no short-term borrowings outstanding at September 27, 1996 or
September 29, 1995. The interest rate on these borrowings ranged from 5.64% to
6.50% in 1996 and 5.08% to 7.00% in 1995. Loans on the secured, uncommitted
lines of credit are collateralized by firm or customer margin securities.
NOTE 7 - BANK OPERATIONS AND DEPOSITS:
On May 6, 1994, the Company chartered Raymond James Bank, FSB, ("RJ Bank")
in conjunction with the purchase of the deposits of certain branches of a
federal savings bank from the Resolution Trust Corporation ("RTC") for a nominal
purchase price. The Company contributed $25 million in capital to fund the
bank's start-up.
F - 15
A summary of customer deposit accounts (in thousands) and weighted average
interest rates follows:
SEPTEMBER 27, 1996 SEPTEMBER 29, 1995
----------------------- -----------------------
WEIGHTED WEIGHTED
BALANCE AVERAGE RATE BALANCE AVERAGE RATE
-------- ------------ -------- ------------
Demand deposits:
Non-interest bearing $ 161 - $ 56 -
Interest bearing 1,056 2.33% 525 2.95%
Money market accounts 1,256 3.58% 235 3.49%
Savings accounts 155,131 4.63% 89,998 4.95%
Certificates of deposit 42,892 5.43% 10,874 5.59%
-------- --------
(3.00% - 9.00%)
$200,496 4.78% $101,688 5.00%
======== ========
The certificates of deposit at September 27, 1996 mature as follows:
$32,370,000 in 1997, $5,885,000 in 1998, $2,034,000 in 1999, $1,071,000 in 2000
and $1,532,000 in 2001. Certificates of deposit and savings accounts in amounts
of $100,000 or more at September 27, 1996 and September 29, 1995 were
approximately $43,834,000 and $22,558,000, respectively.
A summary of loan distribution (in thousands) is as follows:
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
Residential mortgage loans $6,365 $10
Consumer loans 20 30
------ ---
6,385 40
Allowance for loan losses (64) -
Purchase premium 40 -
------ ---
$6,361 $40
====== ===
Activity in the allowance for loan losses for 1996 consists solely of the
provision for loan losses. There were no loan losses in 1996 or 1995.
Generally, mortgage loans are secured by either first or second mortgages
on residential property, and consumer loans are secured by time deposit
accounts. As of September 27, 1996 and September 29, 1995, all of RJ Bank's loan
portfolio was secured.
RJ Bank is subject to various regulatory and capital requirements and was
in compliance with all requirements throughout the fiscal year.
F - 16
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), RJ Bank is subject to rules limiting brokered deposits and
related interest rates. Under these rules, banks that are deemed
"well-capitalized" may accept brokered deposits without restriction, and banks
deemed "adequately capitalized" may do so with a waiver from the FDIC. An
"undercapitalized" bank is not eligible for a waiver and may not accept brokered
deposits. At September 27, 1996, management believes RJ Bank met the definition
of the well-capitalized category.
At September 27, 1996, RJ Bank exceeded the tangible capital, core
capital, core/leverage capital, tier 1/risk-based capital and total risk-based
capital levels mandated by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 and FDICIA. As part of the purchase of deposits from the
RTC, RJ Bank was required to maintain a tier 1 capital ratio of at least 10% for
its first three years of operations. This requirement was subsequently reduced
to 6%. At September 27, 1996, RJ Bank's tier 1 capital to average assets ratio
was 13.8%.
NOTE 8 - FEDERAL AND STATE INCOME TAXES (IN THOUSANDS):
The provision (benefit) for income taxes consists of:
YEAR ENDED
-------------------------------------------
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 30,
1996 1995 1994
------------- ------------- -------------
Current provision:
Federal $35,473 $24,790 $23,975
State 6,730 4,000 3,762
------- ------- -------
42,203 28,790 27,737
------- ------- -------
Deferred provision (benefit):
Federal 383 (425) (2,277)
State (39) (47) (312)
------- ------- -------
344 (472) (2,589)
------- ------- -------
$42,547 $28,318 $25,148
======= ======= =======
The Company's effective tax rate on pre-tax income differs from the
statutory federal income tax rate due to the following:
YEAR ENDED
-------------------------------------------
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 30,
1996 1995 1994
------------- ------------- -------------
Provision calculated at
statutory rates $38,034 $26,061 $23,526
State income taxes, net
of federal benefit 4,349 2,570 2,243
Other 164 (313) (621)
------- ------- -------
$42,547 $28,318 $25,148
======= ======= =======
F - 17
The major deferred tax asset (liability) items, as computed under FAS 109,
are as follows:
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
Deferred tax assets:
Deferred compensation $18,658 $ 15,728
Accrued expenses 13,259 13,501
Other 5,625 3,558
-------- --------
Total deferred tax assets 37,542 32,787
-------- --------
Deferred tax liabilities:
Aircraft leases (13,416) (8,617)
Other, net (2,937) (3,190)
-------- --------
Total deferred tax liabilities (16,353) (11,807)
-------- --------
Net deferred tax assets $ 21,189 $ 20,980
======== ========
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
Long-term lease agreements expire at various times from 1997 through 2002.
Minimum annual rentals under such agreements for the succeeding five fiscal
years are approximately: $6,064,000 in 1997, $4,581,000 in 1998, $3,405,000 in
1999, $3,112,000 in 2000, and $2,712,000 in 2001. Rental expense incurred under
all leases, including equipment under short-term agreements, aggregated
$7,589,000, $5,481,000, and $5,435,000 in 1996, 1995 and 1994, respectively.
At September 27, 1996, the Company had committed to lend to, or guarantee
other debt for, Gateway Tax Credit Funds ("Gateway") up to $6 million upon
request. Subsequent to yearend, the amount was increased to $10 million. Any
borrowings bear interest at broker call plus 1% per annum. Gateway is charged 1%
for amounts guaranteed. The borrowings are secured by properties under
development. At September 27, 1996, balances of $1,892,000 were guaranteed. The
commitment expires in November 1997, at which time any outstanding balances
would be due and payable.
In the normal course of business, the Company enters into underwriting
commitments. Transactions relating to such commitments that were open at
September 27, 1996 and were subsequently settled had no material effect on the
consolidated financial statements as of that date.
At September 27, 1996, the Company had a letter of credit outstanding of
$100,000 and excess customer margin securities valued at $20,599,000 on deposit
with a clearing organization, which are used to satisfy margin deposit
requirements.
In the normal course of business, the Company, as general partner, is
contingently liable for the obligations of various limited partnerships engaged
primarily in securities investments and real estate activities. In the opinion
of the Company, such liabilities, if any, for the obligations of the
partnerships will not in the aggregate have a material adverse effect on the
Company's consolidated financial position.
F - 18
The Company is a defendant or co-defendant in various lawsuits incidental
to its securities business. The Company is contesting the allegations of the
complaints 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 the matters will not result in a
material adverse effect on the financial position or results of operations of
the Company.
NOTE 10 - 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. On May 12, 1994, the Board of Directors authorized the
repurchase of 1,000,000 shares of common stock, and on February 17, 1995, the
Board of Directors authorized the purchase of an additional 386,000 shares of
common stock, bringing the cummulative total authorized to 5,745,000. Of these,
4,764,000 shares have been purchased through September 27, 1996.
NOTE 11 - EMPLOYEE BENEFIT PLANS:
The Company's profit sharing plan and employee stock ownership plan
provide certain death, disability or retirement benefits for all employees who
meet certain service requirements. Such benefits become fully vested after seven
years of qualified service. The Company also offers a plan pursuant to section
401(k) of the Internal Revenue Code which, effective January 1, 1994, provides
for the Company to match 100% of the first $500 and 50% of the next $500 of
compensation deferred by each participant annually. The Company's deferred
management bonus plan is a non-qualified plan that provides retirement benefits
for employees who meet certain length of service and compensation requirements.
Contributions to these plans are made in amounts approved annually by the Board
of Directors. Compensation expense includes aggregate contributions to these
plans of $12,527,000, $8,530,000, and $7,257,000 for 1996, 1995 and 1994,
respectively. The employee stock purchase plan allows employees to purchase
shares of the Company's common stock on four specified dates throughout the year
at a 15% discount from market value, subject to certain limitations.
On September 30, 1982, the Board of Directors of the Company adopted an
Incentive Stock Option Plan ("1982 Plan"), which covered an aggregate of
1,900,125 shares of common stock. On August 20, 1992, the Board of Directors
adopted the 1992 Incentive Stock Option Plan which covers an aggregate of
1,050,000 shares of common stock. The Plan was established to replace, on
substantially the same terms and conditions, the 1982 Plan. Options are granted
to registered representatives of Raymond James & Associates, Inc. who achieve
certain gross commission levels and to key administrative employees of the
Company. The options are granted at fair market value. No compensation expense
was recognized with respect to these options. Options
F - 19
are exercisable in the 36th to 72nd months following the date of grant and only
in the event that the grantee is an employee of the Company at that time.
On December 13, 1985, the Company's Board of Directors adopted a
non-qualified stock option plan which currently covers 1,013,000 shares of
common stock for the benefit of independent contractor registered
representatives of the Company. Options are exercisable five years after grant
date provided that the representative is still associated with the Company.
The directors who are also employees of the Company adopted a non-qualified
stock option plan on December 13, 1990 under which the Company's outside
directors have been granted options covering 66,560 shares of the Company's
common stock. Options vest over a five year period from grant date provided that
the director is still associated with the Company.
The following table summarizes the option activity under these programs
for the three years ended September 27, 1996:
SHARES UNDER OPTION PRICE
OPTION RANGE
------------ ------------
Outstanding at September 24, 1993 1,081,314 $ 2.74 to $18.75
Granted 208,999 16.36 to 16.63
Canceled (31,787) 4.21 to 14.83
Exercised (127,475) 2.74 to 5.00
---------
Outstanding at September 30, 1994 1,131,051 3.00 to 16.63
Granted 109,625 13.75 to 21.75
Canceled (66,771) 4.74 to 18.08
Exercised (247,064) 3.25 to 14.67
----------
Outstanding at September 29, 1995 926,841 3.00 to 21.75
Granted 340,700 19.38 to 23.13
Canceled (23,428) 5.00 to 22.13
Exercised (192,516) 3.00 to 18.08
----------
Outstanding at September 27, 1996 1,051,597 $11.22 to $23.13
NOTE 12 - NET CAPITAL REQUIREMENTS:
The broker-dealer subsidiaries of the Company are subject to the
requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities
Exchange Act of 1934 and the rules of the securities exchanges of which Raymond
James & Associates, Inc. is a member, whose requirements are substantially the
same. 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
(see Note 13). The New York Stock Exchange may require a member organization to
reduce its business if its net capital is less
F - 20
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. Net capital positions of the
Company's broker-dealer subsidiaries were as follows:
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
-------------- -------------
RAYMOND JAMES & ASSOCIATES, INC.: (dollar amounts in thousands)
(alternative method elected)
Net capital as a percent of
aggregate debit items 26.00% 23.00%
Net capital $127,302 $97,955
Required net capital 9,703 8,594
-------- -------
Excess net capital $117,599 $89,361
======== =======
INVESTMENT MANAGEMENT & RESEARCH, INC.:
Ratio of aggregate indebtedness to
net capital 1.28 2.14
Net capital $ 5,261 $ 2,877
Required net capital 449 410
-------- -------
Excess net capital $ 4,812 $ 2,467
======== =======
ROBERT THOMAS SECURITIES, INC.:
Ratio of aggregate indebtedness to net
capital 5.99 4.95
Net capital $ 1,213 $ 1,217
Required net capital 484 402
-------- -------
Excess net capital $ 729 $ 815
======== =======
NOTE 13 - RESERVE REQUIREMENTS:
Rule 15c3-3 of the Securities Exchange Act of 1934 specifies certain
conditions under which brokers and dealers carrying customer accounts are
required to maintain cash or qualified securities in a special reserve account
for the exclusive benefit of customers. Amounts to be maintained, if required,
are computed in accordance with a formula defined in the Rule. At September 27,
1996, Raymond James & Associates, Inc. had $477,064,000 in special reserve
accounts which consisted of $476,945,000 of securities purchased under
agreements to resell and $119,000 in cash as compared to a reserve requirement
of $474,430,000 at that date. At September 29, 1995, this subsidiary had
$367,979,000 in special reserve accounts which consisted of $330,804,000 of
securities purchased under agreements to resell, $34,017,000 in U.S. Treasury
Notes and $3,158,000 in cash as compared to a reserve requirement of
$321,377,000 at that date. At September 27, 1996, and September 29, 1995, all
such repurchase agreements were on an overnight basis with Cantor Fitzgerald
Partners, Eastbridge Capital, Inc., BT Securities Corporation and First Union
Capital Markets Corp. The Company monitors the market value of the underlying
securities as compared to the related receivable, including accrued interest,
and requires additional collateral where deemed appropriate.
Investment Management & Research, Inc. and Robert Thomas Securities, Inc.
are exempt from the provisions of Rule 15c3-3, since they clear all transactions
with and for customers on a fully disclosed basis with Raymond James &
Associates, Inc.
F - 22
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
In the normal course of business, the Company purchases and sells
securities and commodities as either principal or agent on behalf of its
customers. If either the customer or a counterparty fails to perform, the
Company may be required to discharge the obligations of the nonperforming party.
In such circumstances, the Company may sustain a loss if the market value of the
security or futures contract is different from the contract value of the
transaction.
The Company also acts as an intermediary between broker-dealers and other
financial institutions whereby the Company borrows securities from one
broker-dealer and then lends them to another. Securities borrowed and securities
loaned are carried at the amount of cash collateral advanced and received in
connection with the transactions. The Company measures the market value of the
securities borrowed and loaned against the cash collateral on a daily basis. The
market value of securities borrowed and securities loaned was $816,362,000 and
$798,968,000, respectively, at September 27, 1996 and $772,101,000 and
$784,767,000, respectively, at September 29, 1995. Additional cash is obtained
as necessary to ensure such transactions are adequately collateralized. If
another party to the transaction fails to perform as agreed (such as failure to
deliver a security or failure to pay for a security), the Company may incur a
loss if the market value of the security is different from the contract amount
of the transaction.
The Company has also loaned, to brokers and dealers, securities owned by
customers and others for which it has received cash or other collateral. If a
borrowing institution or broker-dealer does not return a security, the Company
may be obligated to purchase the security in order to return it to the owner. In
such circumstances, the Company may incur a loss equal to the amount by which
the market value of the security on the date of nonperformance exceeds the value
of the loan from the institution or the collateral from the broker or dealer.
The Company has sold securities that it does not currently own and will,
therefore, be obligated to purchase such securities at a future date. The
Company has recorded $57,210,000 and $17,377,000 at September 27, 1996 and
September 29, 1995, respectively, which represents the market value of the
related securities at such dates. The Company is subject to loss if the market
price of those securities not covered by a hedged position increases subsequent
to September 27, 1996. The Company utilizes short government obligations and
equity securities to hedge long proprietary inventory positions. At September
27, 1996, the Company had $31,203,000 in short government obligations and
$512,000 in short equity securities which represented hedge positions. At
September 29, 1995, the Company had $7,712,000 in short government obligations
and $3,844,000 in short equity securities which represented hedge positions.
The Company enters into security transactions involving forward
settlement. Transactions involving future settlement give rise to market risk,
which represents the potential loss that can be caused by a change in the market
value of a particular financial instrument. The Company's exposure to market
risk is determined by a number of factors, including the size, composition and
diversification of positions held, the absolute and relative levels of interest
rates, and market volatility.
F - 22
The majority of the Company's transactions and, consequently, the
concentration of its credit exposure is with customers, broker-dealers and other
financial institutions in the United States. These activities primarily involve
collateralized arrangements and may result in credit exposure in the event that
the counterparty fails to meet its contractual obligations. The Company's
exposure to credit risk can be directly impacted by volatile securities markets
which may impair the ability of counterparties to satisfy their contractual
obligations. The Company seeks to control its credit risk through a variety of
reporting and control procedures, including establishing credit limits based
upon a review of the counterparties' financial condition and credit ratings. The
Company monitors collateral levels on a daily basis for compliance with
regulatory and internal guidelines and requests changes in collateral levels as
appropriate.
NOTE 15 - RELATED PARTIES:
On October 27, 1994, the Company and the then President and Chief
Investment Officer of its Eagle Asset Management, Inc. ("Eagle") subsidiary,
Herbert E. Ehlers ("Ehlers"), entered into a Separation Agreement by which
Ehlers (a director of the Company) and certain other Eagle personnel became
employees of a new firm, Liberty Investment Management, Inc. ("Liberty"),
effective December 31, 1994. Ehlers began operating Liberty as of January 1,
1995, and he remained a dual employee of Eagle and Liberty through June 1995,
continuing as investment manager on certain retail accounts until they were
assigned to other portfolio managers. As of January 1, 1995, Liberty assumed the
responsibility for providing investment management services to institutional
growth equity accounts totaling $4.3 billion formerly managed by Eagle.
In accordance with Ehlers' employment agreement, Eagle received 50% of the
revenues from these accounts, while bearing none of the expenses. In addition,
the Company was granted an option to purchase 20% of Liberty in the year 2000 at
a predetermined price. For the years ended September 27, 1996 and September 29,
1995, Eagle recognized $9,813,000 and $7,233,000, respectively, in fees from
Liberty, which are included in investment advisory fees in the consolidated
statement of income. At September 29, 1996 and September 29, 1995, $5,004,000
and $4,921,000 due from Liberty is included in other receivables on the
consolidated statement of financial condition.
Subsequent to year end, Liberty entered into an agreement to sell
substantially all of its assets to Goldman Sachs Asset Management. Accordingly,
the Company, Eagle, Ehlers and Liberty reached an agreement in principle whereby
the Company will receive a lump sum settlement for its remaining three years'
interest in Liberty's revenue stream and the Company's option to purchase 20% of
Liberty at a future date. Upon closing, the Company will receive up to $30
million pretax income as its settlement amount.
The amount and timing of the payments to the Company from Liberty are
contingent upon the occurrence of several events prior to or shortly after the
scheduled closing date of January, 1997. Eagle will continue to receive 50% of
fee revenues until the closing.
F - 23