k1093007.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the
fiscal year ended September 30, 2007
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the
transition period from
to
Commission
file number 1-9109
RAYMOND
JAMES FINANCIAL, INC.
(Exact
name of registrant as specified in its charter)
Florida
|
|
No.
59-1517485
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
880
Carillon Parkway, St. Petersburg, Florida
|
|
33716
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant's
telephone number, including area code
|
(727)
567-1000
|
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 if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes o No x
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 o
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. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer xAccelerated filer
oNon-accelerated
filer
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
x
As
of
March 31, 2007, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant computed by reference to the price at which
the common stock was last sold was $2,848,369,151.
The
number of shares outstanding of the registrant’s common stock as of November 19,
2007 was 120,051,495.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the definitive Proxy Statement to be delivered to shareholders in connection
with the Annual Meeting of Shareholders to be held February 14, 2008 are
incorporated by reference into Part III.
|
RAYMOND
JAMES FINANCIAL, INC.
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|
|
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Page
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PART
I
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Item
1
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2
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Item
1A
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10
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Item
1B
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12
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Item
2
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12
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Item
3
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12
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Item
4
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12
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PART
II
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|
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Item
5
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13
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Item
6
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14
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Item
7
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15
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Item
7A
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37
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Item
8
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42
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Item
9
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81
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Item
9A
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81
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Item
9B
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84
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PART
III
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Item
10
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84
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Item
11
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84
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Item
12
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84
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Item
13
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84
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Item
14
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84
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PART
IV
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Item
15
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85
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87
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PART
I
Raymond
James Financial, Inc. (“RJF”), the parent company of a business established in
1962 and a public company since 1983, is a holding company headquartered in
Florida whose subsidiaries are engaged in various financial services businesses
predominantly in the United States of America (“U.S.”) and Canada. Its principal
subsidiaries include Raymond James & Associates, Inc. (“RJA”), Raymond James
Financial Services, Inc. (“RJFS”), Raymond James Ltd. ("RJ Ltd."), Eagle Asset
Management, Inc. (“Eagle”), Heritage Asset Management, Inc. (“Heritage”) and
Raymond James Bank, FSB (“RJBank”). All of these subsidiaries are wholly owned
by RJF. RJF and its subsidiaries are hereinafter collectively referred to as
the
“Company”.
PRINCIPAL
SUBSIDIARIES
RJF's
principal subsidiary, RJA, is the largest full service brokerage and investment
firm headquartered in the state of Florida and one of the larger retail
brokerage firms in North America. RJA is a self-clearing broker-dealer engaged
in most aspects of securities distribution, trading, investment banking and
asset management. RJA also offers financial planning services for individuals
and provides clearing services for RJFS, other affiliated entities and several
unaffiliated broker-dealers. In addition, RJA has six institutional sales
offices in Europe. RJA is a member of the New York Stock Exchange (“NYSE”),
American Stock Exchange, and most regional exchanges in the U.S. It is also
a
member of the Financial Industry Regulatory Authority (“FINRA”) and Securities
Investors Protection Corporation (“SIPC”). FINRA was created in July 2007
through the consolidation of the National Association of Securities Dealers
and
the member regulation, enforcement and arbitration functions of the NYSE.
RJFS
is
an independent contractor broker-dealer subsidiary, and one of the largest
independent contractor brokerage firms in the U.S. Financial Advisors affiliated
with RJFS may offer their clients all products and services offered by RJA.
RJFS
is a member of FINRA and SIPC, but not of any exchange, as it clears all of
its
business on a fully disclosed basis through RJA.
RJ
Ltd.
is the Company's Canadian broker-dealer subsidiary which engages in both retail
and institutional distribution and investment banking. RJ Ltd. is a member
of
the Toronto Stock Exchange (“TSX”) and the Investment Dealers Association of
Canada ("IDA"). Its U.S. broker-dealer subsidiary is a member of
FINRA.
Eagle
is
a registered investment advisor serving as the discretionary manager for
individual and institutional equity and fixed income portfolios.
Heritage
acts as the manager of the Company's internally sponsored Heritage Family of
Mutual Funds.
RJBank
provides traditional banking products and services to the clients of the
Company's broker-dealer subsidiaries and to the general public.
BUSINESS
SEGMENTS
The
Company has eight business segments: Private Client Group; Capital Markets;
Asset Management; RJBank; Emerging Markets; Stock Loan/Borrow; Proprietary
Capital and certain corporate activities combined in the "Other" segment. In
the
quarter ended September 30, 2007, management identified a new segment,
Proprietary Capital, due to increased business activity. The results of this
segment were previously included within Asset Management and Other.
Reclassifications have been made in the segment disclosure for previous years
to
conform to this presentation. Financial information concerning RJF for each
of
the fiscal years ended September 30, 2007, September 30, 2006 and September
30,
2005 is included in the consolidated financial statements and notes thereto.
Such information is hereby incorporated by reference.
PRIVATE
CLIENT GROUP
The
Company provides securities transaction and financial planning services to
approximately 1.6 million client accounts through the branch office systems
of
RJA, RJFS, RJ Ltd., and Raymond James Investment Services Limited (“RJIS"), an
independent contractor subsidiary in the United Kingdom. The Company's Financial
Advisors offer a broad range of investments and services, including both third
party and proprietary products, and a range of financial planning services.
The
Company charges sales commissions or asset-based fees for investment services
it
provides to its Private Client Group clients based on established schedules.
Varying discounts may be given, generally based upon the client's level of
business, the trade size, service level provided, and other relevant factors.
In
fiscal year 2007 asset-based fees represented 34% of the Private Client Group's
commission and fees.
The
majority of the Company’s U.S. Financial Advisors are also licensed to sell
insurance and annuity products through its general insurance agency, Planning
Corporation of America (“PCA”), a wholly owned subsidiary of RJA. Through the
Financial Advisors of the Company's broker-dealer subsidiaries, PCA provides
product and marketing support for a broad range of insurance products,
principally fixed and variable annuities, life insurance, disability insurance
and long-term care coverage.
The
Company's Financial Advisors offer a number of professionally managed load
mutual funds, as well as a selection of no-load funds. RJA and RJFS maintain
dealer sales agreements with most major distributors of mutual fund shares
sold
through broker-dealers, including funds managed by Heritage. Commissions on
such
sales generally range up to 6% of the dollar value of the transaction. The
majority of mutual fund purchases include a front-end sales charge or occur
at net asset value (“NAV”) in fee-based accounts. In addition, there is
typically an annual charge in the form of a fund expense.
Private Client Group Securities Commission and Fees
For
the Fiscal Years Ended:
|
September
30,
|
%
of
|
September
30,
|
%
of
|
September
30,
|
%
of
|
|
2007
|
Total
|
2006
|
Total
|
2005
|
Total
|
|
($
in 000's)
|
|
|
|
|
|
|
|
Listed
Equities
|
$ 188,120
|
13%
|
$ 188,031
|
15%
|
$ 178,148
|
16%
|
OTC
Equities
|
56,847
|
4%
|
55,706
|
5%
|
55,946
|
5%
|
Fixed
Income Products
|
36,414
|
3%
|
37,911
|
3%
|
41,596
|
3%
|
Mutual
Funds
|
354,647
|
24%
|
294,586
|
23%
|
257,026
|
23%
|
Fee-Based
Accounts
|
487,988
|
34%
|
390,691
|
31%
|
307,684
|
27%
|
Insurance
and Annuity Products
|
233,878
|
16%
|
228,888
|
18%
|
222,657
|
20%
|
New
Issue Sales Credits
|
94,005
|
6%
|
66,938
|
5%
|
69,234
|
6%
|
Total
Private Client Group
|
|
|
|
|
|
|
Commissions
And Fees
|
$
1,451,899
|
100%
|
$
1,262,751
|
100%
|
$
1,132,291
|
100%
|
Net
interest revenue in the Private Client Group is generated by customer balances,
predominantly the earnings on margin loans and assets segregated pursuant to
regulations less interest paid on customer cash balances. See Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” in this report for financial information regarding the Company’s
net interest revenues.
Clients'
transactions in securities are effected on either a cash or margin basis. In
margin transactions, the client pays a portion of the purchase price, and RJA
makes a loan to the client for the balance, collateralized by the securities
purchased or by other securities owned by the client. Interest is charged to
clients 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 client on funds loaned by RJA exceeds RJA's cost of short-term
funds. The interest charged to a client on a margin loan is based on current
interest rates and on the size of the loan balance in the client's
account.
Typically,
broker-dealers utilize bank borrowings and equity capital as the primary sources
of funds to finance clients' margin account borrowings. RJA's primary source
of
funds to finance clients' margin account balances has been cash balances in
brokerage clients' accounts (Client Interest Program), which are funds awaiting
investment. In addition, pursuant to written agreements with clients,
broker-dealers are permitted by the Securities and Exchange Commission (“SEC”)
and FINRA rules to lend client securities in margin accounts to other financial
institutions. SEC regulations, however, restrict the use of clients' funds
derived from pledging and lending clients' securities, as well as funds awaiting
investment, to the financing of margin account balances; to the extent not
so
used, such funds are required to be deposited in a special segregated account
for the benefit of clients. The regulations also require broker-dealers, within
designated periods of time, to obtain possession or control of, and to
segregate, clients' fully paid and excess margin securities.
No
single
client accounts for a material percentage of this segment's total
business.
Raymond
James & Associates
RJA
employs 1,087 Financial Advisors in 185 retail branch offices concentrated
in
the Southeast, Midwest, Southwest and Mid-Atlantic regions of the United States.
RJA's Financial Advisors work in a traditional branch setting supported by
local
management and administrative staffs. The number of Financial Advisors per
office ranges from one to 31. RJA Financial Advisors are employees and their
compensation includes both commission payments and participation in the firm’s
benefit plans (including Profit Sharing and ESOP programs). All investment
program products are available to RJA Financial Advisors. Between 75 and 100
new
Financial Advisors are trained each year at the Robert A. James National
Training Center in St. Petersburg, Florida.
Raymond
James Financial Services
RJFS
supports 3,068 independent contractor Financial Advisors in providing products
and services to their Private Client Group clients in 1,450 offices and 512
satellite offices throughout all 50 states. The number of Financial Advisors
in
RJFS offices ranges from one to 36. Independent contractors are responsible
for
all of their direct costs and, accordingly, are paid a larger percentage of
commissions and fees. They are permitted to conduct other approved businesses
unrelated to their RJFS activities such as offering insurance products,
independent registered investment advisory services, and accounting and tax
services, among others.
Through
its Financial Institutions Division (“FID”), RJFS offers securities to customers
of financial institutions such as banks, thrifts and credit unions. FID consists
of 511 Financial Advisors in 206 branches and 191 satellite offices. RJFS also
provides custodial, trading, and other services (including access to clients'
account information and the services of the Asset Management segment) to
unaffiliated independent investment advisors through its Investment Advisor
Division (“IAD”). IAD’s 77 investment advisory firms are able to conduct daily
business online with RJFS.
Raymond
James Ltd.
RJ
Ltd.
is a self-clearing broker-dealer in Canada with its own operations and
information processing personnel. RJ Ltd. has 18 private client branches with
186 employee Financial Advisors and 139 independent Financial Advisors in 48
branch locations.
Raymond
James Investment Services Limited
The
Company is a 75% shareholder of RJIS. This entity operates an independent
contractor network in the United Kingdom, and currently has 41 branch locations
and 81 Financial Advisors.
RJA
– Operations and Information Technology
RJA's
operations personnel are responsible for the execution of certain orders,
processing of securities transactions, custody of client securities, support
of
client accounts, receipt, identification and delivery of funds and securities,
compliance with certain regulatory and legal requirements and general office
administration for most of the Company's securities brokerage operations. At
September 30, 2007, RJA employed 716 persons in its operations areas who provide
services primarily to the Private Client Group, but also support the Company's
other segments.
The
Company's businesses are supported by, and are dependent upon, an extensive
system of electronic data processing. These computer systems are largely
developed and maintained by the 795 employees in the Company’s information
technology department.
Since
the
Company’s principal operations are located in St. Petersburg, the Company has
continued to enhance certain aspects of its business continuity plan to deal
with the possible impact of future hurricanes or other events by expanding
its
operational and processing capabilities in Southfield, Michigan. As of September
30, 2007, 23% and 6% of the employees in RJA’s operational and information
technology areas, respectively, are located in Southfield. The Company’s
business continuity plan is designed to permit continued operation of critical
business functions in the event of disruptions to the St. Petersburg facility;
all mission critical business departments have developed operational plans
for
such disruptions, and the Company has a staff which devotes their full time
to
monitoring and facilitating those plans. In that connection, the Company
maintains computer capacity to support mission critical functions at its
Southfield location, and conducts some of its daily operational activities
from
that site. Systems have been designed so that the Company can transfer all
mission critical processing activities to Southfield, and personnel have been
identified who are assigned responsibility for this role, including some
personnel who will be required to temporarily relocate to Southfield to carry
out these activities if necessary.
CAPITAL
MARKETS
Capital
Markets activities consist primarily of equity and fixed income products and
services. No single client accounts for a material percentage of this segment's
total business.
Institutional
Sales
Institutional
sales commissions account for a significant portion of this segment's revenue,
which is fueled by a combination of general market activity and the Capital
Markets group’s ability to identify attractive investment opportunities and
promote those opportunities. The Company's institutional clients are serviced
by
the RJA and RJ Ltd. Institutional Equity Departments, the RJA Fixed Income
Department, RJA’s European offices, and Raymond James Financial International
Ltd, an institutional UK broker-dealer located in London. In providing
securities brokerage services to its institutional clients, the Company charges
its commissions on equity transactions based on trade size and the amount of
business conducted annually with each institution. Fixed income commissions
are
based on trade size and the characteristics of the specific security
involved.
Capital
Markets Commissions
For
the Fiscal Years Ended:
|
September
30,
|
%
of
|
September
30,
|
%
of
|
September
30,
|
%
of
|
|
2007
|
Total
|
2006
|
Total
|
2005
|
Total
|
|
($
in 000's)
|
|
|
|
|
|
|
|
Equity
|
$
210,343
|
83%
|
$
217,840
|
84%
|
$
193,001
|
74%
|
Fixed
Income
|
44,454
|
17%
|
41,830
|
16%
|
66,431
|
26%
|
|
|
|
|
|
|
|
Total
Commissions
|
$
254,797
|
100%
|
$
259,670
|
100%
|
$
259,432
|
100%
|
The
121
domestic and overseas professionals in RJA's Institutional Equity Sales and
Sales Trading Departments maintain relationships with over 1,270 institutional
clients, principally in North America and Europe. In addition to the Company's
headquarters in St. Petersburg, FL, RJA has institutional equity sales offices
in New York City, Boston, Chicago, Los Angeles, London, Geneva, Brussels,
Dusseldorf, Luxembourg and Paris. European offices also provide services to
high
net worth clients. RJ Ltd. has 30 institutional equity sales and trading
professionals servicing predominantly Canadian institutional investors from
offices in Montreal, Toronto and Vancouver.
RJA
distributes to its institutional clients both taxable and tax-exempt fixed
income products, primarily municipal, corporate, government agency and mortgage
backed bonds. RJA carries inventory positions of taxable and tax-exempt
securities in both the primary and secondary markets to facilitate its
institutional sales activities. In addition to St. Petersburg, the Fixed Income
Department maintains institutional sales and trading offices in New York City,
Chicago and 19 other cities throughout the U.S. To assist institutional clients,
the Fixed Income Research Group provides portfolio strategy analysis and
municipal bond research.
Equity
Research
The
46
domestic senior analysts in RJA's research department support the Company's
institutional and retail sales efforts and publish research on approximately
670
companies. This research primarily focuses on U.S. companies in specific
industries including Technology, Telecommunications, Consumer, Financial
Services, Business Services, Healthcare, Real Estate, Energy and Industrial
Growth. Proprietary industry studies and company-specific research reports
are
made available to both institutional and individual clients. RJ Ltd. has an
additional 18 analysts who publish research on approximately 190 companies
primarily focused in the Energy, Energy Services, Mining, Forest Products,
Biotechnology, Technology, Consumer and Industrial Products, REIT and Income
Trust sectors. These analysts, combined with 22 additional analysts located
in
Europe and Latin America, represent the Company's global research
effort.
Equity
Trading
Trading
equity securities in the over-the-counter ("OTC") and TSX markets involves
the
purchase and sale of securities from/to clients of the Company or other dealers.
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 approximately 340 common stocks in the OTC market. Similar
to the equity research department, this operation serves to support both the
Company's institutional and Private Client Group sales efforts. The RJ Ltd.
Institutional and Private Client Group trading desks not only support client
activity, but also take proprietary positions. RJ Ltd. also provides specialist
services through its Registered Traders in approximately 120 TSX listed common
stocks.
Equity
Investment Banking
The
62
professionals of RJA's Investment Banking Group, located in St. Petersburg
with
additional offices in Atlanta, New York City, Nashville, Chicago, Palo Alto,
Dallas, and Houston, are involved in a variety of activities including public
and private equity financing for corporate clients, and merger and acquisition
advisory services. RJ Ltd.'s Investment Banking Group consists of 21
professionals located in Calgary, Toronto and Vancouver providing equity
financing and financial advisory services to corporate clients. The Company's
investment banking activities provide a comprehensive range of strategic and
financial advisory services tailored to our clients’ business evolution life
cycle and backed by our strategic industry focus.
Syndicate
The
Syndicate department consists of 8 RJA and 3 RJ Ltd. professionals who
coordinate the marketing, distribution, pricing and stabilization of lead and
co-managed equity underwritings. In addition to managed and co-managed
offerings, this department coordinates the firm's syndicate and selling group
activities in transactions managed by other investment banking
firms.
Fixed
Income Trading
RJA
trades both taxable and tax-exempt fixed income products. The 29 taxable and
28
tax-exempt RJA fixed income traders purchase and sell corporate, municipal,
government, government agency, and mortgage backed bonds, asset backed
securities, preferred stock and certificates of deposit from/to clients of
the
Company or other dealers. RJA enters into future commitments such as forward
contracts and “to be announced” securities (e.g. securities having a stated
coupon and original term to maturity, although the issuer and/or the specific
pool of mortgage loans is not known at the time of the transaction). Proprietary
trading positions are also periodically taken by RJA for various purposes.
In
addition, a subsidiary of RJF, RJ Capital Services Inc., participates in the
interest rate swaps market as a principal, both for economically hedging RJA
fixed income inventory and in transactions with customers.
Fixed
Income Investment Banking
Fixed
income investment banking includes debt underwriting and public finance
activities. The 45 professionals in the RJA Public Finance division operate
out
of 11 offices (located in St. Petersburg, Birmingham, Boston, New York City,
Chicago, Detroit, Atlanta, Nashville, Helena (Montana), Orlando, and San
Antonio). The Company acts as a financial advisor or underwriter to various
municipal agencies or political subdivisions, housing developers and non-profit
health care institutions.
RJA
acts
as an underwriter or selling group member for corporate bonds, mortgage backed
securities, 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.
Raymond
James Tax Credit Funds, Inc.
Raymond
James Tax Credit Funds, Inc. (“RJTCF”) is the general partner or managing member
in a number of limited partnerships and limited liability companies which invest
in multi-family real estate entities that qualify for tax credits under Section
42 of the Internal Revenue Code. RJTCF has been an active participant in the
tax
credit program since its inception in 1986, and currently focuses on tax credit
funds for institutional investors that invest in a portfolio of tax credit
eligible multi-family apartments. The investors’ expected return on investment
from these funds are primarily derived from tax credits and tax losses that
investors can use to reduce their federal tax liability. During fiscal 2007,
RJTCF invested over $374.9 million for large institutional investors in 90
real
estate transactions for properties located throughout the U.S. From inception,
RJTCF has raised over $1.7 billion in equity and has sponsored 49 tax credit
funds, with investments in 1,150 tax credit apartment properties in 42
states.
ASSET
MANAGEMENT
The
Company's asset management segment includes proprietary asset management
operations, internally sponsored mutual funds, several small proprietary hedge
funds, non-affiliated private account portfolio management alternatives, and
other fee based programs. No single client accounts for a material percentage
of
this segment's total business.
Eagle
Asset Management, Inc.
Eagle
is
a registered investment advisor with $14.5 billion under management at September
30, 2007, including approximately $2.4 billion for the Heritage Family of Mutual
Funds. Eagle offers a variety of equity and fixed income objectives managed
by
six portfolio management teams. Eagle's clients include individuals, pension
and
profit sharing plans, foundations, endowments, variable annuities and mutual
fund portfolios. These accounts are managed on a discretionary basis in
accordance with the investment objective(s) specified by the client. Eagle
manages $7.6 billion for institutional clients, including funds managed as
a
sub-advisor to variable annuity accounts and mutual funds (including Heritage),
and $6.9 billion for private client accounts. Eagle also manages
non-discretionary assets of $147 million.
Eagle's
investment management fee for discretionary accounts generally ranges from
.20%
to 1.00% of asset balances per year depending upon the size and investment
objective(s) of the account.
Heritage
Asset Management, Inc.
Heritage
serves as investment advisor to the Heritage Family of Mutual Funds and certain
short-term fixed income accounts. Heritage also serves as transfer agent for
all
of the funds and as fund accountant for all Heritage funds except the
International Equity Fund. Heritage internally manages the largest of its
portfolios, the Heritage Cash Trust Money Market Fund, which has $4.3 billion
in
assets. Portfolio management services for the Core Equity Fund, Diversified
Growth Fund and the Mid-Cap Stock Fund are sub-advised by Eagle. Portfolio
management for the Small Cap Stock Fund is sub-advised by both Eagle and the
Company's Awad Asset Management subsidiary (“Awad”). Unaffiliated advisors are
utilized for the Municipal Money Market Fund, Capital Appreciation Trust, High
Yield Bond Fund, Growth and Income Fund, and the International Equity
Fund.
Heritage
also serves as an advisor to RJBank to make recommendations and monitor the
Bank's liquid assets, investments in mortgages and mortgage related
securities.
Total
assets under management at September 30, 2007 were $10.1 billion, of which
approximately $5.5 billion were money market funds.
Heritage
Fund Distributors, Inc.
Heritage
Fund Distributors, Inc. is a registered broker-dealer engaged in the
distribution of the Heritage Family of Mutual Funds. Heritage Fund Distributors,
Inc. is a wholly owned subsidiary of Heritage Asset Management.
Awad
Asset Management, Inc.
Awad
is a
registered investment advisor that primarily manages small cap equity
portfolios. At September 30, 2007, Awad had approximately $623 million
under management, including approximately $225 million of the Heritage Small
Cap
Stock Fund. Awad's clients include individuals, pension and profit sharing
plans, retirement funds and mutual fund portfolios. Accounts are managed on
a
discretionary basis in accordance with the investment objective(s) specified
by
the client. Management fees generally range from 0.27% to 1.00% of asset
balances annually depending upon the size and investment objective(s) of the
account.
Asset
Management Services
RJA's
Asset Management Services (“AMS”) Department manages several investment advisory
programs. The primary advisory services offered are the Raymond James Consulting
Services program, which offers a variety of both affiliated and non-affiliated
advisors, and the Eagle High Net Worth program. Both programs maintain an
approved list of investment managers, provide asset allocation model portfolios,
establish custodial facilities, monitor performance of client accounts, provide
clients with accounting and other administrative services, and assist investment
managers with certain trading management activities. AMS earns fees generally
ranging from 0.35% to 0.85% of asset balances per annum, a portion of which
is
paid to the investment managers who direct the investment of the clients'
accounts. In addition, AMS also offers the Freedom program, where an investment
committee within AMS manages portfolios of mutual funds on a discretionary
basis. At September 30, 2007, these three programs had approximately $17.8
billion in assets under management, including approximately $2.7 billion managed
by Heritage, Eagle and Awad.
Additional
advisory programs offered through AMS are Passport, Ambassador, Opportunity,
and
the Managed Investment Programs. For these accounts, AMS provides quarterly
performance reporting and other accounting and administrative services. Advisory
services are provided by PCG Financial Advisors. Fees are based on the
individual account size and are also dependent on the type of securities in
the
accounts. Total client fees generally range from 0.50% to 3.0% of assets, which
are predominantly allocated to the Private Client Group. As of September 30,
2007, these programs had approximately $23.8 billion in assets.
In
addition to the foregoing programs, AMS also administers fee-based programs
for
clients who have contracted for portfolio management services from nonaffiliated
investment advisors that are not part of the Raymond James Consulting Services
program.
RJFS
offers an advisory fee based program similar to Passport called IMPAC. As of
September 30, 2007, IMPAC had $9.4 billion in assets serviced by RJFS Financial
Advisors.
Raymond
James Trust Company
Raymond
James Trust Company West
Raymond
James Trust Company and Raymond James Trust Company West provide personal trust
services primarily to existing clients of the broker-dealer subsidiaries.
Portfolio management of trust assets is often subcontracted to the asset
management operations of the Company. These two subsidiaries had a combined
total of approximately $1.7 billion in client assets at September 30, 2007,
including $77 million in the donor-advised charity known as the Raymond James
Charitable Endowment Fund.
RAYMOND
JAMES BANK, FSB
RJBank
is
a federally chartered savings bank, regulated by the Office of Thrift
Supervision, which provides residential, consumer and commercial loans, as
well
as FDIC-insured deposit accounts, to clients of the Company's broker-dealer
subsidiaries and to the general public. RJBank also purchases residential whole
loan packages and is active in bank participations and corporate loan
syndications. RJBank generates revenue principally through the interest income
earned on the transactions noted above, offset by the interest expense it incurs
on client deposits and on its borrowings. See Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” in this report
for financial information regarding RJBank’s net interest revenues.
RJBank
operates from a single branch location adjacent to the Company’s headquarters
complex in St. Petersburg, Florida. Access to RJBank's products and services
is
available nationwide through the offices of its affiliated broker-dealers as
well as through telephonic and electronic banking services. As of September
30,
2007, RJBank had total assets of $6.1 billion with $4.4 billion in loans. These
loans are either originated or purchased by RJBank and include commercial and
residential mortgage loans, as well as consumer loans. As of September 30,
2007,
RJBank had total liabilities of $5.7 billion with $5.6 billion in deposits.
These deposits consist predominately of cash balances swept from the investment
accounts of RJA and RJFS clients. These balances are held in the FDIC insured
Raymond James Bank Deposit Program administered by RJA. No single client
accounts for a material percentage of the segment's total business.
EMERGING
MARKETS
Raymond
James International Holdings, Inc. (“RJIH”) currently has interests in joint
ventures in Latin America and Turkey. These joint ventures operate securities
brokerage, investment banking and asset management businesses. No single client
accounts for a material percentage of this segment's total
business.
STOCK
LOAN/BORROW
This
activity involves the borrowing and lending of securities from and to other
broker-dealers, financial institutions and other counterparties, generally
as an
intermediary. The borrower of the securities puts up a cash deposit, commonly
102% of the market value of the securities, on which interest is earned.
Accordingly, the lender receives cash and pays interest. These cash deposits
are
adjusted daily to reflect changes in current market value. The net revenues
of
this operation are the interest spreads generated. No single client accounts
for
a material percentage of this segment's total business.
PROPRIETARY
CAPITAL
This
segment consists of the Company’s principal capital and private equity
activities including: various direct and third party private equity and merchant
banking investments, short-term special situations and bridge investments
(“Special Situations Investments”), Raymond James Employee Investment Funds I
and II (the “EIF Funds”), and two private equity funds sponsored by the Company:
Raymond James Capital Partners, L.P., a merchant banking limited partnership,
and Ballast Point Ventures, L.P., a venture capital limited partnership (the
“Funds”) and their management companies. The Company, through wholly owned
subsidiaries, earns management fees for services provided to the Funds and
participates in profits or losses through both general and limited partnership
interests. Additionally, the Company incurs profits or losses as a result of
direct merchant banking investments and Special Situations Investments. The
EIF
Funds are limited partnerships, for which the Company is the general partner,
that invest in the merchant banking and private equity activities of the Company
and other unaffiliated venture capital limited partnerships. The EIF Funds
were
established as compensation and retention measures for certain qualified key
employees of the Company.
OTHER
This
segment includes various corporate activities of Raymond James Financial,
Inc.
COMPETITION
The
Company is engaged in intensely competitive businesses. The Company competes
with many larger, more well capitalized providers of financial services,
including other securities firms, most of which are affiliated with major
financial services companies, insurance companies, banking institutions and
other organizations. The Company also competes with a number of firms offering
on-line financial services and discount brokerage services, usually with lower
levels of service, to individual clients. The Company competes principally
on
the basis of the quality of its associates, service, product selection, location
and reputation in local markets.
In
the
financial services industry, there is significant competition for qualified
associates. The Company's ability to compete effectively in its businesses
is
substantially dependent on its continuing ability to attract, retain, and
motivate qualified associates, including successful Financial Advisors,
investment bankers, trading professionals, portfolio managers and other
revenue-producing or specialized personnel.
REGULATION
The
following discussion sets forth some of the material elements of the regulatory
framework applicable to the financial services industry and provides some
specific information relevant to the Company. The regulatory framework is
intended primarily for the protection of customers and the securities markets,
depositors and the Federal Deposit Insurance Fund and not for the protection
of
creditors or shareholders. Under certain circumstances, these rules may limit
the ability of the Company to make capital withdrawals from its broker-dealer
subsidiaries.
To
the
extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. A change in applicable statutes,
regulations or regulatory policy may have a material effect on the Company’s
business.
Broker-dealers
are subject to regulations that cover all aspects of the securities business,
including:
· sales
methods
· trading
practices
· uses
and
safekeeping of clients' funds and securities
· capital
structure and financial soundness
· record
keeping
· the
conduct of directors, officers and employees
· internal
controls
· insurance
requirements
The
financial services industry in the U.S. is subject to extensive regulation
under
federal and state laws. The SEC is the federal agency charged with
administration of the federal securities laws. Financial services firms are
also
subject to regulation by state securities commissions in those states in which
they conduct business. RJA and RJFS are currently registered as broker-dealers
in all 50 states. In addition, financial services firms are subject to
regulation by various foreign governments, securities exchanges, central banks
and regulatory bodies, particularly in those countries where they have
established offices. The Company has offices in France, the United Kingdom,
Germany, Switzerland, Belgium, Luxemburg, Turkey, British Virgin Islands, Canada
and Latin America.
Much
of
the regulation of broker-dealers in the U.S. and Canada, however, has been
delegated to self-regulatory organizations ("SROs"), principally FINRA, the
IDA
and other securities exchanges. These SROs adopt and amend rules (which are
subject to approval by government agencies) for regulating the industry and
conduct periodic examinations of member broker-dealers.
The
SEC,
SROs and state securities commissions may conduct administrative proceedings
that can result in censure, fine, suspension or expulsion of a broker-dealer,
its officers or employees. Such administrative proceedings, whether or not
resulting in adverse findings, can require substantial expenditures and can
have
an adverse impact on the reputation of a broker-dealer.
The
Company's U.S. broker-dealer subsidiaries are required by federal law to belong
to SIPC. When the SIPC fund falls below a certain amount, members are required
to pay annual assessments of up to 1% of adjusted gross revenues. As a result
of
adequate SIPC fund levels, each of the Company's domestic broker-dealer
subsidiaries was required to pay only the minimum annual assessment of $150
in
fiscal 2007. The SIPC fund provides protection for securities held in customer
accounts up to $500,000 per customer, with a limitation of $100,000 on claims
for cash balances. In December 2003, RJA joined with other major U.S. securities
brokerage firms to form Customer Asset Protection Company (“CAPCO”), a licensed
Vermont insurance company, to provide excess SIPC coverage. CAPCO provides
account protection for the total net equity of client accounts of participating
firms with no aggregate limit. CAPCO has received a financial strength rating
of
A+ from Standard and Poor’s. These coverages do not protect against market
fluctuations.
RJ
Ltd.
is currently registered in all provinces and territories in Canada. The
financial services industry in Canada is subject to comprehensive regulation
under both federal and provincial laws. Securities commissions have been
established in all provinces and territorial jurisdictions which are charged
with the administration of securities laws. Investment dealers in Canada are
also subject to regulation by SROs which are responsible for the enforcement
of
and conformity with securities legislation for their members and have been
granted the powers to prescribe their own rules of conduct and financial
requirements of members. RJ Ltd. is regulated by the securities commissions
in
the jurisdictions of registration as well as by the SROs, the IDA and Market
Regulation Services Inc.
RJ
Ltd.
is required by the IDA to belong to the Canadian Investors Protection Fund
("CIPF"), whose primary role is investor protection. The CIPF may charge member
firms assessments based on revenues and risk premiums. The CIPF provides
protection for securities and cash held in client accounts up to CDN$1,000,000
per client with separate coverage of CDN$1,000,000 for certain types of
accounts. This coverage does not protect against market
fluctuations.
See
Note
19 of the Notes to Consolidated Financial Statements for further information
on
SEC, FINRA and IDA regulations pertaining to broker-dealer regulatory minimum
net capital requirements.
The Company's investment advisory operations, including the Company-sponsored
mutual funds, are also subject to extensive regulation. The Company's U.S.
asset
managers are registered as investment advisors with the SEC and are also
required to make notice filings in certain states. Virtually all aspects of
the
asset management business are subject to various federal and state laws and
regulations. These laws and regulations are primarily intended to benefit the
asset management clients and generally grant supervisory agencies and bodies
broad administrative powers, including the power to limit or restrict an
investment advisor from conducting its asset management business in the event
that it fails to comply with such laws and regulations. Possible sanctions
that
may be imposed for a failure include the suspension of individual employees,
limitations on the asset managers engaging in the asset management business
for
specified periods of time, the revocation of registrations, and other censures
and fines. A regulatory proceeding, regardless of whether it results in a
sanction, can require substantial expenditures and can have an adverse effect
on
the reputation of an asset manager.
RJBank is subject to various regulatory capital requirements established by
the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions
by
regulators that, if undertaken, could have a direct material effect on RJBank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, RJBank must meet specific capital
guidelines that involve quantitative measures of RJBank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting
practices. RJBank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and
other factors. Quantitative measures established by regulation to ensure capital
adequacy require RJBank to maintain minimum amounts and ratios of Total and
Tier
I capital to risk-weighted assets (as defined in the regulations). See Note
19
of the Notes to the Consolidated Financial Statements for further information
and capital analysis.
The Company's two state-chartered trust companies are subject to regulation
by
the states in which they are chartered. These regulations focus on, among other
things, the soundness of internal controls in place at the trust
companies.
As
a public company whose common stock is listed on the NYSE, the Company is
subject to corporate governance requirements established by the SEC and NYSE,
as
well as federal and state law. Under the Sarbanes-Oxley Act, the Company is
required to meet certain requirements regarding business dealings with members
of the Board of Directors, the structure of its Audit Committee, and ethical
standards for its senior financial officers. Under SEC and NYSE rules, the
Company is required to comply with other standards of corporate governance,
including having a majority of independent directors serve on its Board of
Directors, and the establishment of independent audit, compensation and
corporate governance committees.
Under Section 404 of the Sarbanes-Oxley Act, the Company is required to complete
an assessment of its internal controls over financial reporting and to obtain
a
report from its independent auditors regarding their opinion of the Company's
internal control over financial reporting. This requirement imposes additional
costs on the Company, reflecting internal staff and management time, as well
as
additional audit fees and fees for outside service providers and consultants
since the Act went into effect.
OTHER
INFORMATION MADE AVAILABLE BY THE COMPANY
The
Company's internet address is www.raymondjames.com. The Company makes
available, free of charge, through links to the U.S. Securities and Exchange
Commission website, the Company’s annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act
of 1934. Investors can find this information under “About Our Company – Investor
Relations – Financial Reports – SEC Filings”. These reports are available
through the Company’s website as soon as reasonably practicable after the
Company electronically files such material with, or furnishes it to, the SEC.
The Company also makes available on its website its Annual Report to
Shareholders and its proxy statements in PDF format under “About Our Company-
Investors Relations – Financial Reports.”
Additionally, the Company makes available on its website under “About Our
Company – Investor Relations – Corporate Governance”, a number of its corporate
governance documents. These include; the Corporate Governance Principles, the
charters of the Audit Committee and the Corporate Governance, Nominating and
Compensation Committee of the Board of Directors, the Senior
Financial Officers’ Code of Ethics and the Codes of Ethics for Employees
and the Board of Directors. Printed copies of these documents will be furnished
to any shareholder who requests them. The information on the Company's websites
are not incorporated by reference into this report.
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 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-looking statements. These risks and uncertainties, many of
which are beyond the Company's control, are discussed in Item 1A, “Risk Factors”
in this report. The Company does not undertake any obligation to publicly update
or revise any forward-looking statements.
The
Company’s operations and financial results are subject to various risks and
uncertainties, including those described below, that could adversely affect
its
business, financial condition, results of operations, cash flows, and the
trading price of its common stock.
Economic
and Political Developments and Their Impact on Securities Markets Could
Adversely Affect the Company’s Business
The
Company is engaged in various financial services businesses. As such, the
Company is directly affected by general economic and political conditions,
changes in the rate of inflation and the related impact on securities markets,
fluctuations in interest and currency rates, investor confidence, and changes
in
volume and price levels of the securities markets. Severe market fluctuations
or
weak economic conditions could reduce the Company’s trading volume and net
revenues and adversely affect its profitability.
The
Company Faces Intense Competition
The
Company is engaged in intensely competitive businesses. See the section entitled
“Competition” of Item 1 of this report for additional information about the
Company’s competitors. Competitive pressures experienced by the Company could
have an adverse affect on its business, results of operations, financial
condition and liquidity.
Regulatory
and Legal Developments Could Adversely Affect the Company’s
Business
The
securities industry is subject to extensive regulation and broker-dealers are
subject to regulations covering all aspects of the securities business. See
the
section entitled “Regulation” of Item 1 of this report for additional
information regarding the Company’s regulatory environment and Item 3, “Legal
Proceedings”, for a discussion of the Company’s legal matters. The Company could
be subject to civil liability, criminal liability, or sanctions, including
revocation of its subsidiaries’ registrations as investment advisors or
broker-dealers, revocation of the licenses of its Financial Advisors, censures,
fines, or a temporary suspension or permanent bar from conducting business,
if
it violates such laws or regulations. Any such liability or sanction could
have
a material adverse effect on the Company’s financial condition, results of
operations, and business prospects. The Company’s banking operations also expose
it to a risk of loss resulting from failure to comply with banking laws. In
addition, the regulatory environment in which the Company operates frequently
changes and has seen significant increased regulation in recent years. The
Company may be adversely affected as a result of new or revised legislation
or
regulations, changes in federal, state or foreign tax laws, or by changes in
the
interpretation or enforcement of existing laws and regulations.
The
Company’s Business Is Highly Dependent on Technology
The
Company’s businesses rely extensively on electronic data processing and
communications systems, and its continued success will depend upon its ability
to successfully maintain and upgrade the capability of those systems and retain
skilled information technology employees. Failure of those systems, which could
result from events beyond the Company’s control, could result in financial
losses, liability to clients and damage to the Company’s
reputation.
The
Company Is Exposed to Market Risk
The
Company, directly and indirectly, is affected by changes in market conditions.
Market risk generally represents the risk that values of assets and liabilities
or revenues will be adversely affected by changes in market conditions. For
example, changes in interest rates could adversely affect the Company’s net
interest margin – the difference between the yield the Company earns on its
assets and the interest rate the Company pays for deposits and other sources
of
funding – which could in turn affect the Company’s net interest income and
earnings. Market risk is inherent in the financial instruments associated with
the Company’s operations and activities including loans, deposits, securities,
short-term borrowings, long-term debt, trading account assets and liabilities,
and derivatives. Market conditions that may shift from time to time, thereby
exposing the Company to market risk, include fluctuations in interest rates,
equity prices, and price deterioration or changes in value due to changes in
market perception or actual credit quality of an issuer.
The
Company Is Exposed to Credit Risk
The
credit quality of the Company’s loan and investment portfolios can have a
significant impact on earnings. Credit risk is the risk of loss from a debtor’s
inability to meet financial obligations in accordance with agreed upon terms.
Risks associated with credit quality include adverse changes in the financial
performance or condition of the Company’s debtors that could affect the debtors’
repayment of outstanding obligations, and that the strength of the U.S. economy
may be different than expected resulting in deterioration in credit quality
or a
reduced demand for credit.
The
Company Is Exposed to Operational Risk
The
Company’s diverse operations are exposed to risk of loss resulting from
inadequate or failed internal processes, people and systems, or from external
events. Operational risk exists in every activity, function, or unit of the
Company, and includes: internal or external fraud, employment and hiring
practices, an error in meeting a professional obligation, business disruption
or
system failures, and failed transaction processing. Also, increasing use of
automated technology has the potential to amplify risks from manual or system
processing errors, including outsourced operations. Damage to the Company’s
reputation could also result from a significant operational loss.
The
Company’s Operations Could Be Adversely Affected By Serious
WeatherConditions
The
Company’s principal operations are located in St. Petersburg, Florida. During
2004 and 2005, there was a significant increase in hurricane activity on the
Gulf Coast which directly affected other parts of Florida. While the Company
has
a business continuity plan that permits significant operations to be conducted
from its Southfield, Michigan location (see Item 1, “Business” in this report),
the Company’s operations could be adversely affected by hurricanes or other
serious weather conditions that could affect processing of transactions and
communications. In addition, as a result of high levels of storm induced damage
during these years in Florida and along the Gulf Coast, insurance coverage
for
wind and flood damage has become harder to obtain and substantially more
expensive. As a consequence, the Company has been forced to pay more for the
limited coverage it obtained and self-insure against these risks to a greater
degree than in the past.
The
Company’s Business is Dependent on Fees Generated from the Distribution of
Financial Products and on Fees Earned from the Management of Client Accounts
By
Our Asset Management Subsidiaries
A
large
portion of the Company’s revenues are derived from fees generated from the
distribution of financial products such as mutual funds and variable annuities.
Changes in the structure or amount of the fees paid by the sponsors of these
products could directly affect the Company’s revenues and
profits. Further, changes in market values or in the fee structure of
asset management accounts could affect the Company’s revenues and
profits.
Insurance
Risks
The
Company’s operations and financial results are subject to risks and
uncertainties related to its use of a combination of insurance, self-insured
retention and self-insurance for a number of risks, including, without
limitation, property and casualty, workers’ compensation, general liability, and
the Company-funded portion of employee-related health care
benefits.
Other
Risks
See
Item
7A, “Quantitative and Qualitative Disclosures About Market Risk” in this report
regarding the Company’s exposure to, and approaches to managing, market risk,
interest rate risk, equity price risk, credit risk, operational risk and
regulatory and legal risk.
Not
applicable.
The
Company's headquarters is located on approximately 55 acres within the Carillon
office park in St. Petersburg, Florida. The headquarters complex currently
includes four main towers which encompass a total of 884,000 square feet of
office space, the Raymond James Bank building, which is a 26,000-square-foot
two-story building, and two five-story parking garages. At this location, the
Company has the ability to add approximately 490,000 square feet of new office
space. Raymond James also has 30,000 square feet of leased space near Carillon.
The Company’s facilities are used to some extent for current operations of all
segments. The Company relocated its Detroit, Michigan operations to a newly
renovated 84,000 square foot building on 14 acres in Southfield, Michigan.
The
Company owns that real estate and has sold the 45,000 square foot building
in
Detroit that previously housed those operations.
The
Company leases offices in various locations throughout the U.S. and in certain
foreign countries. With the exception of a Company-owned RJA branch office
building in Crystal River, FL, RJA branches are leased with various expiration
dates through 2014. RJ Ltd. leases premises for main offices in Vancouver,
Calgary, and Toronto and for branch offices throughout Canada. These leases
have
various expiration dates through 2013. RJ Ltd. does not own any land or
buildings. See Note 13 to the Consolidated Financial Statements for further
information regarding the Company's leases.
Leases
for branch offices of RJFS, the independent contractors of RJ Ltd. and RJIS
are
the responsibility of the respective independent contractor Financial
Advisors.
Raymond
James Yatyrym Menkul Kyymetler A. S., (“RJY”), the Company’s Turkish affiliate,
was assessed for the year 2001 approximately $7.6 million by the Turkish tax
authorities. The authorities applied a significantly different methodology
than
in the prior year’s audit which the Turkish tax court affirmed. RJY is
vigorously contesting most aspects of this assessment and has filed an appeal
with the Turkish Counsel of State. A significant portion of the matters at
issue
involved the activities of an employee terminated in 2004. Audits of 2002
through 2004 are anticipated and their outcome is unknown in light of the change
in methodology and the pending litigation. As
such,
the potential tax liability combined for these subsequent
years could range from a few hundred thousand dollars to $7.5
million. The Company has recorded a provision for loss in its
consolidated financial statements for its net equity interest in this joint
venture. As of September 30, 2007, RJY had total capital of approximately $12.2
million, of which the Company owns approximately 73%.
The
Company is a defendant or co-defendant in various lawsuits and arbitrations
incidental to its securities business. The Company is contesting the allegations
in these cases and believes that there are meritorious defenses in each of
these
lawsuits and arbitrations. 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 the Company's management,
based on current available information, review with outside legal counsel,
and
consideration of amounts provided for in the accompanying consolidated financial
statements with respect to these matters, ultimate resolution of these matters
will not have a material adverse impact on the Company's financial position
or
results of operations. However, resolution of one or more of these matters
may
have a material effect on the results of operations in any future period,
depending upon the ultimate resolution of those matters and upon the level
of
income for such period.
None.
PART
II
PURCHASES
OF EQUITY SECURITIES
The
Company's common stock is traded on the NYSE under the symbol “RJF”. At November
19, 2007 there were approximately 14,000 holders of the Company's common stock.
The following table sets forth for the periods indicated the high and low trades
for the common stock (as adjusted for the three-for-two stock split in March
2006):
|
2007
|
2006
|
|
High
|
Low
|
High
|
Low
|
First
Quarter
|
$
33.63
|
$
28.53
|
$
25.72
|
$
20.25
|
Second
Quarter
|
32.52
|
27.38
|
31.45
|
24.47
|
Third
Quarter
|
34.62
|
29.10
|
31.66
|
26.34
|
Fourth
Quarter
|
36.00
|
28.65
|
30.57
|
26.45
|
See
Quarterly Financial Information in Item 8 for the amount of the quarterly
dividends paid.
The
Company expects to continue paying cash dividends. However, the payment and
rate
of dividends on the Company's common stock is subject to several factors
including operating results, financial requirements of the Company, and 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, FINRA and the IDA; and RJBank, which may be subject
to
restrictions by federal banking agencies. Such restrictions have never limited
the Company's dividend payments. (See Note 19 of the Notes to Consolidated
Financial Statements for more information on the capital restrictions placed
on
RJBank and the Company's broker-dealer subsidiaries).
See
Note
15 of the Notes to Consolidated Financial Statements for information regarding
repurchased shares of the Company's common stock.
|
Year
Ended
|
|
September
30,
|
|
September
30,
|
|
September
30,
|
|
September
24,
|
September
26,
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
2003
|
|
(in
000’s, except per share data)
|
Operating
Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Revenues
|
$ 3,109,579
|
|
$ 2,645,578
|
|
$
2,168,196
|
|
$
1,829,776
|
$
1,497,571
|
Net
Revenues
|
$ 2,609,915
|
|
$ 2,348,908
|
|
$
2,050,407
|
|
$
1,781,259
|
$
1,451,960
|
Net
Income
|
$ 250,430
|
|
$ 214,342
|
|
$ 151,046
|
|
$ 127,575
|
$ 86,317
|
Net
Income per
|
|
|
|
|
|
|
|
|
Share
- Basic: *
|
$ 2.17
|
|
$ 1.90
|
|
$ 1.37
|
|
$ 1.16
|
$ .79
|
Net
Income per
|
|
|
|
|
|
|
|
|
Share
- Diluted: *
|
$ 2.11
|
|
$ 1.85
|
|
$ 1.33
|
|
$ 1.14
|
$ .78
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
|
|
|
|
|
|
Outstanding
- Basic: *
|
115,608
|
|
112,614
|
|
110,217
|
|
110,093
|
109,236
|
Weighted
Average
|
|
|
|
|
|
|
|
|
Common
and Common
|
|
|
|
|
|
|
|
|
Equivalent
Shares
|
|
|
|
|
|
|
|
|
Outstanding
- Diluted: *
|
118,693
|
|
115,738
|
|
113,048
|
|
111,603
|
110,624
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Declared
|
|
|
|
|
|
|
|
|
per
Share *
|
$ 0.40
|
|
$ 0.32
|
|
$ 0.21
|
|
$ 0.17
|
$ 0.16
|
|
|
|
|
|
|
|
|
|
Financial
Condition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
$ 16,254,168
|
|
$
11,516,650
|
|
$
8,369,256
|
|
$
7,621,846
|
$
6,911,638
|
Long-Term
Debt
|
$ 214,864
|
**
|
$ 286,712
|
**
|
$ 280,784
|
**
|
$ 174,223
|
$ 167,013
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
$ 1,757,814
|
|
$ 1,463,869
|
|
$
1,241,823
|
|
$
1,065,213
|
$ 924,735
|
Shares
Outstanding *
|
116,649
|
***
|
114,064
|
***
|
113,394
|
|
110,769
|
109,148
|
|
|
|
|
|
|
|
|
|
Book
Value per Share
|
|
|
|
|
|
|
|
|
at
End of Period*
|
$ 15.07
|
|
$ 12.83
|
|
$ 10.95
|
|
$ 9.62
|
$ 8.47
|
|
|
|
|
|
|
|
|
|
*
|
2005,
2004 and 2003 amounts have been adjusted for the March 22, 2006 3-for-2
stock split and 2003 amounts have been adjusted for the March 24,
2004
3-for-2 stock split.
|
|
|
|
**
|
Includes
loans payable related to investments by variable interest entities
in real
estate partnerships, which are non-recourse to the
Company.
|
|
|
|
***
|
Excludes
non-vested shares.
|
|
|
|
Overview
The
following Management’s Discussion and Analysis is intended to help the reader
understand the results of operations and the financial condition of the Company.
Management’s Discussion and Analysis is provided as a supplement to, and should
be read in conjunction with, the Company’s consolidated financial statements and
accompanying notes to the consolidated financial statements.
The
Company’s results continue to be highly correlated to the direction of the U.S.
equity markets and are subject to volatility due to changes in interest rates,
valuation of financial instruments, economic and political trends and industry
competition. During 2007, the market was impacted by rising energy prices,
a
housing market slowdown, a subprime lending collapse, a growing economy, a
weakening US dollar and stable interest rates. The Company’s Private Client
Group’s recruiting and retention of Financial Advisors was positively impacted
by industry consolidation. RJBank benefited from the widening interest rate
spreads and the availability of attractive loan purchases as a result of the
subprime lending crisis.
Results
of Operations - Total Company
The
Company currently operates through the following eight business segments:
Private Client Group; Capital Markets; Asset Management; RJBank; Emerging
Markets; Stock Loan/Borrow; Proprietary Capital and certain corporate activities
in the Other segment.
The
following table presents consolidated and segment financial information for
the
Company for the years indicated:
|
Year
Ended
|
|
September
30,
|
|
September
30,
|
|
September
30,
|
|
2007
|
|
2006
|
|
2005
|
|
(in
000's)
|
Total
Company
|
|
|
|
|
|
Revenues
|
$
3,109,579
|
|
$
2,645,578
|
|
$
2,168,196
|
Pre-tax
Earnings
|
392,224
|
|
342,066
|
|
247,971
|
|
|
|
|
|
|
Private
Client Group
|
|
|
|
|
|
Revenues
|
1,938,154
|
|
1,679,813
|
|
1,397,578
|
Pre-tax
Earnings
|
219,864
|
|
168,519
|
|
102,245
|
|
|
|
|
|
|
Capital
Markets
|
|
|
|
|
|
Revenues
|
506,498
|
|
487,419
|
|
455,151
|
Pre-tax
Earnings
|
68,966
|
|
78,221
|
|
77,333
|
|
|
|
|
|
|
Asset
Management
|
|
|
|
|
|
Revenues
|
234,875
|
|
207,821
|
|
179,845
|
Pre-tax
Earnings
|
60,517
|
|
48,749
|
|
40,442
|
|
|
|
|
|
|
RJBank
|
|
|
|
|
|
Revenues
|
279,572
|
|
114,692
|
|
45,448
|
Pre-tax
Earnings
|
27,005
|
|
16,003
|
|
14,204
|
|
|
|
|
|
|
Emerging
Markets
|
|
|
|
|
|
Revenues
|
59,083
|
|
55,263
|
|
38,768
|
Pre-tax
Earnings
|
3,640
|
|
2,857
|
|
5,927
|
|
|
|
|
|
|
Stock
Loan/Borrow
|
|
|
|
|
|
Revenues
|
68,685
|
|
59,947
|
|
31,876
|
Pre-tax
Earnings
|
5,003
|
|
8,001
|
|
5,962
|
|
|
|
|
|
|
Proprietary
Capital
|
|
|
|
|
|
Revenues
|
8,280
|
|
17,312
|
|
10,952
|
Pre-tax
Earnings
|
3,577
|
|
8,468
|
|
4,182
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Revenues
|
14,432
|
|
23,311
|
|
8,578
|
Pre-tax
Earnings (Loss)
|
3,652
|
|
11,248
|
|
(2,324)
|
Year
ended September 30, 2007 Compared with the Year ended September 30, 2006 -
Total
Company
The
Company had record annual revenues and earnings for the fourth consecutive
year,
with 2007 total revenues surpassing $3 billion and net income surpassing $250
million. Revenues exceeded the prior year by 18% while net income exceeded
the
prior year by 17%. Net revenues were $2.6 billion, or up 11% over the
prior year, thus positive operating leverage was realized. Non-interest expenses
also rose by 11%. Once again, results were driven by an increase in net interest
earnings, which were up 31%. All of the Company’s four major segments had higher
revenues and three of the four had higher pre-tax income than in the prior
year.
Year
ended September 30, 2006 Compared with the Year ended September 30, 2005 -
Total
Company
The
Company had record annual revenues and earnings for the third consecutive year,
with net revenues surpassing $2.3 billion. Non-interest expenses rose by 12%,
contrasted to a 15% increase in net revenues. Net income exceeded $200 million
for the first time in the Company's history, up 42% from the prior year. All
of
the Company’s four major segments had higher revenues and pre-tax income than in
the prior year, driven by a 36% increase in net interest earnings (see table
below) combined with solid increases in investment advisory fees (14%) and
securities commissions and fees (10%), a modest (6%) increase in investment
banking revenues and an increase in financial service fees (33%).
Total
firm net revenues increased 15%, while pre-tax profits after consideration
of
minority interest were up 38% over the prior year.
Net
Interest Analysis
The
following table presents average balance data and interest income and expense
data for the Company, as well as the related net interest income:
|
Year
Ended
|
|
September
30, 2007
|
September
30, 2006
|
September
30, 2005
|
|
|
Operating
|
Average
|
|
Operating
|
Average
|
|
Operating
|
Average
|
|
Average
|
Interest
|
Yield/
|
Average
|
Interest
|
Yield/
|
Average
|
Interest
|
Yield/
|
|
Balance
|
Inc./Exp.
|
Cost
|
Balance
|
Inc./Exp.
|
Cost
|
Balance
|
Inc./Exp.
|
Cost
|
|
($
in 000's)
|
Interest-Earning
Assets:
|
|
|
|
|
|
|
|
|
|
Margin
Balances
|
$1,401,931
|
$
108,368
|
7.73%
|
$1,327,121
|
$ 98,417
|
7.42%
|
$1,218,486
|
$ 68,125
|
5.59%
|
Assets
Segregated Pursuant
|
|
|
|
|
|
|
|
|
|
to
Regulations and Other
|
|
|
|
|
|
|
|
|
|
Segregated
Assets
|
3,738,106
|
195,356
|
5.23%
|
2,983,853
|
141,741
|
4.75%
|
2,390,174
|
65,847
|
2.75%
|
Interest-Earning
Assets
|
|
|
|
|
|
|
|
|
|
of
RJBank (1)
|
4,544,875
|
278,248
|
6.12%
|
1,967,225
|
114,065
|
5.80%
|
1,055,684
|
45,017
|
4.26%
|
Stock
Borrow
|
|
68,685
|
|
|
59,947
|
|
|
31,876
|
|
Interest-Earning
Assets
|
|
|
|
|
|
|
|
|
|
of
Variable Interest Entities
|
|
955
|
|
|
1,008
|
|
|
822
|
|
Other
|
|
75,380
|
|
|
54,803
|
|
|
33,875
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Income
|
|
726,992
|
|
|
469,981
|
|
|
245,562
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
Client
Interest Program
|
$4,619,292
|
204,158
|
4.42%
|
$3,793,570
|
143,428
|
3.78%
|
$3,228,443
|
58,486
|
1.81%
|
Interest-Bearing
Liabilities
|
|
|
|
|
|
|
|
|
|
of
RJBank (1)
|
4,187,365
|
193,747
|
4.63%
|
1,796,481
|
73,529
|
4.09%
|
966,627
|
22,020
|
2.28%
|
Stock
Loan
|
|
59,276
|
|
|
47,593
|
|
|
22,873
|
|
Interest-Bearing
Liabilities of
|
|
|
|
|
|
|
|
|
|
Variable
Interest Entities
|
|
6,972
|
|
|
8,368
|
|
|
3,934
|
|
Other
|
|
35,511
|
|
|
23,752
|
|
|
10,476
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Expense
|
|
499,664
|
|
|
296,670
|
|
|
117,789
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
|
|
$
227,328
|
|
|
$
173,311
|
|
|
$
127,773
|
|
(1)
See
Results of Operations - RJBank in Item 7 of Part II for details.
Net
interest income at RJBank increased over 100%, representing 81% of the $54
million increase in the Company’s net interest earnings. Average
interest-earning assets at RJBank increased 131% over the prior year. Average
bank loan balances have doubled from $1.6 billion to $3.2
billion. This increase was funded by a second bulk transfer of client
cash deposits of $1.3 billion in March 2007 and growth in new client cash
balances which are a result of the positive recruiting results.
Average
customer margin balances grew modestly during 2007, thus the increased client
cash balances in the firm’s Client Interest Program led to a significant
increase in assets segregated pursuant to regulations. Net interest on the
stock
loan/borrow business declined 24%, due to decreased interest spreads despite
slightly higher balances. Other interest revenue and expense include earnings
on
corporate cash, inventory balances, interest on overnight borrowings and the
mortgage on the headquarters facility.
Results
of Operations - Private Client Group
The
following table presents consolidated financial information for the Private
Client Group segment for the years indicated:
|
Year
Ended
|
|
September
30,
|
|
%
Incr.
|
|
September
30,
|
|
%
Incr.
|
|
September
30,
|
|
2007
|
|
(Decr.)
|
|
2006
|
|
(Decr.)
|
|
2005
|
|
($
in 000's)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Securities
Commissions And Fees
|
$
1,451,899
|
|
15%
|
|
$
1,262,751
|
|
12%
|
|
$
1,132,291
|
Interest
|
317,378
|
|
28%
|
|
248,709
|
|
77%
|
|
140,807
|
Financial
Service Fees
|
85,018
|
|
(9%)
|
|
93,421
|
|
40%
|
|
66,774
|
Other
|
83,859
|
|
12%
|
|
74,932
|
|
30%
|
|
57,706
|
Total
Revenues
|
1,938,154
|
|
15%
|
|
1,679,813
|
|
20%
|
|
1,397,578
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
192,722
|
|
38%
|
|
139,593
|
|
130%
|
|
60,796
|
Net
Revenues
|
1,745,432
|
|
13%
|
|
1,540,220
|
|
15%
|
|
1,336,782
|
|
|
|
|
|
|
|
|
|
|
Non-Interest
Expenses:
|
|
|
|
|
|
|
|
|
|
Sales
Commissions
|
1,070,479
|
|
14%
|
|
940,567
|
|
14%
|
|
825,889
|
Admin
& Incentive Comp and Benefit Costs
|
265,038
|
|
13%
|
|
233,684
|
|
13%
|
|
207,368
|
Communications
and Information Processing
|
55,224
|
|
4%
|
|
53,064
|
|
8%
|
|
49,183
|
Occupancy
and Equipment
|
57,310
|
|
12%
|
|
51,101
|
|
11%
|
|
46,114
|
Business
Development
|
57,216
|
|
13%
|
|
50,555
|
|
21%
|
|
41,719
|
Clearance
and Other
|
20,449
|
|
(52%)
|
|
42,836
|
|
(34%)
|
|
65,166
|
Total
Non-Interest Expenses
|
1,525,716
|
|
11%
|
|
1,371,807
|
|
11%
|
|
1,235,439
|
Income
Before Taxes and Minority Interest
|
219,716
|
|
30%
|
|
168,413
|
|
66%
|
|
101,343
|
Minority
Interest
|
(148)
|
|
|
|
(106)
|
|
|
|
(902)
|
Pre-tax
Earnings
|
$ 219,864
|
|
30%
|
|
$ 168,519
|
|
65%
|
|
$ 102,245
|
Margin
on Net Revenues
|
12.6%
|
|
|
|
10.9%
|
|
|
|
7.6%
|
The
following table presents a summary of Private Client Group Financial Advisors
as
of the periods indicated:
|
|
Independent
|
2007
|
2006
|
|
Employee
|
Contractors
|
Total
|
Total
|
Private
Client Group - Financial Advisors:
|
|
|
|
|
RJA
|
1,087
|
-
|
1,087
|
1,028
|
RJFS
|
-
|
3,068
|
3,068
|
3,254
|
RJ
Ltd
|
186
|
139
|
325
|
312
|
RJIS
|
-
|
81
|
81
|
71
|
Total
Financial Advisors
|
1,273
|
3,288
|
4,561
|
4,665
|
Year
ended September 30, 2007 Compared with the Year ended September 30, 2006 –
Private Client Group
The
Private Client Group (“PCG”) was significantly impacted by the successful
recruiting of employee Financial Advisors and increased productivity throughout
domestic PCG. RJA added a net 59 employee Financial Advisors and increased
average production per Financial Advisor 22% to $493,000, resulting in a 31%
increase in RJA PCG securities commissions and fees. Average assets under
management per RJA Financial Advisor increased 24% to $72 million. RJA continues
to benefit from the industry consolidation and the resultant unrest and
Financial Advisor turnover. Securities commissions and fees increased 10% in
RJFS despite a 6% decline in the number of Financial Advisors, most of which
was
by design in the strategic upgrading initiative. The increased commission and
fee revenue is the result of a 16% increase in average production to $316,000
per Financial Advisor. RJ Ltd’s 4% increase in number of Financial Advisors
generated a 6.5% increase in securities commissions and fees.
Financial
service fees in the prior year included a one-time adjustment of approximately
$10 million related to the change in accounting for IRA fees. Excluding this
adjustment, financial service fees increased modestly over the prior year.
Other
revenue increased $9 million, or 12% over the prior year, as a result of
increased mutual fund networking and educational and marketing support fees
from
mutual fund companies.
Commission
expense within PCG was up 14%, relatively proportional to the increase in
commission revenues and fees of 15%. Administrative compensation, occupancy
and
business development expenses increased proportionately to net revenues. These
increases include expenses associated with new branches, sales support staff,
home office visits and account transfer fees. Information processing expenses
rose only 4% and reflect the benefit of operating leverage despite continued
investment in systems upgrades. The decrease in other expense is the result
of
lower legal costs and settlements as the last of the outstanding large cases
related to the 2000 – 2002 market decline were settled in the prior
year.
Overall
PCG margins increased by 16% over the prior year, reaching 12.6%.
Year
ended September 30, 2006 Compared with the Year ended September 30, 2005 –
Private Client Group
The
Private Client Group's results include a $130 million increase in commission
and
fee revenues. While commission and fee revenues increased in the PCG segment
of
all three broker-dealers, the increases were far more significant in RJA and
RJ
Ltd. where there has been an increase in the number of Financial Advisors due
to
successful recruiting. RJA added a net 65 employee Financial Advisors and
increased the average production from $379,000 in fiscal 2005 to $404,000 in
fiscal 2006. In addition, average assets under management per RJA Financial
Advisor has increased to an all time high of $58 million from $50 million at
September 2005. RJA has successfully focused on recruiting high-producing
Financial Advisors and continued to benefit from industry consolidation. RJA
commissions and fees increased 23%. RJ Ltd. added 20 employee Financial Advisors
and 13 independent contractor Financial Advisors. RJ Ltd. commissions and fees
increased 27%. The modest 5.7% increase in RJFS commissions and fees is
primarily attributable to a $65.7 million, or 15.6%, increase in fee based
business and mutual fund trailing commissions.
PCG
net
interest earnings increased 36% over the prior fiscal year, a combined result of
increased client margin balances (up 9%) and increased customer cash balances,
on which a spread is earned. Net interest represented 65% of the segment's
pre-tax earnings, down from 78% in fiscal 2005.
Financial
service fees in the PCG segment increased $26.6 million, or 40% over the prior
year. The increase included a one-time adjustment of approximately $10 million
related to a change from cash to accrual accounting for IRA fees. The increase
in other revenue of $17.2 million is predominantly made up of increased mutual
fund networking fees and the newly introduced educational and marketing support
fee from mutual fund companies.
Commission
expenses increased 2% more than commission revenue, the result of an increased
number of independent contractors (who receive higher payouts) in RJ Ltd, the
advances associated with recruiting at RJA and higher payout levels to more
productive Financial Advisors. Administrative and incentive compensation
increased due to the increase in the segment’s profits and an increased number
of support staff related to the growing number of Financial Advisors in RJA
and
increased compliance staff in RJFS. Business development expense increased
as it
includes advertising costs and increased travel and other expenses related
to
recruiting. Other expenses declined as prior years' expense included
historically high legal costs and settlements related to the 2000 – 2002 market
decline.
PCG
margins increased by more than 3% over the prior year, reaching 10.9%. The
prior
year was negatively impacted by the historically high legal costs and
settlements, and the expense of the early stages of the independent contractor
business in the UK and at RJ Ltd.
Results
of Operations – Capital Markets
The
following table presents consolidated financial information for the Capital
Markets segment for the years indicated:
|
Year
Ended
|
|
September
30,
|
|
%
Incr.
|
|
September
30,
|
|
%
Incr.
|
|
September
30,
|
|
2007
|
|
(Decr.)
|
|
2006
|
|
(Decr.)
|
|
2005
|
|
($
in 000's)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Institutional
Sales Commissions:
|
|
|
|
|
|
|
|
|
|
Equity
|
$ 210,343
|
|
(3%)
|
|
$ 217,840
|
|
13%
|
|
$ 193,001
|
Fixed
Income
|
44,454
|
|
6%
|
|
41,830
|
|
(37%)
|
|
66,431
|
Underwriting
Fees
|
93,712
|
|
11%
|
|
84,303
|
|
8%
|
|
77,900
|
Mergers
& Acquisitions Fees
|
59,929
|
|
34%
|
|
44,693
|
|
5%
|
|
42,576
|
Private
Placement Fees
|
2,262
|
|
(3%)
|
|
2,334
|
|
(56%)
|
|
5,338
|
Trading
Profits
|
9,262
|
|
(58%)
|
|
21,876
|
|
15%
|
|
19,089
|
Raymond
James Tax Credit Funds
|
35,123
|
|
11%
|
|
31,710
|
|
19%
|
|
26,630
|
Interest
|
46,772
|
|
29%
|
|
36,311
|
|
74%
|
|
20,847
|
Other
|
4,641
|
|
(29%)
|
|
6,522
|
|
95%
|
|
3,339
|
Total
Revenue
|
506,498
|
|
4%
|
|
487,419
|
|
7%
|
|
455,151
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
56,841
|
|
23%
|
|
46,126
|
|
133%
|
|
19,838
|
Net
Revenues
|
449,657
|
|
2%
|
|
441,293
|
|
1%
|
|
435,313
|
|
|
|
|
|
|
|
|
|
|
Non-Interest
Expenses
|
|
|
|
|
|
|
|
|
|
Sales
Commissions
|
98,903
|
|
2%
|
|
96,649
|
|
(3%)
|
|
99,223
|
Admin
& Incentive Comp and Benefit Costs
|
204,512
|
|
2%
|
|
200,453
|
|
2%
|
|
197,170
|
Communications
and Information Processing
|
32,366
|
|
20%
|
|
27,084
|
|
13%
|
|
24,071
|
Occupancy
and Equipment
|
13,196
|
|
9%
|
|
12,073
|
|
(4%)
|
|
12,563
|
Business
Development
|
23,468
|
|
6%
|
|
22,177
|
|
17%
|
|
18,995
|
Clearance
and Other
|
23,054
|
|
16%
|
|
19,907
|
|
38%
|
|
14,395
|
Total
Non-Interest Expense
|
395,499
|
|
5%
|
|
378,343
|
|
3%
|
|
366,417
|
Income
Before Taxes and Minority Interest
|
54,158
|
|
(14%)
|
|
62,950
|
|
(9%)
|
|
68,896
|
Minority
Interest
|
(14,808)
|
|
|
|
(15,271)
|
|
|
|
(8,437)
|
Pre-tax
Earnings
|
$ 68,966
|
|
(12%)
|
|
$ 78,221
|
|
1%
|
|
$ 77,333
|
Year
ended September 30, 2007 Compared with the Year ended September 30, 2006 –
Capital Markets
The
Capital Markets segment pre-tax earnings declined 12% despite a 2% increase
in
net revenues. Commission revenue was down slightly, the net of a decline in
equity commissions related to the decline in commissions generated by
underwriting transactions, and an increase in fixed income commissions, a result
of the increased volatility. Commissions generated by underwriting transactions
reached a record $41 million in the prior year and were only $22 million in
the
current year.
The
increase in underwriting fees included increases of $3 million at RJA, despite
a
decline in the number of deals from 97 to 78, and $3 million at RJ Ltd. on
30
deals versus 29 in the prior year. Merger and acquisition fees were up $15
million, reaching an all time record level of $60 million for the year. During
fiscal 2007, RJA closed 15 individual merger and acquisition transactions with
fees in excess of $1 million. Trading profits were down 58% from the prior
year,
reflecting a particularly difficult fixed income trading environment during
the
fourth quarter. As credit issues drove fixed income product values down there
was a flight to quality and the firm’s economic hedges (short positions in US
Treasuries) contributed additional losses. Meanwhile, there were also increased
losses in equity customer facilitations and OTC market making. Raymond James
Tax
Credit Fund (“RJTCF”) revenues increased 11% as they invested $375 million for
institutional investors versus $277 million in the prior year. Interest revenue
increased related to higher average fixed income inventory levels.
Expenses
were generally in line with revenue growth with two
exceptions. Communications and information processing increased
predominantly due to increased costs associated with market information systems
and software development costs. Other expense reflects a shift to the use of
electronic and other non-exchange clearing methods and includes transaction
related underwriting expenses incurred by RJTCF.
Year
ended September 30, 2006 Compared with the Year ended September 30, 2005 –
Capital Markets
The
Capital Markets segment’s revenues and pre-tax profits increased just slightly
from the prior year’s record results. Commission revenues in the segment were
flat, as a 37% decline in fixed income commissions was offset by the 13%
increase in institutional equity commissions, the latter continuing to be fueled
by an active new issue market. RJA equity market conditions remained strong,
allowing RJA to complete 97 managed or co-managed domestic underwritings, just
one short of the record 98 underwritings completed in fiscal 2005. RJ Ltd.
completed a record 29 managed or co-managed underwritings, up nine from fiscal
2005. Merger and acquisition fees increased modestly from the prior year's
record level, offsetting the decline in private placement fees. Equity Capital
Market's most active strategic business units in fiscal 2006 were Energy,
Technology, Financial Services and Real Estate.
The
$16
million increase in interest income, predominantly on RJA's fixed income
inventories, was offset by an equal increase in interest expense to finance
these inventories. Higher interest income and expenses were primarily the result
of higher interest rates.
RJTCF's
revenues were up 19%, to $31.7 million, as RJTCF invested over $277 million
for
institutional investors in 78 real estate transactions compared to $250 million
in 93 deals in fiscal 2005.
Non-interest
expense increased 3% over the prior year, with the most significant increase
in
other expense. This increase was due to increases within the RJTCF variable
interest entities (“VIEs”), of which 99% is eliminated through minority
interest.
Results
of Operations - Asset Management
The
following table presents consolidated financial information for the Asset
Management segment for the years indicated:
|
Year
Ended
|
|
|
September
30,
|
|
%
Incr.
|
|
September
30,
|
|
%
Incr.
|
|
September
30,
|
|
|
2007
|
|
(Decr.)
|
|
2006
|
|
(Decr.)
|
|
2005
|
|
|
($
in 000's)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Investment
Advisory Fees
|
$ 192,763
|
|
14%
|
|
$ 169,055
|
|
14%
|
|
$ 148,393
|
|
Other
|
42,112
|
|
9%
|
|
38,766
|
|
23%
|
|
31,452
|
|
Total
Revenues
|
234,875
|
|
13%
|
|
207,821
|
|
16%
|
|
179,845
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Admin
& Incentive Comp and Benefit Costs
|
72,887
|
|
9%
|
|
66,689
|
|
14%
|
|
58,343
|
|
Communications
and Information Processing
|
18,360
|
|
11%
|
|
16,523
|
|
12%
|
|
14,722
|
|
Occupancy
and Equipment
|
4,296
|
|
3%
|
|
4,163
|
|
4%
|
|
4,003
|
|
Business
Development
|
8,876
|
|
6%
|
|
8,379
|
|
16%
|
|
7,216
|
|
Investment
Advisory Fees
|
46,368
|
|
18%
|
|
39,281
|
|
19%
|
|
33,062
|
|
Other
|
22,945
|
|
(3%)
|
|
23,588
|
|
8%
|
|
21,853
|
|
Total
Expenses
|
173,732
|
|
10%
|
|
158,623
|
|
14%
|
|
139,199
|
|
Income
Before Taxes And Minority Interest
|
61,143
|
|
24%
|
|
49,198
|
|
21%
|
|
40,646
|
|
Minority
Interest
|
626
|
|
|
|
449
|
|
|
|
204
|
|
Pre-tax
Earnings
|
$ 60,517
|
|
24%
|
|
$ 48,749
|
|
21%
|
|
$ 40,442
|
|
The
following table presents assets under management at the dates
indicated:
|
September
30,
|
%
Incr.
|
September
30,
|
%
Incr.
|
September
30,
|
|
2007
|
(Decr.)
|
2006
|
(Decr.)
|
2005
|
Assets
Under Management:
|
($
in 000's)
|
|
|
|
|
|
|
Eagle
Asset Mgmt., Inc.
|
|
|
|
|
|
Retail
|
$ 6,925,930
|
24%
|
$ 5,600,806
|
19%
|
$ 4,719,275
|
Institutional
|
7,601,374
|
11%
|
6,862,611
|
1%
|
6,823,906
|
Total
Eagle
|
14,527,304
|
17%
|
12,463,417
|
8%
|
11,543,181
|
|
|
|
|
|
|
Heritage
Family of Mutual Funds
|
|
|
|
|
|
Money
Market
|
5,524,598
|
(12%)
|
6,306,508
|
4%
|
6,058,612
|
Other
|
3,956,677
|
32%
|
3,004,816
|
19%
|
2,534,975
|
Total
Heritage
|
9,481,275
|
2%
|
9,311,324
|
8%
|
8,593,587
|
|
|
|
|
|
|
Raymond
James Consulting Services
|
9,638,691
|
22%
|
7,915,168
|
20%
|
6,573,448
|
Awad
Asset Management
|
622,860
|
(37%)
|
996,353
|
(18%)
|
1,222,199
|
Freedom
Accounts
|
8,144,920
|
59%
|
5,122,733
|
105%
|
2,496,772
|
|
|
|
|
|
|
Total
Assets Under Management
|
42,415,050
|
18%
|
35,808,995
|
18%
|
30,429,187
|
|
|
|
|
|
|
Less: Assets
Managed for Affiliated Entities
|
(5,305,506)
|
33%
|
(3,991,281)
|
36%
|
(2,936,804)
|
|
|
|
|
|
|
Third
Party Assets Under Management
|
$
37,109,544
|
17%
|
$
31,817,714
|
16%
|
$
27,492,383
|
Year
ended September 30, 2007 Compared with the Year ended September 30, 2006 -
Asset
Management
The
Asset
Management segment has benefited significantly from the successful recruiting
in
PCG. New Financial Advisors bring additional client assets, a portion of which
is often directed into an asset management alternative. In addition, both Eagle
and Heritage have been successful in their efforts to increase their presence
on
outside broker-dealer platforms. Eagle’s retail sales to outside broker-dealers
were 33% of their total 2007 sales, while Heritage’s were 78% of their total
sales. Revenues in this segment increased 13% on a 17% increase in assets under
management, as there continues to be some fee compression. Expenses increased
only 10%, generating a 24% increase in pre-tax earnings and a 26% margin as
a
result of operating leverage. Money market fund balances declined as a result
of
the transfer of $1.3 billion to RJBank in March 2007.
Year
ended September 30, 2006 Compared with the Year ended September 30, 2005 -
Asset
Management
Investment
Advisory fees increased over $20 million, or 14%, on a 16% increase in assets
under management. Increases in assets under management were positively impacted
by the recruiting of RJA Financial Advisors. New Financial Advisors brought
significant assets into the Company's asset management programs, particularly
Eagle and Raymond James Consulting Services ("RJCS"). New managed assets brought
in by RJA Financial Advisors totaled $3.9 billion for fiscal 2006, a 70%
increase over $2.3 billion added in fiscal 2005. Eagle's total retail assets
increased 19% over the prior year. Of Eagle's retail asset total, 35%
were introduced by Financial Advisors outside the Raymond James system. Account
cancellations exceeded sales in Eagle's institutional accounts due to the loss
of a few significant accounts and the closing of the Institutional Growth
division in September. RJCS offers 40 independent investment advisors to the
Company's clients. Assets managed within the program increased 20% over the
prior year. The Company's managed mutual fund product (Freedom) continued to
experience significant growth (105%) as this concept continues to be embraced
by
clients and Financial Advisors. Heritage Asset Management's non-money market
funds increased 19% with 65% of the sales through broker-dealers outside of
the
Raymond James family. Heritage money market accounts increased 4% despite the
movement of just over $1 billion to RJBank sweep option during the
year.
Expenses
in this segment increased $19 million (14%) with $8 million of that increase
in
compensation. The Compensation increase included increased salary expense,
costs
associated with closing Eagle's institutional growth division, and increased
incentive compensation related to the 21% increase in pre-tax profits. The
other
notable increase in expense was a $6.2 million (19%) increase in investment
advisory fees related to the growth in assets in accounts managed by independent
investment advisors.
Results
of Operations - RJBank
The
following table presents consolidated financial information for RJBank for
the
years indicated:
|
Year
Ended
|
|
September
30,
|
%
Incr.
|
September
30,
|
%
Incr.
|
September
30,
|
|
2007
|
(Decr.)
|
2006
|
(Decr.)
|
2005
|
|
($
in 000's)
|
Interest
Earnings
|
|
|
|
|
|
Interest
Income
|
$
278,248
|
144%
|
$
114,065
|
153%
|
$
45,017
|
Interest
Expense
|
193,747
|
163%
|
73,529
|
234%
|
22,020
|
Net
Interest Income
|
84,501
|
108%
|
40,536
|
76%
|
22,997
|
|
|
|
|
|
|
Other
Income
|
1,324
|
111%
|
627
|
45%
|
431
|
Net
Revenues
|
85,825
|
109%
|
41,163
|
76%
|
23,428
|
|
|
|
|
|
|
Non-Interest
Expense
|
|
|
|
|
|
Employee
Compensation and Benefits
|
7,778
|
27%
|
6,135
|
14%
|
5,388
|
Communications
and Information Processing
|
1,052
|
16%
|
907
|
14%
|
799
|
Occupancy
and Equipment
|
719
|
14%
|
629
|
32%
|
478
|
Provision for Loan Losses and Unfunded |
|
|
|
|
|
Commitments
|
32,150
|
134%
|
13,760
|
891%
|
1,388
|
Other
|
17,121
|
359%
|
3,729
|
218%
|
1,171
|
Total
Non-Interest Expense
|
58,820
|
134%
|
25,160
|
173%
|
9,224
|
Pre-tax
Earnings
|
$ 27,005
|
69%
|
$ 16,003
|
13%
|
$
14,204
|
Year
ended September 30, 2007 Compared with the Year ended September 30, 2006 -
RJBank
The
Company completed its second bulk transfer of cash balances into the RJBank
Deposit Program in March 2007, moving another $1.3 billion. This, combined
with
organic growth from the influx of new client assets, resulted in a $2.6 billion
increase in average deposit balances. This increase in average
deposit balances provided the funding for the $1.6 billion increase in average
loan balances. This increase was 38% purchased residential mortgage pools and
62% corporate loans, 98% of which are purchased interests in corporate loan
syndications with the remainder originated by RJBank. As a result of this
growth, RJBank net interest income increased 108% to $84.5 million. Due to
robust loan growth, the associated allowance for loan losses that are
established upon recording a new loan and making new unfunded commitments
required a provision of over $32 million in 2007. Accordingly, RJBank’s pre-tax
income increased only 69%. During periods of growth when new loans are
originated or purchased, an allowance for loan losses is established for
potential losses inherent in those new loans. Accordingly, a robust period
of
growth generally results in charges to earnings in that period, while the
benefits of higher interest earnings are realized in later periods.
Year
ended September 30, 2006 Compared with the Year ended September 30, 2005 -
RJBank
Assets
at
RJBank grew a substantial $1.8 billion during the year. The increase was driven
by a $1.7 billion increase in deposits, $1.3 billion of which were redirected
from the Company’s Heritage Cash Trust or customer brokerage accounts,
representing the introduction of a new sweep program for certain brokerage
accounts. This alternative offers clients a money market equivalent interest
rate and FDIC insurance. The Company intends to expand this offering over the
next several years, transferring an additional $2 to $4 billion. During the
year, RJBank deployed $1.3 billion of the increased deposits into loans.
Purchased residential loan pools increased $700 million and corporate loans
increased $600 million. This growth, combined with increased rates, generated
an
increase in net interest income of nearly $18 million. Pre-tax income increased
only $1.8 million, due to the $13.8 million provision for loan loss associated
with the increase in loans outstanding.
The
following table presents average balance data and operating interest income
and
expense data for the Company's banking operations, as well as the related
interest yields and rates and interest spread for the years
indicated:
|
Year
Ended
|
|
September
30, 2007
|
September
30, 2006
|
September
30, 2005
|
|
|
Operating
|
Average
|
|
Operating
|
Average
|
|
Operating
|
Average
|
|
Average
|
Interest
|
Yield/
|
Average
|
Interest
|
Yield/
|
Average
|
Interest
|
Yield/
|
|
Balance
|
Inc./Exp.
(2)
|
Cost
|
Balance
|
Inc./Exp.
|
Cost
|
Balance
|
Inc./Exp.
|
Cost
|
|
($
in 000’s)
|
|
(continued
on next page)
|
Interest-Earning
Banking Assets:
|
|
|
|
|
|
|
|
|
|
Loans,
Net of Unearned
|
|
|
|
|
|
|
|
|
|
Income
(1)
|
$
3,180,331
|
$204,959
|
6.44%
|
$
1,601,708
|
$
95,366
|
5.95%
|
$ 800,566
|
$
37,163
|
4.64%
|
Reverse
Repurchase
|
|
|
|
|
|
|
|
|
|
Agreements
|
878,822
|
46,438
|
5.28%
|
122,301
|
6,497
|
5.31%
|
-
|
-
|
-
|
Agency
Mortgage backed
|
|
|
|
|
|
|
|
|
|
Securities
|
199,514
|
11,086
|
5.56%
|
157,454
|
7,833
|
4.97%
|
181,419
|
5,561
|
3.07%
|
Non-agency
Collateralized
|
|
|
|
|
|
|
|
|
|
Mortgage
Obligations
|
229,108
|
12,808
|
5.59%
|
21,204
|
1,151
|
5.43%
|
5,791
|
208
|
3.59%
|
Other
Government Agency
|
|
|
|
|
|
|
|
|
|
Obligations
|
-
|
-
|
-
|
8,314
|
404
|
4.86%
|
-
|
-
|
-
|
Corporate
Debt and Asset
|
|
|
|
|
|
|
|
|
|
Backed
Securities
|
-
|
-
|
-
|
8,839
|
499
|
5.65%
|
2,986
|
109
|
3.65%
|
Money
Market Funds, Cash and
|
|
|
|
|
|
|
|
|
|
Cash
Equivalents
|
49,979
|
2,533
|
5.07%
|
34,469
|
1,607
|
4.66%
|
59,869
|
1,778
|
2.97%
|
FHLB
Stock
|
7,121
|
424
|
5.95%
|
12,936
|
708
|
5.47%
|
5,053
|
198
|
3.92%
|
Total
Interest-Earning
|
|
|
|
|
|
|
|
|
|
Banking
Assets
|
4,544,875
|
278,248
|
6.12%
|
1,967,225
|
114,065
|
5.80%
|
1,055,684
|
45,017
|
4.26%
|
Non-Interest-Earning
|
|
|
|
|
|
|
|
|
|
Banking
Assets
|
16,410
|
|
|
13,329
|
|
|
8,327
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Banking Assets
|
$
4,561,285
|
|
|
$
1,980,554
|
|
|
$
1,064,011
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Banking Liabilities:
|
|
|
|
|
|
|
|
|
|
Retail
Deposits:
|
|
|
|
|
|
|
|
|
|
Certificates
of Deposit
|
$ 239,478
|
$ 11,021
|
4.60%
|
$ 269,949
|
$
10,872
|
4.03%
|
$ 191,097
|
$ 6,577
|
3.44%
|
Money
Market, Savings,
|
|
|
|
|
|
|
|
|
|
and
NOW (2) Accounts
|
3,890,955
|
179,741
|
4.62%
|
1,293,104
|
51,313
|
3.97%
|
698,895
|
12,041
|
1.72%
|
FHLB
Advances
|
56,932
|
2,985
|
5.24%
|
233,428
|
11,344
|
4.86%
|
76,635
|
3,402
|
4.44%
|
|
|
|
|
|
|
|
|
|
|
Total
Interest-Bearing
|
|
|
|
|
|
|
|
|
|
Banking
Liabilities
|
4,187,365
|
193,747
|
4.63%
|
1,796,481
|
73,529
|
4.09%
|
966,627
|
22,020
|
2.28%
|
|
|
|
|
|
|
|
|
|
|
Non-Interest-Bearing
|
|
|
|
|
|
|
|
|
|
Banking
Liabilities
|
98,117
|
|
|
11,781
|
|
|
7,933
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Banking
|
|
|
|
|
|
|
|
|
|
Liabilities
|
4,285,482
|
|
|
1,808,262
|
|
|
974,560
|
|
|
Total
Banking
|
|
|
|
|
|
|
|
|
|
Shareholder's
|
|
|
|
|
|
|
|
|
|
Equity
|
275,803
|
|
|
172,292
|
|
|
89,451
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Banking
|
|
|
|
|
|
|
|
|
|
Liabilities
and
|
|
|
|
|
|
|
|
|
|
Shareholder's
|
|
|
|
|
|
|
|
|
|
Equity
|
$
4,561,285
|
|
|
$
1,980,554
|
|
|
$
1,064,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
September
30, 2007
|
September
30, 2006
|
September
30, 2005
|
|
|
|
Operating
|
Average
|
|
|
Operating
|
Average
|
|
|
Operating
|
Average
|
|
Average
|
|
Interest
|
Yield/
|
Average
|
|
Interest
|
Yield/
|
Average
|
|
Interest
|
Yield/
|
|
Balance
|
|
Inc./Exp.
|
Cost
|
Balance
|
|
Inc./Exp.
|
Cost
|
Balance
|
|
Inc./Exp.
|
Cost
|
|
($
in 000’s)
|
|
(continued)
|
Excess
of Interest-
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Over Interest-
|
|
|
|
|
|
|
|
|
|
|
|
|
Bearing Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities/Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
$ 357,510
|
|
$ 84,501
|
|
$ 170,744
|
|
$
40,536
|
|
$ 89,057
|
|
$
22,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Net Operating
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
Spread
|
|
|
|
1.49%
|
|
|
|
1.71%
|
|
|
|
1.98%
|
Margin
(Net Yield on
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-
Earning
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Assets)
|
|
|
|
1.86%
|
|
|
|
2.06%
|
|
|
|
2.18%
|
Ratio
of Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
to Interest-
|
|
|
|
|
|
|
|
|
|
|
|
|
Bearing
Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
108.54%
|
|
|
|
109.50%
|
|
|
|
109.21%
|
Return
On Average (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Banking Assets
|
|
|
|
0.38%
|
|
|
|
0.48%
|
|
|
|
0.81%
|
Total
Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder's Equity
|
|
|
|
6.27%
|
|
|
|
5.54%
|
|
|
|
9.59%
|
Average
Equity to
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
Assets
|
|
|
|
6.05%
|
|
|
|
8.70%
|
|
|
|
8.41%
|
(1)
|
Corporate
loans purchased are recorded in the loan portfolio as of the earlier
of
the settlement date or the delayed settlement compensation commencement
date. Unsettled floating rate loans recognized in the loan portfolio
earn
compensation from the loan’s seller for the delayed settlement at the net
margin over LIBOR. The funded equivalent yield of Loans, Net of Unearned
Income above would be 6.58% for 2007 if the unsettled loans had earned
at
the full loan rate. Additionally, nonaccrual loans are included in
the
average loan balances. Income on such nonaccrual loans is recognized
on a
cash basis. Fee income on loans included in interest income for the
years
ended September 2007, 2006, and 2005, respectively was $8.1 million,
$3.5
million, and $0.7 million.
|
(2)
|
Negotiable
Order of Withdrawal (“NOW”)
account.
|
(3)
|
The
decline in interest spreads is due to the growth in the deposit balances
from two bulk transfers of client deposits of $1.3 billion each to
RJBank,
which were then invested over time. This process left significant
cash
balances invested at low rates until the cash could be deployed and
used
to purchase loans, depressing overall interest
spreads.
|
(4)
|
RJBank
has gone through a period of rapid loan growth and accordingly established
allowances for loan losses for potential losses inherent in the loan
portfolios. These charges to earnings have a negative impact on returns
during periods of loan growth.
|
Increases
and decreases in operating interest income and operating interest expense result
from changes in average balances (volume) of interest-earning banking assets
and
liabilities, as well as changes in average interest rates. The following table
shows the effect that these factors had on the interest earned on RJBank's
interest-earning assets and the interest incurred on its interest-bearing
liabilities. The effect of changes in volume is determined by multiplying the
change in volume by the previous year's average yield/cost. Similarly, the
effect of rate changes is calculated by multiplying the change in average
yield/cost by the previous year's volume. Changes applicable to both volume
and
rate have been allocated proportionately.
|
2007
Compared to 2006
|
2006
Compared to 2005
|
|
Increase
(Decrease) Due To
|
Increase
(Decrease) Due To
|
|
Volume
|
Rate
|
Total
|
Volume
|
Rate
|
Total
|
|
(in
000’s)
|
Interest
Revenue
|
|
|
|
|
|
|
Interest-Earning
Banking Assets:
|
|
|
|
|
|
|
Loans,
Net of Unearned Income
|
$ 93,992
|
$
15,601
|
$
109,593
|
$
37,190
|
$
21,013
|
$
58,203
|
Reverse
Repurchase Agreements
|
40,189
|
(248)
|
39,941
|
6,497
|
-
|
6,497
|
Agency
Mortgage Backed Securities
|
2,092
|
1,161
|
3,253
|
(735)
|
3,007
|
2,272
|
Non-agency
Collateralized Mortgage Obligations
|
11,285
|
372
|
11,657
|
554
|
389
|
943
|
Other
Government Agency Obligations
|
(404)
|
-
|
(404)
|
404
|
-
|
404
|
Corporate
Debt and Asset Backed Securities
|
(499)
|
-
|
(499)
|
214
|
176
|
390
|
Money
Market Funds, Cash and Cash Equivalents
|
723
|
203
|
926
|
(754)
|
583
|
(171)
|
FHLB
Stock
|
(318)
|
34
|
(284)
|
309
|
201
|
510
|
|
|
|
|
|
|
|
Total
Interest-Earning Banking Assets
|
$
147,060
|
$
17,123
|
$
164,183
|
$
43,679
|
$
25,369
|
$
69,048
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
Interest-Bearing
Banking Liabilities:
|
|
|
|
|
|
|
Retail
Deposits:
|
|
|
|
|
|
|
Certificates
Of Deposit
|
$ (1,227)
|
$ 1,377
|
150
|
$ 2,714
|
$ 1,581
|
$ 4,295
|
Money
Market, Savings and
|
|
|
|
|
|
|
NOW
Accounts
|
103,372
|
25,055
|
128,427
|
10,272
|
29,000
|
39,272
|
FHLB
Advances
|
(8,577)
|
218
|
(8,359)
|
6,960
|
982
|
7,942
|
|
|
|
|
|
|
|
Total
Interest-Bearing Banking Liabilities
|
93,568
|
26,650
|
120,218
|
19,946
|
31,563
|
51,509
|
|
|
|
|
|
|
|
Change
in Net Operating Interest Income
|
$ 53,492
|
$ (9,527)
|
$ 43,965
|
$
23,733
|
$ (6,194)
|
$
17,539
|
Results
of Operations – Emerging Markets
|
Year
Ended
|
|
September
30,
|
%
Incr.
|
September
30,
|
%
Incr.
|
September
30,
|
|
2007
|
(Decr.)
|
2006
|
(Decr.)
|
2005
|
|
($
in 000's)
|
Revenues
|
|
|
|
|
|
Securities
Commissions and
|
|
|
|
|
|
Investment
Banking Fees
|
$
41,879
|
(4%)
|
$
43,703
|
46%
|
$
29,928
|
Investment
Advisory Fees
|
2,846
|
48%
|
1,919
|
(34%)
|
2,890
|
Interest
Income
|
4,042
|
11%
|
3,647
|
90%
|
1,919
|
Trading
Profits
|
5,254
|
41%
|
3,720
|
18%
|
3,141
|
Other
|
5,062
|
123%
|
2,274
|
156%
|
890
|
Total
Revenues
|
59,083
|
7%
|
55,263
|
43%
|
38,768
|
|
|
|
|
|
|
Interest
Expense
|
1,075
|
(27%)
|
1,467
|
195%
|
497
|
Net
Revenues
|
58,008
|
8%
|
53,796
|
41%
|
38,271
|
|
|
|
|
|
|
Non-Interest
Expense
|
|
|
|
|
|
Compensation
Expense
|
28,071
|
(4%)
|
29,185
|
48%
|
19,758
|
Other
Expense
|
23,302
|
17%
|
19,867
|
93%
|
10,294
|
Total
Non-Interest Expense
|
51,373
|
5%
|
49,052
|
63%
|
30,052
|
|
|
|
|
|
|
Minority
Interest
|
2,995
|
|
1,887
|
|
2,292
|
Pre-tax
Earnings
|
$ 3,640
|
27%
|
$ 2,857
|
(52%)
|
$ 5,927
|
Year
ended September 30, 2007 Compared with the Year ended September 30, 2006 –
Emerging Markets
This
segment consists of the results of the Company’s joint ventures in Argentina,
Uruguay and Turkey. Securities commissions declined in Turkey, increased in
Argentina, and the joint venture in India generated $2 million in commissions
in
fiscal 2006 whereas none were included in fiscal 2007 due to the Company’s sale
of its interest in this joint venture early in 2007. Investment banking revenues
were flat. Trading profits increased $3.5 million in Argentina, stemming from
a
large volume of ADR trades. Other income includes the $2.5 million gain on
the
sale of the Company’s interest in its joint venture in India.
The
$2
million increase in expense is predominantly related to the accrual of estimated
tax liabilities in Turkey.
Year
ended September 30, 2006 Compared with the Year ended September 30, 2005 –
Emerging Markets
This
segment consists of the results of the Company’s joint ventures in India,
Argentina, Uruguay and Turkey. Securities commissions increased $9 million
or
31% over the prior year. The vast majority of this increase was in the Company’s
joint venture in Turkey. Investment banking revenues were $2.7 million,
primarily from a single large Latin American underwriting fee. Investment
Advisory fees declined as the Company generated $1 million less in asset
management fees in India.
The
$20
million increase in expense is made up predominantly of a $10 million increase
in compensation related to increased revenues and increased other expense
related to the accrual of an estimated tax liability in Turkey.
Results
of Operations – Stock Loan/Borrow
|
Year
Ended
|
|
September
30,
|
%
Incr.
|
September
30,
|
%
Incr.
|
September
30,
|
|
2007
|
(Decr.)
|
2006
|
(Decr.)
|
2005
|
|
($
in 000's)
|
Interest
Income and Expense
|
|
|
|
|
|
Interest
Income
|
$
68,685
|
15%
|
$
59,947
|
88%
|
$
31,876
|
Interest
Expense
|
59,276
|
25%
|
47,593
|
108%
|
22,873
|
Net
Interest Income
|
9,409
|
(24%)
|
12,354
|
37%
|
9,003
|
|
|
|
|
|
|
Expenses
|
4,406
|
1%
|
4,353
|
43%
|
3,041
|
Pre-tax
Earnings
|
$ 5,003
|
(37%)
|
$ 8,001
|
34%
|
$ 5,962
|
Year
ended September 30, 2007 Compared with the Year ended September 30, 2006 – Stock
Loan/Borrow
The
Company’s stock borrow balances averaged $1.1 billion during fiscal year 2007
vs. $1.0 billion in fiscal 2006. The Company’s stock loan balances are
predominantly the result of a matched-book however, box loan/borrow balances
are
also carried. As the Company’s stock loan business is predominantly a
matched-book business, stock borrow balances were similar. Average spreads
decreased from 2.0% in fiscal 2006 to 0.5% in 2007, resulting in a 24% decrease
in net interest income and a 37% decrease in pre-tax profits.
Year
ended September 30, 2006 Compared with the Year ended September 30, 2005 – Stock
Loan/Borrow
The
Company’s stock borrow balances averaged $1.0 billion during fiscal year 2006
vs. $1.1 billion in fiscal 2005. As the Company’s stock loan business is
predominantly a matched-book business, stock loan balances were similar. Average
spreads increased from 0.9% in fiscal 2005 to 2.0% in 2006 largely due to rising
interest rates, resulting in a 37% increase in net interest income and a 34%
increase in pre-tax profits.
Results
of Operations – Proprietary Capital
The
following table presents consolidated financial information for the Propriety
Capital segment for the years indicated:
|
Year
Ended
|
|
September
30,
|
%
Incr.
|
September
30,
|
%
Incr.
|
September
30,
|
|
2007
|
(Decr.)
|
2006
|
(Decr.)
|
2005
|
|
($
in 000's)
|
Revenues
|
|
|
|
|
|
Investment
Advisory Fees
|
$ 746
|
(54%)
|
$ 1,625
|
(38%)
|
$ 2,608
|
Other
|
7,534
|
(52%)
|
15,687
|
88%
|
8,344
|
Total
Revenues
|
8,280
|
(52%)
|
17,312
|
58%
|
10,952
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Compensation
Expense
|
2,348
|
(21%)
|
2,959
|
50%
|
1,976
|
Other
Expenses
|
747
|
(26%)
|
1,003
|
114%
|
469
|
Total
Expenses
|
3,095
|
(22%)
|
3,962
|
62%
|
2,445
|
|
|
|
|
|
|
Minority
Interest
|
1,608
|
|
4,882
|
|
4,325
|
Pre-tax
Earnings
|
$ 3,577
|
(58%)
|
$ 8,468
|
102%
|
$ 4,182
|
Year
ended September 30, 2007 Compared with the Year ended September 30, 2006 –
Proprietary Capital
Proprietary
Capital results are driven by the valuations made within Raymond James Capital,
Inc., Raymond James Capital Partners, L.P., Ballast Point Ventures, L.P., the
EIF Funds and the third party private equity funds in which RJF is
invested. Fiscal 2006 included write-ups within Ballast Point of $3.6 million
versus a write-down of $1 million in fiscal 2007. Fiscal 2007 included valuation
adjustments to the RJF private equity investment portfolio.
Year
ended September 30, 2006 Compared with the Year ended September 30, 2005 –
Proprietary Capital
Fiscal
2006 included the $3.6 million write-up on Ballast Point investments. Fiscal
2006 also included net valuation adjustments to the RJF private equity
investment portfolio of $3.2 million versus $1.4 million in 2005.
Results
of Operations - Other
The
following table presents consolidated financial information for the Other
segment for the years indicated:
|
Year
Ended
|
|
September
30,
|
%
Incr.
|
September
30,
|
%
Incr.
|
September
30,
|
|
2007
|
(Decr.)
|
2006
|
(Decr.)
|
2005
|
|
($
in 000's)
|
Revenues
|
|
|
|
|
|
Interest
Income
|
$ 7,773
|
89%
|
$ 4,114
|
(10%)
|
$ 4,588
|
Other
|
6,659
|
(65%)
|
19,197
|
381%
|
3,990
|
Total
Revenues
|
14,432
|
(38%)
|
23,311
|
172%
|
8,578
|
|
|
|
|
|
|
Other
Expense
|
10,780
|
(11%)
|
12,063
|
11%
|
10,902
|
Pre-tax
Earnings (Loss)
|
$ 3,652
|
(68%)
|
$
11,248
|
584%
|
$ (2,324)
|
Year
ended September 30, 2007 Compared with the Year ended September 30, 2006 -
Other
Revenue
in the Other segment includes $1 million in gains on corporate
investments, including Eagle asset managed accounts, and nearly $3 million
in
proceeds from company owned life insurance. Interest income represents earnings
on available corporate cash balances. Expenses in this segment are predominantly
executive compensation.
Year
ended September 30, 2006 Compared with the Year ended September 30, 2005 -
Other
Revenue
in the Other segment includes the $16.1 million pre-tax gain from the sale
of
the Company's NYSE and Montreal Exchange seats, and approximately $3 million
from other corporate investments.
Statement
of Financial Condition Analysis
The
Company’s statement of financial condition consists primarily of cash and cash
equivalents (a large portion of which are segregated for the benefit of
customers), receivables and payables. The items represented in the statement
of
financial condition are primarily liquid in nature, providing the Company with
flexibility in financing its business. Total assets of $16.3 billion at
September 30, 2007 were up approximately 41% over September 30, 2006. Most
of
this increase is due to the significant increases in reverse repurchase
agreements, brokerage client cash deposits (leading to a similar increase in
segregated cash balances on the asset side), and growth of RJBank, with the
increased loan balances being largely funded by deposits. RJBank loan balances
increased significantly as the Company continued to increase its use of a newly
introduced bank sweep offering to brokerage customers. The Company initiated
the
first phase of this option in July 2006 and the second phase took place in
March
2007. The Company plans to continue to expand use of this offering for the
next
several years, which will result in continued growth in RJBank balances. The
other significant increase in assets was in Available For Sale Securities.
Trade
and Other Payables increased $311.9 million from the prior year primarily
due to RJBank’s purchases of $300.6 million in syndicated loans which were not
settled as of September 30, 2007. The broker-dealer gross assets and
liabilities, including trading inventory, stock loan/borrow, receivables and
payables from/to brokers, dealers and clearing organizations and clients
fluctuate with the Company's business levels and overall market
conditions.
Liquidity
and Capital Resources
Cash
provided by operating activities during the fiscal year ended September 30,
2007
was approximately $436.6 million, primarily attributable to the increase in
brokerage client deposits (directly correlated to the increase in segregated
assets), an increase in payables associated with the Company’s stock
loan/borrowed business, an increase in payables to broker-dealers and clearing
organizations, an increase in securities sold under agreements to repurchase,
and an increase in trading instruments sold but not yet purchased. This was
partially offset by an increase in segregated assets, and an increase in
receivables from brokerage clients.
Investing
activities used $2.9 billion, which is primarily due to activity at RJBank,
including loans originated and purchased, purchases of securities under
agreements to resell, and purchases of available for sale
securities. This was partially offset by loan repayments at RJBank
and maturations and repayments of available for sale securities.
Financing
activities provided $2.7 billion, the result of an increase in deposits at
RJBank and cash provided from the exercise of stock options and employee stock
purchases. This was partially offset by the payment of cash dividends and the
repayments of borrowings.
At
September 30, 2007 and September 30, 2006, the Company had loans payable of
$122.6 million and $141.6 million, respectively. The balance at September 30,
2007 is comprised of a $65 million loan for its home-office complex, $55 million
in Federal Home Loan Bank advances (RJBank), and various short-term borrowings
totaling $2.6 million (used to fund increased levels of trading
instruments).
In
addition, the Company and its subsidiaries have the following lines of credit:
RJF has a committed $200 million line of credit, RJA has uncommitted bank lines
of credit aggregating $1.035 billion with commercial banks, Raymond James Credit
Corporation has a line of credit for $25 million, and RJ Ltd. has a CDN$40
million uncommitted line of credit (see Note 10 of the Notes to the Consolidated
Financial Statements for further information on the Company's lines of credit).
There were no outstanding balances against these lines of credit at September
30, 2007. The Company’s committed $200 million line of credit is subject to a
0.125% per annum facility fee. RJBank has $55.0 million in FHLB advances
outstanding at September 30, 2007, which are comprised of one short-term, fixed
rate advance and several long-term, fixed rate advances. RJBank had $1.32
billion in credit available from the FHLB at September 30, 2007. During the
three months ended June 30, 2007, RJA entered into a $500 million uncommitted
tri-party repurchase agreement line of credit. Under this agreement, the Company
pledges certain of its trading inventory as collateral against borrowings on
this line. The required market value of the collateral is generally 102% of
the
cash borrowed. The rate is set each day at 25 basis points over the opening
Fed
Funds rate and this agreement can be terminated by any party on any business
day. Under this agreement, there were secured short-term borrowings of
$195,000,000 outstanding at September 30, 2007 which are included in Securities
Sold Under Agreement to Repurchase.
The
Company’s joint ventures in Turkey and Argentina have multiple settlement lines
of credit. The Company has guaranteed certain of these settlement lines of
credit as follows: four in Turkey totaling $22.5 million and one in Argentina
for $3 million. At September 30, 2007, there were no outstanding balances on
the
settlement lines in Argentina or Turkey. At September 30, 2007, the aggregate
unsecured settlement lines of credit available were $76.5 million, and there
were outstanding balances of $2.7 million on these lines. The Company has also
from time to time authorized performance guarantees for the completion of trades
with counterparties in Argentina and Turkey. At September 30, 2007, there were
no outstanding performance guarantees in Argentina or Turkey.
As
of
September 30, 2007, the Company's liabilities are comprised primarily of
brokerage client payables of $5.7 billion at the broker-dealer subsidiaries
and
deposits of $5.6 billion at RJBank, as well as deposits held on stock loan
transactions of $1.3 billion. The Company primarily acts as an intermediary
in
stock loan/borrow transactions. As a result, the liability associated with
the
stock loan transactions is related to the $1.3 billion receivable comprised
of
the Company's cash deposits for stock borrowed transactions. To meet its
obligations to clients, the Company has approximately $4.8 billion in cash
and
segregated assets. The Company also has client brokerage receivables of $1.7
billion and $4.7 billion in loans at RJBank.
The
Company will continue its implementation of a new cash sweep option available
to
its clients from RJBank. This new cash sweep option will require substantial
capital to be contributed to RJBank to meet regulatory requirements, and
therefore may require the Company to infuse an additional $150 to $200 million
over the next several years for this purpose.
As
of
September 30, 2007, RJBank had not settled the purchases of $300.6 million
in
syndicated loans. These loans are expected to be settled during the three months
ended December 31, 2007.
The
Company has committed a total of $46.6 million, in amounts ranging from $200,000
to $2 million, to 41 different independent venture capital or private equity
partnerships. As of September 30, 2007, the Company has invested $30.4 million
of that amount and has received $27 million in distributions. The Company
expects to increase its net investment in external private equity funds up
to
$50 million.
Additionally,
the Company is the general partner in two internally sponsored private equity
limited partnerships to which it has committed $14 million. Of that amount,
the
Company has invested $12.2 million and has received $8.6 million in
distributions as of September 30, 2007.
The
Company’s Board of Directors approved the use of up to $200 million in mezzanine
financing to facilitate investment banking transactions. As of September 30,
2007, the Company had not utilized this investment facility. During the first
quarter of fiscal year 2008, the Company entered into a credit agreement and
pursuant to this agreement, the Company funded a $37.5 million loan
participation. The Board of Directors also approved the use of up to $50 million
for investment in proprietary merchant banking opportunities. As of September
30, 2007, the Company has invested $13.1 million.
Management
has been authorized by the Board of Directors to repurchase its common stock
at
their discretion for general corporate purposes. There is no formal stock
repurchase plan at this time. In May 2004 the Board authorized the repurchase
of
up to $75 million of shares. As of September 30, 2007 the unused portion of
this
authorization was $65.4 million.
The
Company has committed to lend to or guarantee obligations of its wholly owned
subsidiary, RJTCF, of up to $100 million upon request, subject to certain
limitations as well as annual review and renewal. RJTCF borrows in order to
invest in partnerships which purchase and develop properties qualifying for
tax
credits. These investments in project partnerships are then sold to various
tax
credit funds, which have third party investors, and for which RJTCF serves
as
the managing member or general partner. RJTCF typically sells these investments
within 90 days of their acquisition, and the proceeds from the sales are used
to
repay RJTCF’s borrowings. Additionally, RJTCF may make short-term loans or
advances to project partnerships on behalf of the tax credit funds in which
it
serves as managing member or general partner. At September 30, 2007, cash funded
to invest in either loans or investments in project partnerships was $38.7
million. In addition, at September 30, 2007, RJTCF is committed to additional
future fundings of $6.1 million related to project partnerships that have not
yet been sold to various tax credit funds.
In
September 2007, Sirchie Acquisition Company, LLC (“SAC”), a 100% owned indirect
subsidiary of the Company, entered into two agreements. Under the Stock Purchase
Agreement SAC will acquire 51% of the common stock of Law Enforcement Associates
Corporation from two sellers. Under the Stock and Asset Purchase Agreement
with
several sellers, SAC will acquire substantially all of the business, assets,
and
properties of Sirchie Finger Print Laboratories, Inc., the assets or stock
of
several other companies and certain real estate. SAC and sellers negotiated
a
single purchase price for all of the items to be acquired under the two
agreements. At closing, one of the sellers will become a member of SAC. The
Company’s share of the purchase price obligation is approximately $50 million.
The closing of the two agreements is expected to occur before January 31,
2008.
The
Company believes its existing assets, which are highly liquid in nature,
together with funds generated from operations, should provide adequate funds
for
continuing operations.
The
Company is the lessor in a leveraged commercial aircraft transaction with
Continental Airlines, Inc. (“Continental”). The Company's ability to realize its
expected return is dependent upon this airline’s ability to fulfill its lease
obligation. In the event that this airline defaults on its lease commitment
and
the Trustee for the debt holders is unable to re-lease or sell the plane with
adequate terms, the Company would suffer a loss of some or all of its
investment. The value of the Company’s leveraged lease with Continental was
approximately $9.9 million as of September 30, 2007. The Company's equity
investment represented 20% of the aggregate purchase price; the remaining 80%
was funded by public debt issued in the form of equipment trust certificates.
The residual value of the aircraft at the end of the lease term of approximately
17 years is projected to be 15% of the original cost. This lease expires in
May
2014. Although Continental remains current on its lease payments to the Company,
the inability of Continental to make its lease payments, or the termination
or
modification of the lease through a bankruptcy proceeding, could result in
the
write-down of the Company's investment and the acceleration of certain income
tax payments. The Company continues to monitor this lessee for specific events
or circumstances that would increase the likelihood of a default on
Continental’s obligations under this lease.
The
Company was also the lessor in a leveraged commercial aircraft transaction
with
Delta Air Lines, Inc. (“Delta”). Delta filed for bankruptcy protection on
September 14, 2005. Accordingly, the Company recorded a $6.5 million pre-tax
charge in 2005 to fully reserve the balance of its investment in the leveraged
lease of an aircraft to Delta. The Company had taken a $4 million pre-tax charge
in 2004 to partially reserve for this investment. No amount of these charges
represented a cash expenditure. During the second quarter of fiscal 2007, the
Company sold its interest in the Delta transaction for $2 million, which was
recognized as a pre-tax gain within Other Revenue. Upon closing, certain income
tax obligations of approximately $8.5 million were accelerated and paid during
the quarter. These tax payments did not impact net earnings, as these amounts
were previously recorded as deferred tax liabilities.
The
Company’s Turkish affiliate was assessed for the year 2001 approximately $7.6
million by the Turkish tax authorities. This affiliate is vigorously contesting
most aspects of this assessment and has filed an appeal with the Turkish Counsel
of State. A significant portion of the matters at issue involved the activities
of an employee terminated in 2004. Audits of 2002 through 2004 are
anticipated and their outcome is unknown in light of the change in methodology
from the prior year’s audit and the pending litigation. As
such,
the potential tax liability combined for these subsequent years could range
from
a few hundred thousand dollars to $7.5 million. As of September 30,
2007, this affiliate had total capital of approximately $12.2 million, of which
the Company owns approximately 73%.
The
Company's broker-dealer subsidiaries are subject to requirements of the SEC
and
the IDA relating to liquidity and capital standards. The domestic 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. RJA,
a
member firm of FINRA, is also subject to the rules of FINRA, whose requirements
are substantially the same. Rule 15c3-1 requires that aggregate indebtedness,
as
defined, not exceed 15 times net capital, as defined. Rule 15c3-1 also provides
for an “alternative net capital requirement”, which RJA, RJFS, and HFD have
elected. It requires that minimum net capital, as defined, be equal to the
greater of $250,000 or two percent of Aggregate Debit Items arising from client
transactions. FINRA may require a member firm to reduce its business if its
net
capital is less than four percent of Aggregate Debit Items and may prohibit
a
member firm from expanding its business and declaring cash dividends if its
net
capital is less than five percent of Aggregate Debit Items. RJA, RJFS, and
HFD
all had net capital in excess of minimum requirements as of September 30,
2007.
RJ Ltd. is subject to the Minimum Capital Rule (By-Law No. 17 of the IDA) and
the Early Warning System (By-Law No. 30 of the IDA). The Minimum Capital Rule
requires that every member shall have and maintain at all times Risk Adjusted
Capital greater than zero calculated in accordance with Form 1 (Joint Regulatory
Financial Questionnaire and Report) and with such requirements as the Board
of
Directors of the IDA may from time to time prescribe. Insufficient Risk Adjusted
Capital may result in suspension from membership in the stock exchanges or
the
IDA. The Early Warning System is designed to provide advance warning that a
member firm is encountering financial difficulties. This system imposes certain
sanctions on members who are designated in Early Warning Level 1 or Level 2
according to its capital, profitability, liquidity position, frequency of
designation or at the discretion of the IDA. Restrictions on business activities
and capital transactions, early filing requirements, and mandated corrective
measures are sanctions that may be imposed as part of the Early Warning System.
RJ Ltd. was not in Early Warning Level 1 or Level 2 during fiscal 2007 or
2006.
RJBank
is
subject to various regulatory and capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions
by
regulators. Under capital adequacy guidelines and the regulatory framework
for
prompt corrective action, RJBank must meet specific capital guidelines that
involve quantitative measures of RJBank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
RJBank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors. Quantitative measures established by regulation to ensure capital
adequacy require RJBank to maintain minimum amounts and ratios of Total and
Tier
I Capital (as defined in the regulations) to risk-weighted assets (as defined).
Management believes, as of September 30, 2007, that the Bank meets all capital
adequacy requirements to which it is subject.
Critical
Accounting Policies
The
Company’s financial statements and accompanying notes are prepared in accordance
with accounting principles generally accepted in the U.S. The following is
a
summary of the Company’s critical accounting policies. For a full description of
these and other accounting policies, see Note 1 of the Notes to the Consolidated
Financial Statements. The Company believes that of its significant accounting
policies, those described below involve a high degree of judgment and
complexity. These critical accounting policies require estimates and assumptions
that affect the amounts of assets, liabilities, revenues and expenses reported
in the consolidated financial statements. Due to their nature, estimates involve
judgments based upon available information. Actual results or amounts could
differ from estimates and the difference could have a material impact on the
consolidated financial statements. Therefore, understanding these policies
is
important in understanding the reported results of operations and the financial
position of the Company.
Valuation
of Securities and Other Assets
“Trading
instruments” and “Available for sale securities” are reflected in the
Consolidated Statements of Financial Condition at fair value or amounts that
approximate fair value. In accordance with SFAS 115, “Accounting for Certain
Investments in Debt and Equity Securities”, unrealized gains and losses related
to these financial instruments are reflected in net income or other
comprehensive income, depending on the underlying purpose of the instrument.
The
following table presents the Company’s trading instruments and available for
sale securities segregated into trading securities (i.e., non-derivative),
derivative contracts, and available for sale securities:
|
September
30, 2007
|
|
Financial
Instruments
Owned
at
Fair Value
|
Financial
Instruments
Sold
but
not yet Purchased
at
Fair Value
|
|
(in
000’s)
|
|
|
|
Trading
Securities
|
$ 437,158
|
$ 141,284
|
Derivative
Contracts
|
30,603
|
8,445
|
Available
for Sale Securities
|
569,952
|
-
|
Total
|
$
1,037,713
|
$ 149,729
|
Trading
Securities, Available for Sale Securities and Derivative
Contracts
When
available, the Company uses prices from independent sources such as listed
market prices, or broker or dealer price quotations to derive the fair value
of
the instruments. For investments in illiquid, privately held or other securities
that do not have readily determinable fair values, the Company uses estimated
fair values as determined by management. Fair values for derivative contracts
are obtained from pricing models that consider current market and contractual
prices for the underlying financial instruments, as well as time value and
yield
curve or volatility factors underlying the positions. The following table
presents the carrying value of trading securities, available for sale
securities, and derivative contracts for which fair value is measured based
on
quoted prices or other independent sources versus those for which fair value
is
determined by management:
|
September
30, 2007
|
|
Financial
Instruments
Owned at Fair Value
|
Financial
Instruments
Sold
but
not yet Purchased at Fair Value
|
|
(in
000’s)
|
|
|
|
Fair
Value Based on Quoted Prices and Independent Sources
|
$
1,003,543
|
$
141,284
|
Fair
Value Determined by Management
|
34,170
|
8,445
|
Total
|
$
1,037,713
|
$
149,729
|
Investment
in Leveraged Leases
The
Company is the lessor in a leveraged commercial aircraft transaction with
Continental. The Company's ability to realize its expected return is dependent
upon this airline’s ability to fulfill its lease obligation. In the event that
this airline defaults on its lease commitment and the Trustee for the debt
holders is unable to re-lease or sell the plane with adequate terms, the Company
would suffer a loss of some or all of its investment. The value of the Company’s
leveraged lease with Continental was approximately $9.9 million as of September
30, 2007. The Company's equity investment represented 20% of the aggregate
purchase price; the remaining 80% was funded by public debt issued in the form
of equipment trust certificates. The residual value of the aircraft at the
end
of the lease term of approximately 17 years is projected to be 15% of the
original cost. This lease expires in May 2014.
Although
Continental remains current on its lease payments to the Company, the inability
of Continental to make its lease payments, or the termination or modification
of
the lease through a bankruptcy proceeding, could result in the write-down of
the
Company's investment and the acceleration of certain income tax payments. The
Company continues to monitor this lessee for specific events or circumstances
that would increase the likelihood of a default on Continental’s obligations
under this lease.
The
Company was also the lessor in a leveraged commercial aircraft transaction
with
Delta. Delta filed for bankruptcy protection on September 14, 2005. Accordingly,
the Company recorded a $6.5 million pre-tax charge in 2005 to fully reserve
the
balance of its investment in the leveraged lease of an aircraft to Delta. The
Company had taken a $4 million pre-tax charge in 2004 to partially reserve
for
this investment. No amount of these charges represented a cash expenditure.
During the second quarter of fiscal 2007, the Company sold its interest in
the
Delta transaction for $2 million, which was recognized as a pre-tax gain within
Other Revenue. Upon closing, certain income tax obligations of approximately
$8.5 million were accelerated and paid during the quarter. These tax payments
did not impact net earnings, as these amounts were previously recorded as
deferred tax liabilities.
Goodwill
Goodwill
is related to the acquisitions of Roney & Co. (now part of RJA) and Goepel
McDermid, Inc. (now called Raymond James Ltd.). This goodwill, totaling $63
million, was allocated to the reporting units within the Private Client Group
and Capital Markets segments pursuant to SFAS No. 142, “Goodwill and Other
Intangible Assets”. Goodwill represents the excess cost of a business
acquisition over the fair value of the net assets acquired. In accordance with
this pronouncement, indefinite-life intangible assets and goodwill are not
amortized. Rather, they are subject to impairment testing on an annual basis,
or
more often if events or circumstances indicate there may be impairment. This
test involves assigning tangible assets and liabilities, identified intangible
assets and goodwill to reporting units and comparing the fair value of each
reporting unit to its carrying amount. If the fair value is less than the
carrying amount, a further test is required to measure the amount of the
impairment.
When
available, the Company uses recent, comparable transactions to estimate the
fair
value of the respective reporting units. The Company calculates an estimated
fair value based on multiples of revenues, earnings, and book value of
comparable transactions. However, when such comparable transactions are not
available or have become outdated, the Company uses discounted cash flow
scenarios to estimate the fair value of the reporting units. As of September
30,
2007, goodwill had been allocated to the Private Client Group of RJA, and both
the Private Client Group and Capital Markets segments of Raymond James Limited
(“RJ Ltd.”). As of the most recent impairment test, the Company determined that
the carrying value of the goodwill for each reporting unit had not been
impaired. However, changes in current circumstances or business conditions
could
result in an impairment of goodwill. As required, the Company will continue
to
perform impairment testing on an annual basis or when an event occurs or
circumstances change that would more likely than not reduce the fair value
of a
reporting unit below its carrying amount.
Reserves
The
Company recognizes liabilities for contingencies when there is an exposure
that,
when fully analyzed, indicates it is both probable that a liability has been
incurred and the amount of loss can be reasonably estimated. When a range of
probable loss can be estimated, the Company accrues the most likely amount;
if
not determinable, the Company accrues at least the minimum of the range of
probable loss.
The
Company records reserves related to legal proceedings in Trade and Other
Payables. Such reserves are established and maintained in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 5, "Accounting for
Contingencies", and Financial Interpretation No. 14, “Reasonable Estimation of
the Amount of a Loss”. The determination of these reserve amounts requires
significant judgment on the part of management. Management considers many
factors including, but not limited to: the amount of the claim; the amount
of
the loss in the client's account; the basis and validity of the claim; the
possibility of wrongdoing on the part of an employee of the Company; previous
results in similar cases; and legal precedents and case law. Each legal
proceeding is reviewed with counsel in each accounting period and the reserve
is
adjusted as deemed appropriate by management. Lastly, each case is reviewed
to
determine if it is probable that insurance coverage will apply, in which case
the reserve is reduced accordingly. Any change in the reserve amount is recorded
in the consolidated financial statements and is recognized as a charge/credit
to
earnings in that period.
The
Company also records reserves or allowances for doubtful accounts related to
client receivables and loans. Client receivables at the broker-dealers are
generally collateralized by securities owned by the brokerage clients.
Therefore, when a receivable is considered to be impaired, the amount of the
impairment is generally measured based on the fair value of the securities
acting as collateral, which is measured based on current prices from independent
sources such as listed market prices or broker-dealer price
quotations.
Client
loans at RJBank are generally collateralized by real estate or other property.
RJBank provides for both an allowance for losses in accordance with SFAS No.
5 and a reserve for individually impaired loans in accordance with SFAS No.
114, “Accounting by a Creditor for Impairment of a Loan”. The calculation of the
SFAS No. 5 allowance is subjective as management segregates the loan portfolio
into different homogeneous classes and assigns each class an allowance
percentage based on the perceived risk associated with that class of loans.
During the fiscal year, RJBank re-evaluated and implemented changes to the
loan
loss reserve methodology in conjunction with a revision to the corporate loan
grading process. The new loan grading process was revised and expanded to
provide more specific and detailed risk measurement across the corporate loan
portfolio. The factors taken into consideration when assigning the reserve
percentage to each reserve category include estimates of borrower default
probabilities and collateral values; trends in delinquencies; volume and terms;
changes in geographic distribution, lending policies, local, regional, and
national economic conditions; concentrations of credit risk and past loss
history. In addition, the Company provides for potential losses inherent in
RJBank’s unfunded lending commitments using the criteria above, further adjusted
for an estimated probability of funding. For individual loans identified as
impaired, RJBank measures impairment based on the present value of expected
future cash flows discounted at the loan's effective interest rate, the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. At September 30, 2007, the amortized cost of all RJBank
loans was $4.7 billion and an allowance for loan losses of $47 million was
recorded against that balance. The total allowance for loan losses, including
$6.8 million in reserves for off-balance sheet exposures maintained in Trade
and
Other Payables, is equal to 1.15% of the amortized cost of the loan portfolio.
The
following table allocates RJBank’s allowance for loan losses by loan
category:
|
September
30, 2007
|
September
30, 2006
|
September
30, 2005
|
September
24, 2004
|
September
26, 2003
|
|
|
|
($
in 000’s)
|
|
|
Commercial
Loans:
|
|
|
|
|
|
Allowance
|
$ 4,471
|
$ 3,663
|
$
1,574
|
$
1,372
|
$
1,172
|
Total
Commercial Loans
|
|
|
|
|
|
as
a % of Loans Receivable
|
7%
|
12%
|
14%
|
18%
|
17%
|
|
|
|
|
|
|
Real
Estate Construction Loans:
|
|
|
|
|
|
Allowance
|
$ 2,121
|
$ 548
|
$ 567
|
$ 383
|
$ 102
|
Total
Real Estate Construction Loans
|
|
|
|
|
|
as
a % of Loans Receivable
|
3%
|
2%
|
3%
|
5%
|
2%
|
|
|
|
|
|
|
Commercial
Real Estate Loans:
|
|
|
|
|
|
Allowance
|
$
35,766
|
$
10,603
|
$ 2,878
|
$ 826
|
$ 602
|
Total
Commercial Real Estate Loans
|
|
|
|
|
|
as
a % of Loans Receivable
|
49%
|
28%
|
14%
|
11%
|
12%
|
|
|
|
|
|
|
Residential
Mortgage Loans:
|
|
|
|
|
|
Allowance
|
$ 4,659
|
$ 3,878
|
$ 2,537
|
$ 5,044
|
$ 4,006
|
Total
Residential Mortgage Loans
|
|
|
|
|
|
as
a % of Loans Receivable
|
41%
|
58%
|
69%
|
66%
|
69%
|
|
|
|
|
|
|
Consumer
Loans:
|
|
|
|
|
|
Allowance
|
$ 5
|
$ 2
|
$ 37
|
$ 17
|
$ 28
|
Total
Consumer Loans
|
|
|
|
|
|
as
a % of Loans Receivable
|
0%
|
0%
|
0%
|
0%
|
0%
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
Allowance
|
$
47,022
|
$
18,694
|
$
7,593
|
$
7,642
|
$
5,910
|
%
of Total Loans Receivable
|
100%
|
100%
|
100%
|
100%
|
100%
|
The
Company also makes loans or pays advances to Financial Advisors, primarily
for
recruiting and retention purposes. The Company provides for an allowance for
doubtful accounts based on an evaluation of the Company’s ability to collect
such receivables. The Company’s ongoing evaluation includes the review of
specific accounts of Financial Advisors no longer associated with the Company
and the Company’s historical collection experience. At September 30, 2007 the
receivable from Financial Advisors was $115.1 million, which is net of an
allowance of $3.8 million for estimated uncollectibility.
Income
Taxes
SFAS
No.
109, “Accounting for Income Taxes”, establishes financial accounting and
reporting standards for the effect of income taxes. The objectives of accounting
for income taxes are to recognize the amount of taxes payable or refundable
for
the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the Company’s financial
statements or tax returns. Judgment is required in assessing the future tax
consequences of events that have been recognized in the Company’s financial
statements or tax returns. Variations in the actual outcome of these future
tax
consequences could materially impact the Company’s financial position, results
of operations, or cash flows.
Effects
of recently issued accounting standards, not yet
adopted
In
June
2006, the Financial Accounting Standards Board ("FASB") issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with SFAS No. 109. FIN 48 establishes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. This interpretation uses a two-step process to determine the amount
of a tax benefit to record for a tax position if it is more likely than not
to
be sustained. The amount of the benefit is then measured to be the highest
tax
benefit that is greater than 50% likely to be realized upon ultimate settlement
with a taxing authority that has full knowledge of all relevant information.
This interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. The Company will be required to adopt FIN No. 48 as of October
1,
2007. The Company does not expect this interpretation to have a material impact
on its consolidated financial statements for the fiscal year ending September
30, 2008.
In
July
2006, the FASB issued Staff Position (“FSP”) No. FAS 13-2, “Accounting for a
Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes
Generated by a Leveraged Lease Transaction” (“FSP FAS 13-2”). This FSP addresses
how a change in the timing of cash flows relating to income taxes generated
by a
leveraged lease transaction affects the accounting by a lessor for that lease.
FSP FAS 13-2 is effective for fiscal years beginning after December 15, 2006
(October 1, 2007 for the Company). The Company does not expect this FSP to
have
a material impact on its consolidated financial statements for the fiscal year
ending September 30, 2008.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in the Current Year Financial Statements” (“SAB 108”). SAB 108
addresses how the effects of prior year uncorrected misstatements should be
considered when quantifying misstatements in current year financial statements.
SAB 108 requires an entity to quantify misstatements using a balance sheet
and
income statement approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant quantitative and
qualitative factors. The guidance is effective for annual financial statements
covering the first fiscal year ending after November 15, 2006. This guidance
did
not have an impact on the Company’s consolidated financial statements for the
fiscal year ended September 30, 2007.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair-value measurements required under other accounting pronouncements
but
does not change existing guidance as to whether or not an instrument is carried
at fair value. SFAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007 (October 1, 2008 for the Company),
and
interim periods within those fiscal years. The Company does not expect SFAS
157
to have a material impact on the consolidated financial statements of the
Company.
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS 159”). SFAS 159 allows companies to elect to
follow fair value accounting for certain financial assets and liabilities on
an
instrument by instrument basis. SFAS 159 is applicable only to certain financial
instruments and is effective for fiscal years beginning after November 15,
2007 (October 1, 2008 for the Company). The Company has not yet completed its
assessment of what impact, if any, SFAS 159 will have on its consolidated
financial statements.
In
April
2007, the FASB issued Staff Position FIN No. 39-1, "Amendment of FASB
Interpretation No. 39." FSP FIN No. 39-1 defines "right of setoff" and specifies
what conditions must be met for a derivative contract to qualify for this right
of setoff. FSP FIN No. 39-1 also addresses the applicability of a right of
setoff to derivative instruments and clarifies the circumstances in which it
is
appropriate to offset amounts recognized for those instruments in the statement
of financial position. In addition, this FSP permits offsetting of fair value
amounts recognized for multiple derivative instruments executed with the same
counterparty under a master netting arrangement and fair value amounts
recognized for the right to reclaim cash collateral (a receivable) or the
obligation to return cash collateral (a payable) arising from the same master
netting arrangement as the derivative instruments. This interpretation is
effective for fiscal years beginning after November 15, 2007 (October 1, 2008
for the Company), with early application permitted. The Company is currently
evaluating the impact the adoption of FSP FIN No. 39-1 will have on its
consolidated financial statements.
In
May
2007, the FASB issued FSP FIN No. 46R-7, "Application of FASB Interpretation
No.
46(R) to Investment Companies." FSP FIN No. 46R-7 amends the scope of the
exception to FIN 46R to state that investments accounted for at fair value
in
accordance with the specialized accounting guidance in the American Institute
of
Certified Public Accountants ("AICPA") Audit and Accounting Guide, Investment
Companies, are not subject to consolidation under FIN 46R. This interpretation
is effective for fiscal years beginning on or after December 15, 2007 (October
1, 2008 for the Company). The Company is currently evaluating the impact the
adoption of FSP FIN No. 46R-7 will have on its consolidated financial
statements.
In
June
2007, the Accounting Standards Executive Committee of the AICPA issued Statement
of Position ("SOP") 07-1, "Clarification of the Scope of the Audit and
Accounting Guide Investment Companies and Accounting by Parent Companies and
Equity Method Investors for Investments in Investment Companies." This SOP
provides guidance for determining whether an entity is within the scope of
the
AICPA Audit and Accounting Guide Investment Companies (the "Guide").
Additionally, it provides guidance as to whether a parent company or an equity
method investor can apply the specialized industry accounting principles of
the
Guide (referred to as investment company accounting). This SOP is effective
for
fiscal years beginning on or after December 15, 2007 (October 1, 2008 for the
Company), with early application encouraged. The Company is currently evaluating
the impact the adoption of SOP 07-1 will have on its consolidated financial
statements.
Off
Balance Sheet Arrangements
Information
concerning the Company's off balance sheet arrangements are included in Note
20
of the Notes to the Consolidated Financial Statements. Such information is
hereby incorporated by reference.
Contractual
Obligations
The
Company has contractual obligations to make future payments in connection with
its short and long-term debt, non-cancelable lease agreements, partnership
investments, commitments to extend credit, loans purchased but not settled,
underwriting commitments and a naming rights agreement (see Note 13 of the
Notes to the Consolidated Financial Statements for further information on
the Company's commitments). The following table sets forth these contractual
obligations by fiscal year:
|
Total
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
|
(in
000’s)
|
|
|
|
|
|
|
|
|
Long-Term
Debt
|
$ 119,955
|
$ 7,731
|
$
2,891
|
$ 8,060
|
$48,239
|
$
3,429
|
$
49,605
|
Variable
Interest Entities’ Loans Payable(1)
|
116,479
|
13,839
|
13,267
|
12,720
|
12,748
|
13,036
|
50,869
|
Short-Term
Debt
|
2,685
|
2,685
|
-
|
-
|
-
|
-
|
-
|
Operating
Leases
|
100,453
|
28,711
|
22,249
|
19,327
|
12,498
|
8,811
|
8,857
|
Investments
– Private Equity
|
|
|
|
|
|
|
|
Partnerships(2)
|
21,400
|
21,400
|
-
|
-
|
-
|
-
|
-
|
Certificates
of Deposit
|
239,534
|
128,032
|
51,703
|
30,323
|
21,960
|
7,516
|
-
|
Commitments
to Extend Credit -
|
|
|
|
|
|
|
|
RJBank(3)
|
1,757,541
|
1,757,541
|
-
|
-
|
-
|
-
|
-
|
RJBank
Loans Purchased, Not Yet
|
|
|
|
|
|
|
|
Settled
|
300,644
|
300,644
|
-
|
-
|
-
|
-
|
-
|
Commitments
to Real Estate
|
|
|
|
|
|
|
|
Partnerships(4)
|
11,200
|
11,200
|
-
|
-
|
-
|
-
|
-
|
Underwriting
Commitments
|
11,794
|
11,794
|
-
|
-
|
-
|
-
|
-
|
Naming
Rights for Raymond James
|
|
|
|
|
|
|
|
Stadium
|
30,089
|
3,152
|
3,278
|
3,409
|
3,545
|
3,687
|
13,018
|
Total
|
$2,711,774
|
$2,286,729
|
$93,388
|
$73,839
|
$98,990
|
$36,479
|
$122,349
|
(1)
|
Loans
which are non-recourse to the Company. See Notes 6 and 10 in the
Notes to
the Consolidated Financial Statements for additional
information.
|
(2)
|
The
Company has committed a total of $46.6 million, in amounts ranging
from
$200,000 to $2 million, to 41 different independent venture capital
or
private equity partnerships. As of September 30, 2007, the Company
has
invested $30.4 million of that amount and has received $27 million
in
distributions. Additionally, the Company is the general partner in
two
internally sponsored private equity limited partnerships to which
it has
committed $14 million. Of that amount, the Company has invested $12.2
million and has received $8.6 million in distributions as of September
30,
2007. Although the combined remaining balance of $21.4 million has
been
included in fiscal year 2008 above, the contributions to the partnerships
may occur after that time and are dependent upon the timing of the
capital
calls by the general partners.
|
(3)
|
Because
many commitments expire without being funded in whole or part, the
contract amounts are not estimates of future cash
flows.
|
(4)
|
RJTCF
is committed to additional future fundings related to real estate
partnerships.
|
Effects
of Inflation
The
Company's assets are primarily liquid in nature and are not significantly
affected by inflation. 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.
RISK
MANAGEMENT
Risks
are
an inherent part of the Company's business and activities. Management of these
risks is critical to the Company's fiscal soundness and profitability. Risk
management at the Company is a multi-faceted process that requires
communication, judgment and knowledge of financial products and markets. The
Company's senior management takes an active role in the risk management process
and requires specific administrative and business functions to assist in the
identification, assessment, monitoring and control of various risks. The
principal risks involved in the Company's business activities are market,
credit, operational, and regulatory and legal.
Market
Risk
Market
risk is the risk of loss to the Company resulting from changes in interest
rates
and equity prices. The Company has exposure to market risk primarily through
its
broker-dealer and banking operations. The Company's broker-dealer subsidiaries,
primarily RJA, trade tax exempt and taxable debt obligations and act as an
active market maker in approximately 340 over-the-counter equity securities.
In
connection with these activities, the Company maintains inventories in order
to
ensure availability of securities and to facilitate client transactions.
Additionally, the Company, primarily within its Canadian broker-dealer
subsidiary, invests for its own proprietary equity investment
account.
The
following table represents the fair value of trading instruments associated
with the Company's broker-dealer client facilitation, market-making activities
and proprietary trading activities:
|
September
30, 2007
|
|
September
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Sold
but
|
|
|
|
Sold
but
|
|
Trading
|
|
Not
Yet
|
|
Trading
|
|
Not
Yet
|
|
Instruments
|
|
Purchased
|
|
|
|
Purchased
|
|
(in
000's)
|
|
|
Marketable:
|
|
|
|
|
|
|
|
Municipal
|
$
200,024
|
|
$ 54
|
|
$
192,028
|
|
$ 5
|
Corporate
|
56,069
|
|
952
|
|
134,431
|
|
968
|
Government
|
83,322
|
|
45,275
|
|
37,793
|
|
31,636
|
Agency
|
47,123
|
|
60,829
|
|
68,380
|
|
34,023
|
Total
Debt Securities
|
386,538
|
|
107,110
|
|
432,632
|
|
66,632
|
|
|
|
|
|
|
|
|
Derivative
Contracts
|
30,603
|
|
8,445
|
|
20,904
|
|
8,309
|
Equity
Securities
|
46,913
|
|
34,174
|
|
29,532
|
|
19,068
|
Other
Securities
|
3,707
|
|
-
|
|
2,703
|
|
-
|
Total
|
$
467,761
|
|
$
149,729
|
|
$
485,771
|
|
$
94,009
|
Changes
in value of the Company's trading inventory may result from fluctuations in
interest rates, credit ratings of the issuer, equity prices and the correlation
among these factors. The Company manages its trading inventory by product type
and has established trading divisions that have responsibility for each product
type. The Company's primary method of controlling risk in its trading inventory
is through the establishment and monitoring of limits on the dollar amount
of
securities positions that can be entered into and other risk-based limits;
limits are established both for categories of securities (e.g., OTC equities,
corporate bonds, municipal bonds) and for individual traders. As of September
30, 2007, the absolute fixed income and equity inventory limits were
$1,955,000,000 and $83,600,000, respectively. The Company's trading activities
were well within these limits at September 30, 2007. Position limits in trading
inventory accounts are monitored on a daily basis. Consolidated position and
exposure reports are prepared and distributed to senior management. Limit
violations are carefully monitored. Management also monitors inventory levels
and trading results, as well as inventory aging, pricing, concentration and
securities ratings. For derivatives, primarily interest rate swaps, the Company
monitors exposure in its derivatives subsidiary daily based on established
limits with respect to a number of factors, including interest rate, spread,
ratio, basis, and volatility risk. These exposures are monitored both on a
total
portfolio basis and separately for selected maturity periods.
Interest
Rate Risk
The
Company is exposed to interest rate risk as a result of maintaining trading
inventories of fixed income instruments and actively manages this risk using
hedging techniques that involve swaps, futures, and U.S. Treasury obligations.
The Company monitors, on a daily basis, the Value-at-Risk (“VaR”) in its
institutional Fixed Income trading portfolios (cash instruments and interest
rate derivatives). VaR is an appropriate statistical technique for estimating
the potential loss in trading portfolios due to typical adverse market movements
over a specified time horizon with a suitable confidence level.
To
calculate VaR, the Company uses historical simulation. This approach assumes
that historical changes in market conditions are representative of future
changes. The simulation is based upon daily market data for the previous twelve
months. VaR is reported at a 99% confidence level, based on a one-day time
horizon. This means that the Company could expect to incur losses greater than
those predicted by the VaR estimates only once in every 100 trading days, or
about 2.5 times a year. During the fiscal year ended September 30, 2007, the
reported daily loss in the institutional Fixed Income trading portfolio exceeded
the predicted VaR five times, due in part, to volatile movements in bond prices
experienced during the fourth fiscal quarter.
However,
trading losses on a single day could exceed the reported VaR by significant
amounts in unusually volatile markets and might accumulate over a longer time
horizon, such as a number of consecutive trading days. Accordingly, management
employs additional interest rate risk controls including position limits, a
daily review of trading results, review of the status of aged inventory,
independent controls on pricing, monitoring of concentration risk, and review
of
issuer ratings.
The
following tables set forth the high, low, and daily average VaR for the
Company's overall institutional portfolio during the twelve months ended
September 30, 2007, with the corresponding dollar value of the Company's
portfolio:
|
Twelve
Months Ended September 30, 2007
|
|
VaR
at
|
|
|
|
|
|
|
September
30,
|
|
September
30,
|
|
High
|
Low
|
|
DailyAverage
|
|
2007
|
|
2006
|
|
($
in 000's)
|
|
|
|
|
|
|
|
|
|
Daily
VaR
|
$ 1,098
|
$ 226
|
|
$ 536
|
|
$ 232
|
|
$ 483
|
Related
Portfolio Value (Net)*
|
$
334,309
|
$
282,240
|
|
$
357,728
|
|
$
278,605
|
|
$
312,917
|
VaR
as a Percent
|
|
|
|
|
|
|
|
|
of
Portfolio Value
|
0.33%
|
0.08%
|
|
0.16%
|
|
0.08%
|
|
0.15%
|
*Portfolio
value achieved on the day of the VaR calculation.
The
modeling of the risk characteristics of trading positions involves a number
of
assumptions and approximations. While management believes that its assumptions
and approximations are reasonable, there is no uniform industry methodology
for
estimating VaR, and different assumptions or approximations could produce
materially different VaR estimates. As a result, VaR statistics are more
reliable when used as indicators of risk levels and trends within a firm than
as
a basis for inferring differences in risk-taking across firms.
Additional
information is discussed under Derivative Financial Instruments in Note 11
of
the Notes to the Consolidated Financial Statements.
RJBank
maintains an earning asset portfolio that is comprised of mortgage, corporate
and consumer loans, as well as mortgage backed securities, securities purchased
under resale agreements, and other investments. Those earning assets are funded
in part by its obligations to clients, including NOW accounts, demand deposits,
money market accounts, savings accounts, and certificates of deposit; and FHLB
advances. Based on the current earning asset portfolio of RJBank, market risk
for RJBank is limited primarily to interest rate risk. RJBank analyzes interest
rate risk based on forecasted net interest income, which is the net amount
of
interest received and interest paid, and the net portfolio valuation, both
in a
range of interest rate scenarios. The following table represents the carrying
value of RJBank's assets and liabilities that are subject to market risk. This
table does not include financial instruments with limited market risk exposure
due to offsetting asset and liability positions, short holding periods or short
periods of time until the interest rate resets.
RJBank
Financial Instruments with Market Risk (as described above):
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
|
|
|
Mortgage
Backed Securities
|
$ 382,455
|
$ 151,437
|
Loans
Receivable, Net
|
2,020,530
|
1,282,504
|
Total
Assets with Market Risk
|
$
2,402,985
|
$
1,433,941
|
|
|
|
|
|
|
Certificates
of Deposit
|
$ 185,729
|
$ 255,360
|
Federal
Home Loan Bank Advances
|
50,000
|
60,000
|
Total
Liabilities with Market Risk
|
$ 235,729
|
$ 315,360
|
The
following table shows the distribution of those RJBank loans that mature in
more
than one year between fixed and adjustable interest rate loans at September
30,
2007:
|
Interest
Rate Type
|
|
Fixed
|
Adjustable
|
Total
|
|
(in
000’s)
|
|
|
|
|
Commercial
Loans
|
$ 2,188
|
$ 340,538
|
$ 342,726
|
Real
Estate Construction Loans
|
-
|
102,037
|
102,037
|
Commercial
Real Estate Loans
|
7,141
|
2,184,092
|
2,191,233
|
Residential
Mortgage Loans
|
23,134
|
1,911,411
|
1,934,545
|
Consumer
Loans
|
-
|
3,017
|
3,017
|
|
|
|
|
Total
Loans
|
$
32,463
|
$
4,541,095
|
$
4,573,558
|
One
of
the core objectives of RJBank's Asset/Liability Management Committee is to
manage the sensitivity of net interest income to changes in market interest
rates. The Asset/Liability Management Committee uses several measures to monitor
and limit RJBank's interest rate risk including scenario analysis, interest
repricing gap analysis and limits, and net portfolio value limits. Simulation
models and estimation techniques are used to assess the sensitivity of the
net
interest income stream to movements in interest rates. Assumptions about
consumer behavior play an important role in these calculations; this is
particularly relevant for loans such as mortgages where the client has the
right, but not the obligation, to repay before the scheduled
maturity.
The
sensitivity of net interest income to interest rate conditions is estimated
for
a variety of scenarios. Assuming an immediate and lasting shift of 100 basis
points in the term structure of interest rates, RJBank's sensitivity analysis
indicates that an upward movement would decrease RJBank's net interest income
by
10.25% in the first year after the rate increase, whereas a downward shift
of
the same magnitude would increase RJBank's net interest income by 6.91%. These
sensitivity figures are based on positions as of September 30, 2007, and are
subject to certain simplifying assumptions, including that management takes
no
corrective action.
Equity
Price Risk
The
Company is exposed to equity price risk as a consequence of making markets
in
equity securities and the investment activities of RJA and RJ Ltd. The U.S.
broker-dealer activities are primarily client-driven, with the objective of
meeting clients' needs while earning a trading profit to compensate for the
risk
associated with carrying inventory. The Company attempts to reduce the risk
of
loss inherent in its inventory of equity securities by monitoring those security
positions constantly throughout each day and establishing position limits.
The
Company's Canadian broker-dealer has a proprietary trading business with 26
traders. The average aggregate inventory held for proprietary trading during
the
year ended September 30, 2007 was CDN$12,257,443. The Company's equity
securities inventories are priced on a regular basis and there are no material
unrecorded gains or losses.
Credit
Risk
The
Company is engaged in various trading and brokerage activities whose
counterparties primarily include broker-dealers, banks and other financial
institutions. The Company is exposed to risk that these counterparties may
not
fulfill their obligations. The risk of default depends on the creditworthiness
of the counterparty and/or the issuer of the instrument. The Company manages
this risk by imposing and monitoring individual and aggregate position limits
within each business segment for each counterparty, conducting regular credit
reviews of financial counterparties, reviewing security and loan concentrations,
holding and marking to market collateral on certain transactions and conducting
business through clearing organizations, which guarantee
performance.
The
Company's client activities involve the execution, settlement, and financing
of
various transactions on behalf of its clients. Client activities are
transacted on either a cash or margin basis. Credit exposure associated with
the
Company's Private Client Group results primarily from customer margin accounts,
which are monitored daily and are collateralized. When clients execute a
purchase the Company is at some risk that the client will renege on the trade.
If this occurs, the Company may have to liquidate the position at a loss.
However, most private clients have available funds in the account before the
trade is executed. The Company monitors exposure to industry sectors and
individual securities and performs analysis on a regular basis in connection
with its margin lending activities. The Company adjusts its margin requirements
if it believes its risk exposure is not appropriate based on market
conditions.
In
addition, RJBank offers a variety of loan products including residential
mortgage, commercial real estate, and consumer loans, which are collateralized,
and corporate loans for which the borrower is carefully evaluated and monitored.
RJBank's policy is to require customers to provide such collateral prior to
the
disbursement of approved loans. The amount of collateral obtained, if it is
deemed necessary by RJBank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, residential real estate, and income-producing
commercial properties. When using derivative financial instruments to hedge
exposures to changes in interest rates, RJBank exposes itself to credit risk
with those counterparties also. RJBank minimizes the credit or repayment risk
of
derivative instruments by entering into transactions only with high-quality
counterparties whose credit rating is investment grade.
The
Company is subject to concentration risk if it holds large positions, extends
large loans to, or has large commitments with a single counterparty, borrower,
or group of similar counterparties or borrowers (e.g. in the same industry).
Securities purchased under agreements to resell consist entirely of securities
issued by the U.S. government or its agencies. Receivables from and payables
to
clients and stock borrow and lending activities are conducted with a large
number of clients and counterparties and potential concentration is carefully
monitored. Inventory and investment positions taken and commitments made,
including underwritings, may involve exposure to individual issuers and
businesses. The Company seeks to limit this risk through careful review of
the
underlying business and the use of limits established by senior management,
taking into consideration factors including the financial strength of the
counterparty, the size of the position or commitment, the expected duration
of
the position or commitment and other positions or commitments
outstanding.
The
Company is the lessor in a leveraged commercial aircraft transaction with
Continental. The Company's ability to realize its expected return is dependent
upon the airline’s ability to fulfill its lease obligation. In the event that
the airline defaults on its lease commitments and the Trustee for the debt
holders is unable to re-lease or sell the plane with adequate terms, the Company
would suffer a loss of some or all of its investment. Although Continental
remains current on its lease payments to the Company, the inability of
Continental to make its lease payments, or the termination or modification
of
the lease through a bankruptcy proceeding, could result in the write-down of
the
Company's investment and the acceleration of certain income tax payments. The
Company continues to monitor this lessee for specific events or circumstances
that would increase the likelihood of a default on Continental’s obligations
under this lease.
Operational
Risk
Operational
risk generally refers to the risk of loss resulting from the Company's
operations, including, but not limited to, business disruptions, improper or
unauthorized execution and processing of transactions, deficiencies in the
Company's technology or financial operating systems and inadequacies or breaches
in the Company's control processes. The Company operates different businesses
in
diverse markets and is reliant on the ability of its employees and systems
to
process a large number of transactions. These risks are less direct than credit
and market risk, but managing them is critical, particularly in a rapidly
changing environment with increasing transaction volumes. In the event of a
breakdown or improper operation of systems or improper action by employees,
the
Company could suffer financial loss, regulatory sanctions and damage to its
reputation. In order to mitigate and control operational risk, the Company
has
developed and continues to enhance specific policies and procedures that are
designed to identify and manage operational risk at appropriate levels
throughout the organization and within such departments as Accounting,
Operations, Information Technology, Legal, Compliance and Internal Audit. These
control mechanisms attempt to ensure that operational policies and procedures
are being followed and that the Company's various businesses are operating
within established corporate policies and limits. Business continuity plans
exist for critical systems, and redundancies are built into the systems as
deemed appropriate.
A
Compliance and Standards Committee comprised of senior executives meets monthly
to consider policy issues. The Committee reviews material customer complaints
and litigation, as well as issues in operating departments, for the purpose
of
identifying issues that present risk exposure to customers or to the Company.
The Committee adopts policies to deal with these issues, which are then
disseminated throughout the Company.
The
Company has established a Quality of Markets Committee that meets regularly
to
monitor the best execution activities of the trading departments within the
Company as they relate to customer orders. This Committee is comprised of
representatives from the OTC Trading, Listed Trading, Options, Municipal
Trading, Taxable Trading, Compliance and Legal Departments and is under the
direction of a senior officer of the Company. This Committee reviews reports
from OTC Trading, Listed Trading, Options, Municipal Trading and Taxable Trading
departments and recommends action for improvement when necessary.
Regulatory
and Legal Risk
Legal
risk includes the risk of Private Client Group customer claims, the possibility
of sizable adverse legal judgments and non-compliance with applicable legal
and
regulatory requirements. The Company is generally subject to extensive
regulation in the different jurisdictions in which it conducts business.
Regulatory oversight of the securities industry has become increasingly
demanding over the past several years and the Company, as well as others in
the
industry, has been directly affected by this increased regulatory
scrutiny.
The
Company has comprehensive procedures addressing issues such as regulatory
capital requirements, sales and trading practices, use of and safekeeping of
customer funds, extension of credit, collection activities, money-laundering
and
record keeping. The Company and its subsidiaries have designated Anti-money
Laundering Compliance Officers who monitor compliance with regulations adopted
under the U.S.A. Patriot Act. The Company acts as an underwriter or selling
group member in both equity and fixed income product offerings. Particularly
when acting as lead or co-lead manager, the Company has financial and legal
exposure. To manage this exposure, a committee of senior executives review
proposed underwriting commitments to assess the quality of the offering and
the
adequacy of due diligence investigation.
The
Company's major business units have compliance departments that are responsible
for regularly reviewing and revising compliance and supervisory procedures
to
conform to changes in applicable regulations.
During
the past year, the number of claims has continued to decline to more historic
levels. While these claims may not be the result of any wrongdoing, the Company
does, at a minimum, incur costs associated with investigating and defending
against such claims. See further discussion on the Company's reserve policy
under "Critical Accounting Policies"; see also "Legal Proceedings" and
"Regulation".
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Shareholders
Raymond
James Financial, Inc.:
We
have
audited the accompanying Consolidated Statements of Financial Condition of
Raymond James Financial, Inc. and subsidiaries as of September 30, 2007 and
2006, and the related Consolidated Statements of Income and Comprehensive
Income, Changes in Shareholders’ Equity, and Cash Flows for each of the years in
the three-year period ended September 30, 2007. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Raymond James Financial,
Inc. and subsidiaries as of September 30, 2007 and 2006, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 2007, in conformity with U.S. generally accepted
accounting principles.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Raymond James Financial,
Inc.’s internal control over financial reporting as of September 30, 2007, based
on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated November 29, 2007 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial
reporting.
KPMG
LLP
Tampa,
Florida
November
29, 2007
Certified
Public Accountants
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000’s)
|
Assets:
|
|
|
Cash
and Cash Equivalents
|
$ 644,943
|
$ 392,418
|
Assets
Segregated Pursuant to Regulations and Other Segregated
Assets
|
4,127,667
|
3,366,703
|
Securities
Purchased under Agreements to Resell and Other Collateralized
Financings
|
1,295,004
|
849,333
|
Financial
Instruments:
|
|
|
Trading
Instruments, at Fair Value
|
467,761
|
485,771
|
Available
for Sale Securities, at Fair Value
|
569,952
|
280,580
|
Other
Investments, at Fair Value
|
90,637
|
66,726
|
Receivables:
|
|
|
Brokerage
Clients, Net
|
1,704,300
|
1,504,607
|
Stock
Borrowed
|
1,292,265
|
1,068,102
|
Bank
Loans, Net
|
4,664,209
|
2,262,832
|
Brokers-Dealers
and Clearing Organizations
|
228,865
|
210,443
|
Other
|
315,227
|
290,294
|
Investments
in Real Estate Partnerships - Held by Variable Interest
Entities
|
221,147
|
227,963
|
Property
and Equipment, Net
|
166,963
|
142,780
|
Deferred
Income Taxes, Net
|
107,922
|
94,957
|
Deposits
With Clearing Organizations
|
36,416
|
30,780
|
Goodwill
|
62,575
|
62,575
|
Prepaid
Expenses and Other Assets
|
258,315
|
179,786
|
|
|
|
|
$
16,254,168
|
$
11,516,650
|
|
|
|
Liabilities
And Shareholders' Equity:
|
|
|
Loans
Payable
|
$ 122,640
|
$ 141,638
|
Loans
Payable Related to Investments by Variable Interest Entities in Real
Estate Partnerships
|
116,479
|
193,647
|
Payables:
|
|
|
Brokerage
Clients
|
5,675,860
|
4,552,227
|
Stock
Loaned
|
1,280,747
|
1,235,104
|
Bank
Deposits
|
5,585,259
|
2,806,880
|
Brokers-Dealers
and Clearing Organizations
|
128,298
|
79,646
|
Trade
and Other
|
450,008
|
138,091
|
Trading
Instruments Sold but Not Yet Purchased, at Fair Value
|
149,729
|
94,009
|
Securities
Sold Under Agreements to Repurchase
|
393,282
|
301,110
|
Accrued
Compensation, Commissions and Benefits
|
356,627
|
321,224
|
Income
Taxes Payable
|
7,755
|
34,294
|
|
|
|
|
14,266,684
|
9,897,870
|
|
|
|
Minority
Interests
|
229,670
|
154,911
|
|
|
|
Shareholders'
Equity
|
|
|
Preferred
Stock; $.10 Par Value; Authorized
|
|
|
10,000,000
Shares; Issued and Outstanding -0- Shares
|
-
|
-
|
Common
Stock; $.01 Par Value; Authorized
|
|
|
180,000,000
Shares; Issued 120,903,331 at
|
|
|
September
30, 2007 and 117,655,883 at September 30, 2006
|
1,176
|
1,150
|
Shares
Exchangeable into Common Stock; 273,042
|
|
|
at
September 30, 2007 and 362,197 at September 30, 2006
|
3,504
|
4,649
|
Additional
Paid-In Capital
|
277,095
|
205,198
|
Retained
Earnings
|
1,461,898
|
1,258,446
|
Accumulated
Other Comprehensive Income
|
30,191
|
12,095
|
|
1,773,864
|
1,481,538
|
Less:
1,005,668 and
1,270,015 Common Shares in Treasury, at Cost
|
(16,050)
|
(17,669)
|
|
1,757,814
|
1,463,869
|
|
|
|
|
$
16,254,168
|
$
11,516,650
|
|
|
|
See
accompanying Notes to Consolidated Financial
Statements.
|
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
(in
000’s, except per share amounts)
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
Revenues:
|
|
|
|
Securities
Commissions and Fees
|
$
1,740,717
|
$
1,561,504
|
$
1,421,908
|
Investment
Banking
|
192,114
|
158,598
|
150,166
|
Investment
Advisory Fees
|
206,076
|
179,366
|
157,428
|
Interest
|
726,992
|
469,981
|
245,562
|
Net
Trading Profits
|
16,476
|
27,156
|
24,612
|
Financial
Service Fees
|
125,214
|
128,811
|
97,213
|
Other
|
101,990
|
120,162
|
71,307
|
|
|
|
|
Total
Revenues
|
3,109,579
|
2,645,578
|
2,168,196
|
|
|
|
|
Interest
Expense
|
499,664
|
296,670
|
117,789
|
Net
Revenues
|
2,609,915
|
2,348,908
|
2,050,407
|
|
|
|
|
Non-Interest
Expenses:
|
|
|
|
Compensation,
Commissions and Benefits
|
1,766,690
|
1,601,037
|
1,429,104
|
Communications
and Information Processing
|
114,161
|
103,576
|
91,881
|
Occupancy
and Equipment Costs
|
79,881
|
72,593
|
66,948
|
Clearance
and Floor Brokerage
|
30,746
|
28,329
|
24,063
|
Business
Development
|
88,067
|
78,579
|
67,802
|
Investment
Advisory Fees
|
47,452
|
40,524
|
34,191
|
Other
|
100,421
|
90,363
|
90,965
|
Total
Non-Interest Expenses
|
2,227,418
|
2,015,001
|
1,804,954
|
|
|
|
|
Minority
Interest in Subsidiaries
|
(9,727)
|
(8,159)
|
(2,518)
|
|
|
|
|
Income
Before Provision for Income Taxes
|
392,224
|
342,066
|
247,971
|
|
|
|
|
Provision
for Income Taxes
|
141,794
|
127,724
|
96,925
|
|
|
|
|
Net
Income
|
$ 250,430
|
$ 214,342
|
$ 151,046
|
|
|
|
|
Net
Income per Share-Basic
|
$ 2.17
|
$ 1.90
|
$ 1.37
|
Net
Income per Share-Diluted
|
$ 2.11
|
$ 1.85
|
$ 1.33
|
Weighted
Average Common Shares
|
|
|
|
Outstanding-Basic*
|
115,608
|
112,614
|
110,217
|
Weighted
Average Common and Common
|
|
|
|
Equivalent
Shares Outstanding-Diluted*
|
118,693
|
115,738
|
113,048
|
|
|
|
|
Cash
Dividend per Common Share*
|
$ 0.40
|
$ 0.32
|
$ 0.21
|
|
|
|
|
Net
Income
|
$ 250,430
|
$ 214,342
|
$ 151,046
|
Other
Comprehensive Income:
|
|
|
|
Net
Unrealized (Loss) Gain on Available
|
|
|
|
for Sale Securities, Net of Tax
|
(2,150)
|
217
|
79
|
Net
Unrealized Gain on Interest
|
|
|
|
Rate Swaps Accounted for as Cash Flow
|
|
|
|
Hedges, Net of Tax
|
-
|
44
|
882
|
Net
Change in Currency Translations, Net of Tax
|
20,246
|
2,202
|
4,796
|
Total
Comprehensive Income
|
$ 268,526
|
$ 216,805
|
$ 156,803
|
*
2005
amounts have been adjusted for the March 22, 2006 3-for-2 stock
split.
See
accompanying Notes to Consolidated Financial Statements.
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in
000’s, except per share amounts)
|
|
Shares
|
|
|
Accumu-
|
|
|
|
|
Exchangeable
|
Addi-
|
|
lated
Other
|
|
|
|
|
into
|
tional
|
|
Compre-
|
Treasury
Stock
|
Total
|
|
Common
Stock
|
Common
Stock
|
Paid-in
|
Retained
|
hensive
|
Common
|
|
Shareholders'
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Shares
|
Amount
|
Equity
|
Balances
at September 24, 2004
|
75,322
|
$ 753
|
285
|
$5,493
|
$127,405
|
$957,317
|
$
3,875
|
(1,761)
|
$(29,630)
|
$1,065,213
|
Net
Income Fiscal 2005
|
|
|
|
|
|
151,046
|
|
|
|
151,046
|
Cash
Dividends - Common Stock
|
|
|
|
|
|
|
|
|
|
|
($.21
per Share)*
|
|
|
|
|
|
(26,300)
|
|
|
|
(26,300)
|
Purchase
of Treasury Shares
|
|
|
|
|
62
|
|
|
(6)
|
(177)
|
(115)
|
Employee
Stock Purchases
|
329
|
3
|
|
|
9,622
|
|
|
|
|
9,625
|
Exercise
of Stock Options
|
916
|
9
|
|
|
13,961
|
|
|
54
|
913
|
14,883
|
Grant
of Restricted Shares
|
|
|
|
|
5,678
|
|
|
457
|
7,690
|
13,368
|
Stock
Option Expense
|
|
|
|
|
8,346
|
|
|
|
|
8,346
|
Net
Unrealized Gain on Available for Sale
|
|
|
|
|
|
|
|
|
|
|
Securities
**
|
|
|
|
|
|
|
79
|
|
|
79
|
Net
Unrealized Gain on Interest
|
|
|
|
|
|
|
|
|
|
|
Rate
Swaps Accounted for
|
|
|
|
|
|
|
|
|
|
|
as
Cash Flow Hedges **
|
|
|
|
|
|
|
882
|
|
|
882
|
Net
Change In Currency Translations **
|
|
|
|
|
|
|
4,796
|
|
|
4,796
|
Balances
at September 30, 2005
|
76,567
|
$ 765
|
285
|
$5,493
|
$165,074
|
$1,082,063
|
$ 9,632
|
(1,256)
|
$(21,204)
|
$1,241,823
|
Net
Income Fiscal 2006
|
|
|
|
|
|
214,342
|
|
|
|
214,342
|
Cash
Dividends - Common Stock
|
|
|
|
|
|
|
|
|
|
|
($.32
per Share)
|
|
|
|
|
|
(37,570)
|
|
|
|
(37,570)
|
Purchase
of Treasury Shares
|
|
|
|
|
|
|
|
(126)
|
(5,580)
|
(5,580)
|
3-For2
Stock Split
|
38,945
|
389
|
129
|
|
|
(389)
|
|
(426)
|
|
|
Employee
Stock Purchases
|
321
|
3
|
|
|
10,710
|
|
|
|
|
10,713
|
Exchangeable
Shares
|
52
|
|
(52)
|
(844)
|
844
|
|
|
|
|
|
Exercise
of Stock Options
|
987
|
10
|
|
|
19,721
|
|
|
290
|
4,761
|
24,492
|
Grant
of Restricted Shares
|
784
|
8
|
|
|
|
|
|
248
|
4,354
|
4,362
|
Restricted
Stock Expense
|
|
|
|
|
11,308
|
|
|
|
|
11,308
|
Stock
Option Expense
|
|
|
|
|
13,773
|
|
|
|
|
13,773
|
Restricted
Stock Units
|
|
|
|
|
1,584
|
|
|
|
|
1,584
|
APIC
Reclass Related to Unvested
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Grants
|
|
(25)
|
|
|
(17,816)
|
|
|
|
|
(17,841)
|
Net
Unrealized Gain on Available for Sale
|
|
|
|
|
|
|
|
|
|
|
Securities
**
|
|
|
|
|
|
|
217
|
|
|
217
|
Net
Unrealized Gain on Interest Rate
|
|
|
|
|
|
|
|
|
|
|
Swaps
Accounted for as
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Hedges **
|
|
|
|
|
|
|
44
|
|
|
44
|
Net
Change in Currency Translations **
|
|
|
|
|
|
|
2,202
|
|
|
2,202
|
Balances
at September 30, 2006
|
117,656
|
$1,150
|
362
|
$4,649
|
$205,198
|
$1,258,446
|
$12,095
|
(1,270)
|
$(17,669)
|
$1,463,869
|
Net
Income Fiscal 2007
|
|
|
|
|
|
250,430
|
|
|
|
250,430
|
Cash
Dividends - Common Stock
|
|
|
|
|
|
|
|
|
|
|
($.40 per
Share)
|
|
|
|
|
|
(48,488)
|
|
|
|
(48,488)
|
Purchase
of Treasury Shares
|
|
|
|
|
|
|
|
(70)
|
(2,208)
|
(2,208)
|
Employee
Stock Purchases
|
445
|
4
|
|
|
14,096
|
|
|
|
(7)
|
14,093
|
Exchangeable
Shares
|
89
|
|
(89)
|
(1,145)
|
1,145
|
|
|
|
|
|
Exercise
of Stock Options
|
1,734
|
17
|
|
|
25,098
|
|
|
125
|
1,839
|
26,954
|
Grant
of Restricted Shares
|
979
|
5
|
|
|
(2,000)
|
|
|
209
|
1,995
|
|
Restricted
Stock Expense
|
|
|
|
|
19,321
|
|
|
|
|
19,321
|
Stock
Option Expense
|
|
|
|
|
12,361
|
|
|
|
|
12,361
|
Restricted
Stock Unit Expense
|
|
|
|
|
1,828
|
|
|
|
|
1,828
|
APIC
Reclass Related to Unvested
|
|
|
|
|
|
|
|
|
|
|
Independent
Contractor Stock Options
|
|
|
|
|
48
|
|
|
|
|
48
|
Net
Unrealized Loss on Available for Sale
|
|
|
|
|
|
|
|
|
|
|
Securities
**
|
|
|
|
|
|
|
(2,150)
|
|
|
(2,150)
|
Net
Change in Currency Translations **
|
|
|
|
|
|
|
20,246
|
|
|
20,246
|
Other **
|
|
|
|
|
|
1,510
|
|
|
|
1,510
|
Balances
at September 30, 2007
|
120,903
|
$1,176
|
273
|
$3,504
|
$277,095
|
$1,461,898
|
$30,191
|
(1,006)
|
$(16,050)
|
$1,757,814
|
*
Adjusted to reflect 3-for-2 stock split paid on March 22, 2006.
**
Net of Tax
See
accompanying Notes to Consolidated Financial Statements.
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
000’s)
(continued
on next page)
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
Cash
Flows From Operating Activities:
|
|
|
|
Net
Income
|
$
250,430
|
$
214,342
|
$
151,046
|
Adjustments
to Reconcile Net Income to Net
|
|
|
|
Cash
Provided by (Used in) Operating Activities:
|
|
|
|
Depreciation
and Amortization
|
22,631
|
19,173
|
17,781
|
Excess Tax Benefits from Stock-Based Payment Arrangements
|
(612)
|
(1,646)
|
-
|
Deferred
Income Taxes
|
(11,515)
|
(6,097)
|
(15,301)
|
Unrealized
Gains, Premium and Discount Amortization
|
|
|
|
on
Available for Sale Securities and Other Securities
|
790
|
196
|
(794)
|
Ineffectiveness
of Interest Rate Swaps Accounted for as
|
|
|
|
Cash
Flow Hedges
|
-
|
-
|
208
|
Impairment
on Leveraged Lease Investments
|
-
|
-
|
6,534
|
Loss
(Gain) on Sale of Property and Equipment
|
20
|
143
|
(106)
|
Gain
on Sale of Loans Available for Sale
|
(518)
|
(413)
|
(421)
|
Gain
on Sale of Joint Venture Interest
|
(2,559)
|
-
|
-
|
Provision
for Loan Loss, Legal Proceedings, Bad Debts and Other
Accruals
|
37,138
|
31,011
|
39,854
|
Stock-Based
Compensation Expense
|
36,563
|
29,820
|
17,031
|
|
|
|
|
(Increase)
Decrease in Operating Assets:
|
|
|
|
Assets
Segregated Pursuant to Regulations and Other Segregated
Assets
|
(739,025)
|
(868,505)
|
(74,595)
|
Receivables:
|
|
|
|
Brokerage
Clients, Net
|
(179,030)
|
(78,980)
|
(151,938)
|
Stock
Borrowed
|
(224,163)
|
11,747
|
457,030
|
Brokers-Dealers
and Clearing Organizations
|
(9,301)
|
(99,683)
|
14,784
|
Other
|
(122,198)
|
(39,084)
|
(47,526)
|
Securities
Purchased Under Agreements to Resell and Other
Collateralized
|
|
|
|
Financings,
Net of Securities Sold Under Agreements to Repurchase
|
100,708
|
132,979
|
(91,925)
|
Trading
Instruments, Net
|
74,770
|
(166,678)
|
(6,694)
|
Proceeds
from Sale of Loans Available for Sale
|
39,778
|
15,875
|
34,902
|
Origination
of Loans Available for Sale
|
(39,695)
|
(14,349)
|
(36,036)
|
Prepaid
Expenses and Other Assets
|
(2,451)
|
(32,171)
|
(31,864)
|
Minority
Interest
|
(9,727)
|
(8,159)
|
(2,518)
|
|
|
|
|
Increase
(Decrease) in Operating Liabilities:
|
|
|
|
Payables:
|
|
|
|
Brokerage
Clients
|
1,062,194
|
784,692
|
418,858
|
Stock
Loaned
|
45,643
|
119,509
|
(481,522)
|
Brokers-Dealers
and Clearing Organizations
|
46,751
|
(66,623)
|
72,011
|
Trade
and Other
|
54,379
|
(3,179)
|
(12,181)
|
Accrued
Compensation, Commissions and Benefits
|
33,086
|
20,016
|
43,595
|
Income
Taxes Payable
|
(27,516)
|
2,681
|
(697)
|
|
|
|
|
Net
Cash Provided by (Used in) Operating Activities
|
436,571
|
(3,383)
|
319,516
|
See
accompanying Notes to Consolidated Financial Statements.
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
000’s)
(continued)
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
Additions
to Property and Equipment, Net
|
(46,081)
|
(27,280)
|
(30,154)
|
Proceeds
from Sale of Joint Venture Interest, Net of Cash
Disposed
|
3,514
|
-
|
-
|
Loan
Originations and Purchases
|
(4,133,345)
|
(2,318,831)
|
(691,302)
|
Loan
Repayments
|
1,997,824
|
1,044,015
|
379,298
|
Purchases
of Other Investments
|
(15,639)
|
(66,726)
|
-
|
Investments
in Real Estate Partnerships-Held by Variable
|
|
|
|
Interest
Entities
|
(18,078)
|
(89,735)
|
(75,967)
|
Loans
to Investor Members of Variable Interest Entities Related to
Investments
|
|
|
|
in
Real Estate Partnerships
|
-
|
(42,715)
|
(46,286)
|
Repayments
of Loans by Investor Members of Variable Interest Entities
Related
|
|
|
|
to
Investments in Real Estate Partnerships
|
16,619
|
10,898
|
-
|
Securities
Purchased Under Agreements to Resell, Net
|
(445,000)
|
(460,000)
|
-
|
Sale of
Available for Sale Securities
|
81
|
252
|
9,250
|
Purchases
of Available for Sale Securities
|
(396,450)
|
(1,180,414)
|
(60,536)
|
Available
for Sale Securities Maturations and Repayments
|
102,700
|
1,087,624
|
71,671
|
|
|
|
|
Net
Cash Used in Investing Activities
|
(2,933,855)
|
(2,042,912)
|
(444,026)
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
Proceeds
from Borrowed Funds, Net
|
-
|
8,464
|
16,542
|
Repayments
of Mortgage and Borrowings, Net
|
(18,872)
|
(13,288)
|
(6,473)
|
Proceeds
from Borrowed Funds Related to Investments by Variable
Interest
|
|
|
|
Entities
in Real Estate Partnerships
|
6,744
|
54,249
|
74,921
|
Repayments
of Borrowed Funds Related to Investments by Variable
Interest
|
|
|
|
Entities
in Real Estate Partnerships
|
(36,339)
|
(5,382)
|
(3,665)
|
Proceeds
from Capital Contributed to Variable Interest Entities Related
to
|
|
|
|
Investments
in Real Estate Partnerships
|
66,201
|
83,215
|
32,051
|
Minority
Interest
|
(42,659)
|
(11,176)
|
(4,210)
|
Exercise
of Stock Options and Employee Stock Purchases
|
38,076
|
33,120
|
23,066
|
Increase
in Bank Deposits
|
2,778,379
|
1,730,860
|
302,984
|
Purchase
of Treasury Stock
|
(578)
|
(5,100)
|
(115)
|
Cash
Dividends on Common Stock
|
(48,488)
|
(37,570)
|
(26,300)
|
Excess
Tax Benefits from Stock-Based Payment Arrangements
|
612
|
1,646
|
-
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
2,743,076
|
1,839,038
|
408,801
|
|
|
|
|
Currency
Adjustment:
|
|
|
|
Effect
of Exchange Rate Changes on Cash
|
3,079
|
2,202
|
4,796
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
248,871
|
(205,055)
|
289,087
|
Cash
Resulting from Consolidation of Variable Interest Entities Related
to
|
|
|
|
Investments
in Real Estate Partnerships
|
(291)
|
-
|
20,851
|
Cash
Resulting from Consolidation of Limited Partnerships
|
3,945
|
-
|
-
|
Cash
and Cash Equivalents at Beginning of Year
|
392,418
|
597,473
|
287,535
|
|
|
|
|
Cash
and Cash Equivalents at End of Year
|
$
644,943
|
$
392,418
|
$
597,473
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
Cash
Paid for Interest
|
$
498,175
|
$
294,215
|
$
116,553
|
Cash
Paid for Income Taxes
|
$
177,087
|
$
129,480
|
$
113,476
|
See
accompanying Notes to Consolidated Financial Statements.
RAYMOND
JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description
of Business
Raymond
James Financial, Inc. (“RJF”) is a holding company headquartered in Florida
whose subsidiaries are engaged in various financial services businesses,
including the underwriting, distribution, trading and brokerage of equity and
debt securities and the sale of mutual funds and other investment products.
In
addition, some of these subsidiaries provide investment management services
for
retail and institutional clients and banking and trust services. The accounting
and reporting policies of Raymond James Financial, Inc. and its subsidiaries
(the “Company”) conform to accounting principles generally accepted in the
United States of America (“U.S.”), the more significant of which are summarized
below:
Basis
of Presentation
The
consolidated financial statements include the accounts of RJF and its
consolidated subsidiaries that are generally controlled through a majority
voting interest. All material consolidated subsidiaries are 100% owned by the
Company. In accordance with Financial Accounting Standards Board (“FASB”)
Interpretation (“FIN”) No. 46R, “Consolidation of Variable Interest Entities”
(“FIN 46R”), the Company also consolidates any variable interest entities
(“VIEs”) of which it is the primary beneficiary, as defined. Additional
information is provided in Note 6 below. When the Company does not have a
controlling interest in an entity, but exerts significant influence over the
entity, the Company applies the equity method of accounting. All material
intercompany balances and transactions have been eliminated in
consolidation.
Effective
October 1, 2006, the Company adopted Emerging Issues Task Force (“EITF”) Issue
04-5, “Determining Whether a General Partner, or the General Partners as a
Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights,” for partnerships created before and not
subsequently modified after June 29, 2005. As a result, the Company consolidated
three partnerships beginning in the three months ended December 31, 2006. As
of
September 30, 2007, these partnerships had assets of approximately $77.1
million.
Management
Estimates and Assumptions
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
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 and
could
have a material impact on the consolidated financial statements.
Reporting
Period
The
Company’s quarters end on the last day of each calendar quarter.
Recognition
of Revenues
Securities
transactions and related commission revenues and expenses are recorded on a
trade date basis.
Investment
banking revenues are recorded at the time a transaction is completed and the
related income is reasonably determinable. Investment banking revenues include
management fees and underwriting fees, net of reimbursable expenses, earned
in
connection with the distribution of the underwritten securities, merger and
acquisition fees, private placement fees and limited partnership
distributions.
The
Company earns investment advisory fees based on the value of clients'
portfolios. These fees are recorded ratably over the period earned.
Financial
service fees include per account fees such as IRA fees, transaction fees on
fee
based accounts, service fees and distribution fees received from mutual
funds.
Under
clearing agreements, the Company clears trades for unaffiliated correspondent
brokers and retains a portion of commissions as a fee for its services.
Correspondent clearing revenues are recorded net of commissions remitted and
included in other revenue. Total commissions generated by correspondents were
$39,634,000, $29,985,000, and $28,957,000 and commissions remitted totaled
$34,004,000, $25,049,000, and $24,435,000 for the years ended September 30,
2007, September 30, 2006, and September 30, 2005, respectively.
Cash
and Cash Equivalents
Cash
equivalents are highly liquid investments with original maturities of 90 days
or
less, other than those used for trading purposes.
Assets
Segregated Pursuant to Regulations and Other Segregated
Assets
In
accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Raymond
James & Associates (“RJA”), as a broker-dealer carrying client accounts, is
subject to requirements related to maintaining cash or qualified securities
in a
segregated reserve account for the exclusive benefit of its clients. In
addition, Raymond James Limited (“RJ Ltd.”) is required to hold client
Registered Retirement Savings Plan funds in trust. Segregated assets at
September 30, 2007 and September 30, 2006 consist of cash and cash
equivalents.
Repurchase
Agreements and Other Collateralized Financings
The
Company purchases short-term securities under agreements to resell (“reverse
repurchase agreements”). Additionally, the Company sells securities under
agreements to repurchase (“repurchase agreements”). Both reverse repurchase and
repurchase agreements are accounted for as collateralized financings and are
carried at contractual amounts plus accrued interest. Other than Raymond James
Bank’s (“RJBank”) policy described below, it is the Company's policy to obtain
possession of collateral with a market value equal to or in excess of the
principal amount loaned under the reverse repurchase agreements. To ensure
that
the market value of the underlying collateral remains sufficient, the collateral
is valued daily, and the Company may require counterparties to deposit
additional collateral (or may return collateral to counterparties) when
appropriate. Other collateralized financings include secured call loans
receivable held by RJ Ltd. These financings represent loans of excess cash
to
financial institutions which are fully collateralized by treasury bills and
bear
interest at call loan rates.
RJBank’s
reverse repurchase agreements are accounted for as collateralized investing
transactions and are recorded at the amounts at which the securities were
acquired plus accrued interest. Securities obtained under the resale agreements
have a market value equal to or exceeding the principal amount of the resale
agreements. The securities are held by third party custodians and are segregated
under written agreements that recognize RJBank’s interest in the securities. The
securities purchased are primarily mortgage backed securities or collateralized
mortgage obligations (“CMOs”) issued by U.S. agencies. The market value of
securities purchased is monitored and collateral is obtained from or returned
to
the counterparty when appropriate. These reverse repurchase agreements generally
mature on the next business day. RJBank has the right to sell, transfer or
pledge the securities purchased under agreements to resell.
Financial
Instruments
Trading
instruments are comprised primarily of the financial instruments held by the
Company's broker-dealer subsidiaries. These instruments are recorded at fair
value with unrealized gains and losses reflected in current period earnings.
Fair values are generally based on prices from independent sources, such as
listed market prices or broker or dealer price quotations. For investments
in
illiquid and privately held securities that do not have readily determinable
fair values through quoted market prices, the determination of fair value is
based upon consideration of available information, including types of
securities, current financial information, restrictions on dispositions, market
values of underlying securities and quotations for similar
instruments.
Available
for sale securities are comprised primarily of CMOs and mortgage related debt.
Debt and equity securities classified as available for sale are reported at
fair
value with unrealized gains or losses, net of deferred taxes, reported in
shareholders' equity as a component of accumulated other comprehensive income.
Fair values of the debt securities are estimated based on bid quotations
received from securities dealers or, if quoted market prices are not available,
then the fair value is estimated using quoted market prices for similar
securities, pricing models, or discounted cash flow analyses, using observable
market data where available. All realized gains and losses are determined on
a
specific identification basis and are included in current period earnings.
Additionally, any unrealized losses deemed to be other than temporary are
included in current period earnings and a new cost basis for the security is
established. Many factors are considered to determine whether an impairment
is
other-than-temporary, including whether the Company has the ability and intent
to hold the investment until a market price recovery and whether evidence
indicating the cost of the investment is recoverable outweighs evidence to
the
contrary. Evidence considered in this assessment includes the reasons for the
impairment, the severity and duration of the impairment, changes in value
subsequent to year-end, and forecasted performance of the security.
Brokerage
Client Receivables and Allowance for Doubtful Accounts
Brokerage
client receivables include receivables of the Company's asset management and
broker-dealer subsidiaries. The receivables from asset management clients are
primarily for accrued asset management service fees, while the receivables
from
broker-dealer clients are principally for amounts due on cash and margin
transactions and are generally collateralized by securities owned by the
clients. Both the receivables from the asset management and broker-dealer
clients are reported at their outstanding principal balance, adjusted for any
allowance for doubtful accounts. When a broker-dealer receivable is considered
to be impaired, the amount of the impairment is generally measured based on
the
fair value of the securities acting as collateral, which is measured based
on
current prices from independent sources such as listed market prices or
broker-dealer price quotations. Securities owned by customers, including those
that collateralize margin or other similar transactions, are not reflected
in
the Consolidated Statements of Financial Condition.
The
Company also makes loans or pays advances to Financial Advisors, primarily
for
recruiting and retention purposes. The Company provides for an allowance for
doubtful accounts based on an evaluation of the Company’s ability to collect
such receivables. The Company’s ongoing evaluation includes the review of
specific accounts of Financial Advisors no longer associated with the Company
and the Company’s historical collection experience. When the review of these
accounts indicates that further collection activity is highly unlikely, the
loans are written off and the corresponding allowance for doubtful accounts
is
reversed.
Securities
Borrowed and Securities Loaned
Securities
borrowed and securities loaned transactions are reported as collateralized
financings and recorded at the amount of collateral advanced or received.
Securities borrowed transactions generally require the Company to deposit cash
with the lender. With respect to securities loaned, the Company generally
receives collateral in the form of cash in an amount in excess of the market
value of securities loaned. The Company monitors the market value of securities
borrowed and loaned on a daily basis, with additional collateral obtained or
refunded as necessary.
Bank
Client Loans and Allowances for Losses
Bank
loans are primarily comprised of loans originated or purchased by RJBank and
include commercial and residential mortgage loans, as well as non-real estate
commercial and consumer loans. The Company records these loans at amortized
cost, adjusted for an allowance for loan loss. Included in amortized cost are
any deferred fees or loan origination costs plus the unamortized premiums or
discounts on purchased loans. Syndicated loans purchased are reported as of
the
earlier of the settlement date or the delayed settlement compensation
commencement date.
Loan
origination fees, net of related costs, are capitalized and recognized in
interest income using the interest or straight-line method, or proportionate
to
the amount of principal payments, over the contractual life of the
loans.
Residential
mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the
aggregate. Gains and losses on sales of these assets are included as
a component of other income, while interest collected on these assets is
included in interest income. Net unrealized losses are recognized
through a valuation allowance by charges to income.
Client
loans at RJBank are generally collateralized by real estate or other property.
RJBank provides for both an allowance for losses in accordance with Statement
of
Financial Accounting Standard ("SFAS") No. 5, "Accounting for Contingencies"
(“SFAS 5”), and a reserve for individually impaired loans in accordance with
SFAS No. 114, “Accounting by a Creditor for Impairment of a Loan”. The
calculation of the SFAS 5 allowance is subjective as management segregates
the
loan portfolio into different homogeneous classes and assigns each class an
allowance percentage based on the perceived risk associated with that class
of
loans. The factors taken into consideration when assigning the reserve
percentage to each reserve category include estimates of borrower default
probabilities and collateral values; trends in delinquencies; volume and terms;
changes in geographic distribution, lending policies, local, regional, and
national economic conditions; concentrations of credit risk and past loss
history. In addition, the Company provides for potential losses inherent in
RJBank’s unfunded lending commitments using the criteria above, further adjusted
for an estimated probability of funding. For individual loans identified as
impaired, RJBank measures impairment based on the present value of expected
future cash flows discounted at the loan's effective interest rate, the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. At September 30, 2007, the amortized cost of all RJBank
loans was $4.7 billion and an allowance for loan losses of $47 million was
recorded against that balance. RJBank also has $6.8 million in reserves for
off-balance sheet exposures maintained in Trade and Other Payables. The total
allowance for losses and reserves for unfunded commitments is equal to 1.15%
of
the amortized cost of the loan portfolio.
Once
RJBank has identified a loan as impaired, the accrual of interest on the loan
is
discontinued when either principal or interest becomes 90 days past due or
when
the full timely collection of interest or principal becomes uncertain. When
a
loan is placed on nonaccrual status, the accrued and unpaid interest receivable
is written off and accretion of the net deferred loan origination fees ceases.
The loan is accounted for on the cash or cost recovery method thereafter until
qualifying for return to accrual status. When the uncollectibility of a loan
balance is believed to be confirmed, loan losses are charged against the
allowance and subsequent recoveries, if any, are credited to the
allowance.
Real
estate acquired in the settlement of loans, including through, or in lieu of,
loan foreclosure, is initially recorded at the lower of cost or estimated fair
value less estimated selling costs, establishing a new cost basis. Subsequent
to
foreclosure, valuations are periodically performed by management and the assets
are carried at the lower of the carrying amount or fair value, as determined
by
a current appraisal, less estimated costs to sell. Costs relating to development
and improvement of the property are capitalized, whereas those relating to
holding the property are charged to operations.
Investments
in Real Estate Partnerships- Held by Variable Interest
Entities
A
wholly
owned subsidiary of the Company is the managing member or general partner in
several separate tax credit housing funds. Additional information is presented
in Note 6 below. These funds invest in limited partnerships which purchase
and
develop affordable housing properties qualifying for federal and state tax
credits. As of September 30, 2007 and September 30, 2006, the investments
related to these limited partnerships totaled approximately $221.1 million
and
$228.0 million, respectively, on the Company’s Consolidated Statements of
Financial Condition.
Property
and Equipment
Property,
equipment and leasehold improvements are stated at cost less accumulated
depreciation and amortization. Depreciation of assets is primarily provided
for
using the straight-line method over the estimated useful lives of the assets,
which range from two to seven years for software, two to five for furniture
and
equipment and 10 to 31 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.
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 property and equipment are reflected in income in
the
period realized.
Goodwill
Goodwill
is related to the acquisitions of Roney & Co. (now part of RJA) and Goepel
McDermid, Inc. (now called Raymond James Ltd.). This goodwill, totaling $63
million, was allocated to the reporting units within the Private Client Group
and Capital Markets segments pursuant to SFAS No. 142, “Goodwill and Other
Intangible Assets”. Goodwill represents the excess cost of a business
acquisition over the fair value of the net assets acquired. In accordance with
this pronouncement, indefinite-life intangible assets and goodwill are not
amortized. Rather, they are subject to impairment testing on an annual basis,
or
more often if events or circumstances indicate there may be impairment. This
test involves assigning tangible assets and liabilities, identified intangible
assets and goodwill to reporting units and comparing the fair value of each
reporting unit to its carrying amount. If the fair value is less than the
carrying amount, a further test is required to measure the amount of the
impairment.
When
available, the Company uses recent, comparable transactions to estimate the
fair
value of the respective reporting units. The Company calculates an estimated
fair value based on multiples of revenues, earnings, and book value of
comparable transactions. However, when such comparable transactions are not
available or have become outdated, the Company uses discounted cash flow
scenarios to estimate the fair value of the reporting units. As of September
30,
2007, goodwill had been allocated to the Private Client Group of RJA, and both
the Private Client Group and Capital Markets segments of RJ Ltd. As of the
most
recent impairment test, the Company determined that the carrying value of the
goodwill for each reporting unit had not been impaired. However, changes in
current circumstances or business conditions could result in an impairment
of
goodwill. As required, the Company will continue to perform impairment testing
on an annual basis or when an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its
carrying amount.
Legal
Reserves
The
Company recognizes liabilities for contingencies when there is an exposure
that,
when fully analyzed, indicates it is both probable that a liability has been
incurred and the amount of loss can be reasonably estimated. When a range of
probable loss can be estimated, the Company accrues the most likely amount;
if
not determinable, the Company accrues at least the minimum of the range of
probable loss.
The
Company records reserves related to legal proceedings in Trade and
Other Payables. Such reserves are established and maintained in accordance
with SFAS 5 and FIN No. 14, “Reasonable Estimation of the Amount of a Loss”. The
determination of these reserve amounts requires significant judgment on the
part
of management. Management considers many factors including, but not limited
to:
the amount of the claim; the amount of the loss in the client's account; the
basis and validity of the claim; the possibility of wrongdoing on the part
of an
employee of the Company; previous results in similar cases; and legal precedents
and case law. Each legal proceeding is reviewed with counsel in each accounting
period and the reserve is adjusted as deemed appropriate by management. Lastly,
each case is reviewed to determine if it is probable that insurance coverage
will apply, in which case the reserve is reduced accordingly. Any change in
the
reserve amount is recorded in the consolidated financial statements and is
recognized as a charge/credit to earnings in that period.
Stock
Compensation
Effective
October 1, 2005, the Company adopted SFAS No. 123R, “Share-Based Payment”, which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors based on estimated
fair values. Given that the Company had adopted the fair value recognition
provisions as of September 28, 2002, using the modified prospective method
of
adoption within the provisions of SFAS No. 148 “Accounting for Stock-Based
Compensation – Transition and Disclosure”, the adoption of SFAS No. 123R did not
have a material impact on the Company’s accounting for employee stock-based
compensation. At
September 30, 2007, the Company had multiple stock-based employee compensation
plans, which are described more fully in Note 17 below. In addition, the Company
has two stock option plans for its independent contractor Financial Advisors,
which are described more fully in Note 18 below. The Company accounts for
share-based awards to its independent contractor Financial Advisors in
accordance with EITF No. 96-18, “Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services” and EITF 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. As a
result, these awards are revalued at each reporting date for purposes of
measuring compensation expense associated with these awards. Compensation
expense is recognized for all stock-based compensation with future service
requirements over the relevant vesting periods using the straight-line
method.
Derivative
Financial Instruments
The
Company accounts for derivative financial instruments and hedging activities
in
accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as subsequently amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statements No. 133", SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", and SFAS No. 149, "Amendments
of
Statement 133 on Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivatives and hedging
activities. These statements establish standards for designating a derivative
as
a hedge. Derivatives in a broker-dealer or those that do not meet the criteria
for designation as a hedge are accounted for as trading account assets and
liabilities, and recorded at fair value in the statement of financial condition
with the realized and unrealized gains or losses recorded in the consolidated
statement of income for that period.
Under
FIN
39, “Offsetting of Amounts Related to Certain Contracts”, the Company elects to
net-by-counterparty the fair value of interest rate swap contracts entered
into
by the Fixed Income Trading group. Certain contracts contain a legally
enforceable master netting arrangement and therefore, the fair value of those
swap contracts are netted by counterparty in the Consolidated Statements of
Financial Condition.
The
Company uses interest rate swaps as well as future contracts as part of its
fixed income business. In addition, the Company enters into interest rate swaps
which are, in turn, substantially economically hedged with counterparties.
These
positions are marked to market with the gain or loss and the related interest
recorded in Net Trading Profits within the statement of income for the
period. Any collateral exchanged as part of the swap agreement is recorded
in
broker receivables and payables in the Consolidated Statements of Financial
Condition for the period.
Leases
The
Company leases office space and equipment under operating leases. The Company
recognizes rent expense related to these operating leases on a straight-line
basis over the lease term. The lease term commences on the earlier of the date
when the Company becomes legally obligated for the rent payments or the date
on
which the Company takes possession of the property. For tenant improvement
allowances and rent holidays, the Company records a deferred rent liability
in
other liabilities in the Consolidated Statements of Financial Condition and
amortizes the deferred rent over the lease term as a reduction to rent expense
in the consolidated statement of income.
Foreign
Currency Translation
The
Company consolidates its foreign subsidiaries and joint ventures. The statement
of financial condition of the subsidiaries and joint ventures are translated
at
exchange rates as of the period end. The statements of income are translated
at
an average exchange rate for the period. The gains or losses resulting from
translating foreign currency financial statements into U.S. dollars are included
in shareholders' equity as a component of Accumulated Other Comprehensive
Income.
Income
Taxes
The
Company utilizes the asset and liability approach defined in SFAS No. 109,
“Accounting for Income Taxes”, which 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.
Earnings
per Share ("EPS")
Basic
EPS
is calculated by dividing earnings available to common stockholders by the
weighted-average number of common shares outstanding. Diluted EPS is similar
to
basic EPS, but adjusts for the effect of the potential issuance of common shares
by application of the treasury stock method.
Reclassifications
Certain
revisions and reclassifications have been made to the consolidated financial
statements of the prior years to conform to the current year presentation.
As a
result, Financial Service Fees revenue and Investment Advisory Fees expense
increased by approximately $12.8 million and $11.2 million, respectively, for
the years ended September 30, 2006 and 2005. These revisions did not impact
the
Company’s net income for the years ended September 30, 2006 and 2005. The
Company also reclassified certain amounts from cash to segregated
assets and reverse repurchase agreements on its 2006 and 2005 Consolidated
Statements of Financial Condition and related cash flow activity on its 2006
and
2005 Consolidated Statements of Cash Flows. For fiscal year 2006, $176.8 million
was reclassified from cash to segregated assets and $72.5 million was
reclassified from cash to securities purchased under agreements to resell.
For
fiscal year 2005, $146.4 million was reclassified from cash to segregated assets
and $137.3 million was reclassified from cash to securities purchased under
agreements to resell. These revisions did not impact the Company’s net income
for the years ended September 30, 2006 and 2005.
In
the
quarter ended September 30, 2007, a new segment was established: Proprietary
Capital. The components of this segment were previously included in the Asset
Management and Other segments. Reclassifications have been made in the segment
disclosure for previous years to conform to this presentation. Additional
information is provided in Note 22 below.
NOTE
2 – TRADING INSTRUMENTS AND TRADING INSTRUMENTS SOLD BUT NOT YET
PURCHASED:
|
September
30, 2007
|
September
30, 2006
|
|
|
Instruments
|
|
Instruments
|
|
|
Sold
but
|
|
Sold
but
|
|
Trading
|
Not
Yet
|
Trading
|
Not
Yet
|
|
Instruments
|
Purchased
|
Instruments
|
Purchased
|
|
(in
000's)
|
Marketable:
|
|
|
|
|
Municipal
Obligations
|
$
200,024
|
$ 54
|
$
192,028
|
$ 5
|
Corporate
Obligations
|
56,069
|
952
|
134,431
|
968
|
Government
Obligations
|
83,322
|
45,275
|
37,793
|
31,636
|
Agencies
|
47,123
|
60,829
|
68,380
|
34,023
|
Total
Debt Securities
|
386,538
|
107,110
|
432,632
|
66,632
|
|
|
|
|
|
Derivative
Contracts
|
30,603
|
8,445
|
20,904
|
8,309
|
Equity
Securities
|
46,913
|
34,174
|
29,532
|
19,068
|
Other
Securities
|
3,707
|
-
|
2,703
|
-
|
Total
|
$
467,761
|
$
149,729
|
$
485,771
|
$
94,009
|
Mortgage
backed securities of $48.9 million and $77.1 million at September 30, 2007
and
September 30, 2006, respectively, are included in Corporate Obligations and
Agencies in the table above. Mortgage backed securities sold but not yet
purchased of $60.8 million and $34 million at September 30, 2007 and September
30, 2006, respectively, are included in Agencies in the table above. Net
unrealized (losses) gains related to open trading positions at September
30, 2007, September 30, 2006, and September 30, 2005 were $(726,000),
$4,387,000, and $(1,257,000), respectively.
NOTE
3 - AVAILABLE FOR SALE SECURITIES:
Available
for sale securities are comprised primarily of CMOs, mortgage related debt,
and
certain equity securities of the Company's non-broker-dealer subsidiaries,
principally RJBank. There were proceeds from the sale of available for sale
securities of $81,000 for the year ended September 30, 2007, $252,000 for the
year ended September 30, 2006 and $9,250,000 for the year ended September 30,
2005. The realized gains and losses related to the sale of available for sale
securities were immaterial to the consolidated financial statements for all
years presented.
The
amortized cost and estimated market values of securities available for sale
at
September 30, 2007, September 30, 2006 and September 30, 2005 are as
follows:
|
September
30, 2007
|
|
|
Gross
|
Gross
|
|
|
|
Unrealized
|
Unrealized
|
|
|
Cost
Basis
|
Gains
|
Losses
|
Fair
Value
|
|
(in
000's)
|
Available
for Sale Securities:
|
|
|
|
|
Agency
Mortgage Backed Securities
|
$
189,816
|
$
283
|
$ (404)
|
$
189,695
|
Non-Agency
Collateralized Mortgage Obligations
|
382,980
|
239
|
(3,003)
|
380,216
|
|
|
|
|
|
Total
RJBank Available for Sale Securities
|
572,796
|
522
|
(3,407)
|
569,911
|
|
|
|
|
|
Other
|
3
|
38
|
-
|
41
|
|
|
|
|
|
Total
Available for Sale Securities
|
$
572,799
|
$
560
|
$
(3,407)
|
$
569,952
|
|
September
30, 2006
|
|
|
Gross
|
Gross
|
|
|
|
Unrealized
|
Unrealized
|
|
|
Cost
Basis
|
Gains
|
Losses
|
Fair
Value
|
|
(in
000's)
|
Available
for Sale Securities:
|
|
|
|
|
Agency
Mortgage Backed Securities
|
$
142,084
|
$
495
|
$ (27)
|
$
142,552
|
Non-Agency
Collateralized Mortgage Obligations
|
137,753
|
363
|
(156)
|
137,960
|
|
|
|
|
|
Total
RJBank Available for Sale Securities
|
279,837
|
858
|
(183)
|
280,512
|
|
|
|
|
|
Other
|
110
|
-
|
(42)
|
68
|
|
|
|
|
|
Total
Available for Sale Securities
|
$
279,947
|
$
858
|
$
(225)
|
$
280,580
|
|
September
30, 2005
|
|
|
Gross
|
Gross
|
|
|
|
Unrealized
|
Unrealized
|
|
|
Cost
Basis
|
Gains
|
Losses
|
Fair
Value
|
|
(in
000's)
|
Available
for Sale Securities:
|
|
|
|
|
Agency
Mortgage Backed Securities
|
$
182,066
|
$
485
|
$ (34)
|
$
182,517
|
Non-Agency
Collateralized Mortgage Obligations
|
5,166
|
-
|
(171)
|
4,995
|
Municipal
Bonds
|
5
|
-
|
-
|
5
|
|
|
|
|
|
Total
RJBank Available for Sale Securities
|
187,237
|
485
|
(205)
|
187,517
|
|
|
|
|
|
Other
|
27
|
5
|
-
|
32
|
|
|
|
|
|
Total
Available for Sale Securities
|
$
187,264
|
$
490
|
$
(205)
|
$
187,549
|
The
following table shows the scheduled maturities, carrying values and current
yields for RJBank's available for sale securities at September 30, 2007. Since
RJBank’s available for sale securities are backed by mortgages, actual
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without prepayment
penalties.
|
|
After
One But
|
After
Five But
|
|
|
|
Within
One Year
|
Within
Five Years
|
Within
Ten Years
|
After
Ten Years
|
Total
|
|
|
Weighted
|
|
Weighted
|
|
Weighted
|
|
Weighted
|
|
Weighted
|
|
Balance
|
Average
|
Balance
|
Average
|
Balance
|
Average
|
Balance
|
Average
|
Balance
|
Average
|
|
Due
|
Yield
|
Due
|
Yield
|
Due
|
Yield
|
Due
|
Yield
|
Due
|
Yield
|
|
($
in 000’s)
|
Agency
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
|
|
|
|
Backed
|
|
|
|
|
|
|
|
|
|
|
Securities
|
$ 96
|
5.51%
|
$
-
|
-
|
$
10,646
|
5.48%
|
$
178,953
|
5.47%
|
$
189,695
|
5.47%
|
Non-Agency
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
|
|
|
|
Obligations
|
-
|
-
|
-
|
-
|
-
|
-
|
380,216
|
5.65%
|
380,216
|
5.65%
|
|
$ 96
|
|
$
-
|
|
$
10,646
|
|
$
559,169
|
|
$
569,911
|
|
The
following table shows RJBank’s investments’ gross unrealized losses and fair
value, aggregated by investment category and length of time the individual
securities have been in a continuous unrealized loss position, at September
30,
2007:
|
Less
than 12 Months
|
12
Months or More
|
Total
|
|
Estimated
|
|
Estimated
|
|
Estimated
|
|
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|
(in
000’s)
|
|
|
|
|
|
|
|
Agency
Mortgage Backed Securities
|
$
99,726
|
$
(347)
|
$
22,475
|
$ (57)
|
$
122,201
|
$
(404)
|
Non-Agency
Collateralized
|
|
|
|
|
|
|
Mortgage
Obligations
|
300,176
|
(2,897)
|
8,244
|
(106)
|
308,420
|
(3,003)
|
Total
Temporarily
|
|
|
|
|
|
|
Impaired
|
|
|
|
|
|
|
Securities
|
$
399,902
|
$ (3,244)
|
$
30,719
|
$
(163)
|
$
430,621
|
$
(3,407)
|
The
reference point for determining when securities are in a loss position is fiscal
year-end. As such, it is possible that a security had a fair value that exceeded
its amortized cost on other days during the past twelve-month period. The
unrealized losses at September 30, 2007, were primarily caused by interest
rate
changes and market irregularities. The Federal National Mortgage Association
or
Federal Home Loan Mortgage Corporation guarantees the contractual cash flows
of
the agency collateralized mortgage obligation securities. As of September 30,
2007, $359 million of the non-agency collateralized mortgage obligations are
rated AAA, and $21 million are investment grade rated below AAA. All of the
non-agency securities carry various amounts of credit enhancement, and none
are
collateralized with subprime loans. It is expected that the securities would
not
be settled at a price less than the amortized cost of the investment. Because
the decline in fair value is attributable to changes in interest rates and
market irregularities and not credit quality, and because the Company has the
ability and intent to hold these investments until a fair value recovery or
maturity, these investments are not considered "other-than-temporarily"
impaired.
NOTE
4 - RECEIVABLES FROM AND PAYABLES TO BROKERAGE
CLIENTS:
Receivables
from Brokerage Clients
Receivables
from brokerage clients include amounts arising from normal cash and margin
transactions and fees receivable. Margin receivables are collateralized by
securities owned by brokerage clients. Such collateral is not reflected in
the
accompanying consolidated financial statements. The amount receivable from
clients at September 30, 2007 and September 30, 2006 is as follows:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
|
|
|
Brokerage
Client Receivables
|
$
1,704,944
|
$
1,505,126
|
Allowance
For Doubtful Accounts
|
(644)
|
(519)
|
Brokerage
Client Receivables, Net
|
$
1,704,300
|
$
1,504,607
|
Payables
to Brokerage Clients
Payables
to brokerage clients include brokerage client funds on deposits awaiting
reinvestment. The following table presents a summary of such payables at
September 30, 2007 and September 30, 2006:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
|
|
|
Brokerage
Client Payables:
|
|
|
Interest
Bearing
|
$
5,115,215
|
$
4,140,197
|
Non-Interest
Bearing
|
560,645
|
412,030
|
Total
Brokerage Client Payables
|
$
5,675,860
|
$
4,552,227
|
Interest
expense on brokerage client payables for the years ended September 30, 2007,
September 30, 2006, and September 30, 2005 was $204,158,000, $143,428,000,
and
$58,486,000, respectively.
NOTE
5 – BANK LOANS, NET:
Bank
client receivables are primarily comprised of loans originated or purchased
by
RJBank and include commercial and residential real estate loans, as well as
commercial and consumer loans. These receivables are collateralized by first
or
second mortgages on residential or other real property, by other assets of
the
borrower, or are unsecured. The following table presents the balance and
associated percentage of each major loan category in RJBank's portfolio,
including loans receivable and loans available for sale:
|
September
30,
|
September
30,
|
September
30,
|
September
24,
|
September
26,
|
|
2007
|
2006
|
2005
|
2004
|
2003
|
|
Balance
|
%
|
Balance
|
%
|
Balance
|
%
|
Balance
|
%
|
Balance
|
%
|
|
($
in 000’s)
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$ 343,783
|
7%
|
$ 272,957
|
12%
|
$ 144,254
|
14%
|
$ 124,243
|
18%
|
$ 93,985
|
17%
|
Real
Estate
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
Loans
|
123,664
|
3%
|
34,325
|
2%
|
32,563
|
3%
|
34,838
|
5%
|
10,231
|
2%
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
|
|
|
|
|
|
|
|
|
Loans
|
2,317,840
|
49%
|
653,695
|
28%
|
136,375
|
14%
|
75,632
|
11%
|
70,723
|
12%
|
Residential
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
|
|
|
|
Loans
|
1,934,645
|
41%
|
1,322,908
|
58%
|
690,242
|
69%
|
457,921
|
66%
|
389,686
|
69%
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
Loans
|
4,541
|
0%
|
1,917
|
0%
|
2,752
|
0%
|
1,568
|
0%
|
1,689
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
Total
Loans
|
4,724,473
|
100%
|
2,285,802
|
100%
|
1,006,186
|
100%
|
694,202
|
100%
|
566,314
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Unearned
|
|
|
|
|
|
|
|
|
|
|
Income
and
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
Expenses
(1)
|
(13,242)
|
|
(4,276)
|
|
1,688
|
|
112
|
|
1,268
|
|
Allowance
for
|
|
|
|
|
|
|
|
|
|
|
Loan
Losses
|
(47,022)
|
|
(18,694)
|
|
(7,593)
|
|
(7,642)
|
|
(5,910)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,264)
|
|
(22,970)
|
|
(5,905)
|
|
(7,530)
|
|
(4,642)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
Net
|
$
4,664,209
|
|
$
2,262,832
|
|
$
1,000,281
|
|
$
686,672
|
|
$
561,672
|
|
(1)
Includes purchase premiums, purchase discounts, and net deferred origination
fees and costs.
At
September 30, 2007 and September 30, 2006, $55,000,000 and $60,000,000 in
Federal Home Loan Bank (“FHLB”) advances, respectively, were secured by a
blanket lien on RJBank's residential mortgage loan portfolio.
At
September 30, 2007 and 2006, RJBank had $5,064,000 and $1,137,000 in loans
available for sale, respectively. RJBank's gain from the sale of
originated loans available for sale was $518,000, $413,000, and $421,000 for
the
years ended September 30, 2007, September 30, 2006, and September 30, 2005,
respectively.
Certain
officers, directors, and affiliates, and their related interests were indebted
to RJBank for $999,000 and $294,000 at September 30, 2007 and September 30,
2006, respectively. All such loans were made in the ordinary course
of the business.
Interest
income on loans, net of unearned income, for the years ended September 30,
2007,
2006, and 2005 was $205.0 million, $95.4 million, and $37.2 million,
respectively.
The
following table shows the contractual maturities of RJBank’s loan portfolio at
September 30, 2007, including contractual principal repayments. This table
does
not, however, include any estimates of prepayments. These prepayments could
significantly shorten the average loan lives and cause the actual timing of
the
loan repayments to differ from those shown in the following table:
|
Due
in
|
|
|
1
Year or Less
|
1
Year – 5 Years
|
>5
Years
|
Total
|
|
(in
000’s)
|
|
|
|
|
|
Commercial
Loans
|
$ 1,057
|
$ 98,207
|
$ 244,519
|
$ 343,783
|
Real
Estate Construction Loans
|
21,627
|
101,129
|
908
|
123,664
|
Commercial
Real Estate Loans
|
126,607
|
1,189,656
|
1,001,577
|
2,317,840
|
Residential
Mortgage Loans
|
100
|
4,601
|
1,929,944
|
1,934,645
|
Consumer
Loans
|
1,524
|
3,017
|
-
|
4,541
|
|
|
|
|
|
Total
Loans
|
$
150,915
|
$
1,396,610
|
$
3,176,948
|
$
4,724,473
|
RJBank
classifies loans as nonperforming when full and timely collection of interest
or
principal becomes uncertain or when they are 90 days past due. The following
table shows the comparative data for nonperforming loans and
assets:
|
September
30,
|
September
30,
|
September
30,
|
September
24,
|
September
26,
|
|
2007
|
2006
|
2005
|
2004
|
2003
|
|
($
in 000’s)
|
|
|
|
|
|
|
Nonaccrual
Loans
|
$
1,391
|
$
2,091
|
$ 117
|
$
801
|
$
215
|
Accruing
Loans Which are 90 Days
|
|
|
|
|
|
Past
Due
|
2,674
|
-
|
1,200
|
125
|
-
|
|
|
|
|
|
|
Total
Nonperforming Loans
|
4,065
|
2,091
|
1,317
|
926
|
215
|
|
|
|
|
|
|
Real
Estate Owned and Other
|
|
|
|
|
|
Repossessed
Assets, Net
|
1,653
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
Total
Nonperforming Assets, Net
|
$
5,718
|
$
2,091
|
$
1,317
|
$
926
|
$
215
|
|
|
|
|
|
|
Total
Nonperforming Loans as a
|
|
|
|
|
|
Percentage
of
|
|
|
|
|
|
Total
Loans, Net
|
0.12%
|
0.09%
|
0.13%
|
0.13%
|
0.04%
|
The
gross
interest income related to non-performing loans, which would have been recorded
had these loans been current in accordance with their original terms and had
been outstanding throughout the period or since origination, and the interest
income recognized on these loans for the year ended, September 30, 2007 were
immaterial to the consolidated financial statements. As of September
30, 2007, there were no impaired loans. There were no troubled debt
restructurings for any of the periods presented above.
Changes
in the allowance for loan losses at RJBank were as follows:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
September
24,
|
September
26,
|
|
2007
|
2006
|
2005
|
2004
|
2003
|
|
($
in 000’s)
|
|
|
|
|
|
|
Allowance
for Loan Losses,
|
|
|
|
|
|
Beginning
of Period
|
$
18,694
|
$ 7,593
|
$
7,642
|
$ 5,910
|
$ 5,109
|
Provision
For Loan Losses
|
29,410
|
11,153
|
1,037
|
1,732
|
801
|
Transfer
to Reserve for Unfunded
|
|
|
|
|
|
Commitments
|
|
|
(1,086)
|
|
|
Charge-Offs:
|
|
|
|
|
|
Commercial
Loans
|
-
|
-
|
-
|
-
|
-
|
Real
Estate Construction
|
|
|
|
|
|
Loans
|
|
-
|
-
|
-
|
-
|
Commercial
Real Estate Loans
|
-
|
-
|
-
|
-
|
-
|
Residential
Mortgage Loans
|
(454)
|
(61)
|
-
|
-
|
-
|
Consumer
Loans
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
Total
Charge-Offs
|
(1,083)
|
(61)
|
-
|
-
|
-
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
Commercial
Loans
|
-
|
-
|
-
|
-
|
-
|
Real
Estate Construction
|
|
|
|
|
|
Loans
|
-
|
-
|
-
|
-
|
-
|
Commercial
Real Estate Loans
|
-
|
-
|
-
|
-
|
-
|
Residential
Mortgage Loans |
1 |
9
|
- |
- |
- |
Consumer
Loans
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
Total
Recoveries
|
1
|
9
|
-
|
-
|
-
|
|
|
|
|
|
|
Net
Charge-Offs
|
(1,082)
|
(52)
|
-
|
-
|
-
|
|
|
|
|
|
|
Allowance
for Loan Losses,
|
|
|
|
|
|
End
of Period
|
$
47,022
|
$
18,694
|
$
7,593
|
$
7,642
|
$
5,910
|
|
|
|
|
|
|
Net
Charge-Offs to Average Bank
|
|
|
|
|
|
Loans,
Net Outstanding
|
0.03%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
The
calculation of the allowance is subjective as management segregates the loan
portfolio into different homogeneous classes and assigns each class an allowance
percentage based on the perceived risk associated with that class of loans.
The
factors taken into consideration when assigning the reserve percentage to each
reserve category include estimates of borrower default probabilities and
collateral values; trends in delinquencies; volume and terms; changes in
geographic distribution, lending policies, local, regional, and national
economic conditions; concentrations of credit risk and past loss history. In
addition, the Company provides for potential losses inherent in RJBank’s
unfunded lending commitments using the criteria above, further adjusted for
an
estimated probability of funding.
In
addition to the allowance for loan losses shown net of Bank Loans, Net, RJBank
had reserves for unfunded lending commitments included in Trade and Other
Payables of $6.78 million and $4.05 million for the years ended September 30,
2007 and 2006.
RJBank’s
net interest income after provision for loan losses for the years ended
September 30, 2007, 2006, and 2005 was $52.4 million, $26.8 million, and $21.6
million, respectively.
RJBank
originates and purchases portfolios of loans that have certain features that
may
be viewed as increasing its exposure to nonpayment risk by the borrower.
Specifically, RJBank originates and purchases residential loans that subject
the
borrower to payment increases over the life of the loan or have high
loan-to-value (“LTV”) ratios. These features, including interest-only features
and high LTV ratios, may be considered non-traditional for residential
mortgages. RJBank does not originate or purchase residential loans that have
terms that permit negative amortization features or are option adjustable rate
mortgages.
The
table
below summarizes the level of exposure from each type of loan at September
30,
2007, 2006, and 2005:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
(in
000’s)
|
|
|
|
|
Interest-Only
Adjustable Rate Mortgage Loans Where Borrowers May
|
|
|
|
Be
Subject to Payment Increases
|
$
1,614,576
|
$
1,051,099
|
$
449,811
|
Residential
Mortgage Loans with High Loan-to-Value Ratios
|
$ 734
|
$ 1,323
|
$ 538
|
Loans
where borrowers may be subject to payment increases include adjustable rate
mortgage loans with terms that initially require payment of interest only,
that
may result in payments increasing significantly when the interest-only period
ends and the loan principal begins to amortize. These loans are underwritten
based on a variety of factors including the borrower’s credit history, debt to
income ratio, employment, the LTV ratio, and the borrower’s disposable income
and cash reserves. In instances where the borrower is of lower credit standing,
the loans are typically underwritten to have a lower LTV ratio and/or other
mitigating factors.
High
LTV
loans include all mortgage loans where the LTV is greater than 90% and the
borrower has not purchased private mortgage insurance (“PMI”). High LTV loans
may also include residential mortgage products where a mortgage and home equity
loan are simultaneously established for the same property. The maximum original
LTV ratio for the mortgage portfolio with no PMI or other security is 100%.
NOTE
6 - VARIABLE INTEREST ENTITIES (“VIEs”):
Under
the
provisions of FIN 46R the Company has determined that Raymond James Employee
Investment Funds I and II (the “EIF Funds”), Comprehensive Software Systems,
Inc. (“CSS”), certain entities in which Raymond James Tax Credit Funds, Inc.
(“RJTCF”) owns variable interests, various partnerships involving real estate,
and a trust fund established for employee retention purposes are
VIEs. Of these, the Company has determined that the EIF Funds,
certain tax credit fund partnerships/LLCs, and the trust fund should be
consolidated in the financial statements as the Company is the primary
beneficiary.
The
following table summarizes the balance sheets of the variable interest entities
consolidated by the Company:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
Assets:
|
|
|
Cash
and Cash Equivalents
|
$ 6,406
|
$ 17,622
|
Receivables,
Other
|
32,675
|
88,145
|
Investments
in Real Estate Partnerships – Held by Variable Interest
Entities
|
221,147
|
227,963
|
Trust
Fund Investment in Parent Company Common Stock*
|
6,450
|
5,100
|
Prepaid
Expenses and Other Assets
|
24,894
|
16,426
|
|
|
|
Total
Assets
|
$
291,572
|
$
355,256
|
|
|
|
Liabilities
And Shareholders’ Equity:
|
|
|
Loans
Payable Related to Investments by Variable Interest Entities in Real
Estate
|
|
|
Partnerships
|
$
116,479
|
$
193,647
|
Trade
and Other
|
849
|
279
|
Intercompany
Payable
|
8,203
|
16,098
|
|
|
|
Total
Liabilities
|
125,531
|
210,024
|
|
|
|
Minority
Interests
|
162,319
|
143,217
|
Shareholders'
Equity
|
3,722
|
2,015
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
$
291,572
|
$
355,256
|
* Included
in common shares in treasury in the Company’s Consolidated Statements of
Financial Condition.
The
following table summarizes the statements of income of the variable
interest entities consolidated by the Company:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
(in
000’s)
|
|
|
|
|
Revenues:
|
|
|
|
Interest
|
$ 955
|
$ 1,009
|
$ 822
|
Other
|
2,580
|
4,397
|
4,248
|
|
|
|
|
Total
Revenues
|
3,535
|
5,406
|
5,070
|
|
|
|
|
Interest
Expense
|
6,972
|
8,368
|
3,934
|
Net
Revenues
|
(3,437)
|
(2,962)
|
1,136
|
|
|
|
|
Non-Interest
Expenses:
|
|
|
|
Compensation,
Commissions and Benefits
|
1,828
|
1,584
|
-
|
Other
|
10,430
|
9,246
|
5,759
|
Total
Non-Interest Expense
|
12,258
|
10,830
|
5,759
|
|
|
|
|
Minority
Interest in Earnings of Subsidiaries
|
(13,858)
|
(12,245)
|
(4,631)
|
|
|
|
|
Income
Before Provision for Income Taxes
|
(1,837)
|
(1,547)
|
8
|
|
|
|
|
Provision
for Income Taxes
|
-
|
-
|
-
|
|
|
|
|
Net
(Loss) Income
|
$
(1,837)
|
$
(1,547)
|
$ 8
|
The
EIF
Funds are limited partnerships, for which the Company is the general partner,
that invest in the merchant banking and private equity activities of the Company
and other unaffiliated venture capital limited partnerships. The EIF Funds
were
established as compensation and retention measures for certain qualified key
employees of the Company. The Company makes non-recourse loans to these
employees for two-thirds of the purchase price per unit. The loans and
applicable interest are to be repaid based on the earnings of the EIF Funds.
The
Company is deemed to be the primary beneficiary, and accordingly, consolidates
the EIF Funds, which had combined assets of approximately $17.4 million at
September 30, 2007. None of those assets act as collateral for any obligations
of the EIF Funds. The Company's exposure to loss is limited to its contributions
and the non-recourse loans funded to the employee investors, for which their
partnership interests serve as collateral. At September 30, 2007 that exposure
is approximately $5.1 million.
CSS
was
formed by a group of broker-dealer firms, including the Company, to develop
a
back-office software system. CSS had assets of $4.1 million at September 30,
2007. As of September 30, 2007, the Company owns approximately 42% of CSS.
The
Company's exposure to loss is limited to its capital contributions. The Company
is not the primary beneficiary of CSS and accounts for its investment using
the
equity method of accounting. The carrying value of the Company’s investment in
CSS is zero at September 30, 2007. CSS has agreed in principal to be acquired
by
an affiliate of a shareholder. No distributions to shareholders are
anticipated.
RJTCF
is
a wholly owned subsidiary of RJF and is the managing member or general partner
in approximately 49 separate tax credit housing funds having one or more
investor members or limited partners. These tax credit housing funds are
organized as limited liability companies or limited partnerships for the purpose
of investing in limited partnerships which purchase and develop low income
housing properties qualifying for tax credits. As of September 30, 2007, 47
of
these tax credit housing funds are VIEs as defined by FIN 46R, and RJTCF’s
interest in these tax credit housing funds which are VIEs range from .01% to
1.0%.
RJTCF
has
concluded that it is the primary beneficiary in approximately one fifth of
these
tax credit housing funds, and accordingly, consolidates these funds, which
have
combined assets of approximately $267.7 million at September 30, 2007. None
of
those assets act as collateral for any obligations of these funds. The Company's
exposure to loss is limited to its investments in, advances to, and receivables
due from these funds and at September 30, 2007, that exposure is approximately
$6.9 million.
RJTCF
is
not the primary beneficiary of the remaining tax credit housing funds it
determined to be VIEs and accordingly the Company does not consolidate these
funds. The Company's exposure to loss is limited to its investments in, advances
to, and receivables due from these funds and at September 30, 2007, that
exposure is approximately $26.8 million.
The
two
remaining tax credit housing funds that have been determined not to be VIEs
are
wholly owned by RJTCF and are included in the Company’s consolidated financial
statements. During September 30, 2007, only one of these funds had any material
activity. These funds typically hold interests in certain tax credit limited
partnerships for less than 90 days. The fund had assets of approximately $1.1
million at September 30, 2007.
As
of
September 30, 2007, the Company has a variable interest in several limited
partnerships involved in various real estate activities, in which a subsidiary
is the general partner. The Company is not the primary beneficiary of these
partnerships and accordingly the Company does not consolidate these
partnerships. These partnerships have assets of approximately $11 million at
September 30, 2007. The Company's exposure to loss is limited to its capital
contributions. The carrying value of the Company's investment in these
partnerships is not material at September 30, 2007.
One
of
the Company’s restricted stock plans is associated with a trust fund which was
established through the Company’s wholly owned Canadian subsidiary. This trust
fund was established and funded to enable the trust fund to acquire Company
common stock in the open market to be used to settle restricted stock units
granted as a retention vehicle for certain employees of the Canadian subsidiary.
For financial statement purposes, the Company is deemed to be the primary
beneficiary in accordance with FIN 46R, and accordingly, consolidates this
trust
fund, which has assets of approximately $6.5 million at September 30, 2007.
None
of those assets are specifically pledged as collateral for any obligations
of
the trust fund. The Company's exposure to loss is limited to its contributions
to the trust fund and at September 30, 2007, that exposure is approximately
$6.5
million.
NOTE
7 – LEVERAGED LEASES
The
Company is the lessor in a leveraged commercial aircraft transaction with
Continental Airlines, Inc. (“Continental"). The Company's ability to realize its
expected return is dependent upon this airline’s ability to fulfill its lease
obligation. In the event that this airline defaults on its lease commitment
and
the Trustee for the debt holders is unable to re-lease or sell the plane with
adequate terms, the Company would suffer a loss of some or all of its
investment.
The
value
of the Company’s leveraged lease with Continental was approximately $9.9 million
as of September 30, 2007. The Company's equity investment represented 20% of
the
aggregate purchase price; the remaining 80% was funded by public debt issued
in
the form of equipment trust certificates. The residual value of the aircraft
at
the end of the lease term of approximately 17 years is projected to be 15%
of
the original cost. This lease expires in May 2014.
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
Rents
Receivable (Net of Principal And
|
|
|
Interest
on the Non-Recourse Debt)
|
$ 7,591
|
$
8,576
|
Unguaranteed
Residual Values
|
8,012
|
8,012
|
Unearned
Income
|
(5,702)
|
(5,706)
|
Investment
in Leveraged Leases
|
9,901
|
10,882
|
|
|
|
Deferred
Taxes arising from Leveraged Leases
|
(10,420)
|
(19,796)
|
Net
Investment in Leveraged Leases
|
$ (519)
|
$
(8,914)
|
Although
Continental remains current on its lease payments to the Company, the inability
of Continental to make its lease payments, or the termination or modification
of
the lease through a bankruptcy proceeding, could result in the write-down of
the
Company's investment and the acceleration of certain income tax payments. The
Company continues to monitor this lessee for specific events or circumstances
that would increase the likelihood of a default on Continental’s obligations
under this lease.
The
Company was also the lessor in a leveraged commercial aircraft transaction
with
Delta Air Lines, Inc. (“Delta”). Delta filed for bankruptcy protection on
September 14, 2005. Accordingly, the Company recorded a $6.5 million pre-tax
charge in 2005 to fully reserve the balance of its investment in the leveraged
lease of an aircraft to Delta. The Company had taken a $4 million pre-tax charge
in 2004 to partially reserve for this investment. No amount of these charges
represented a cash expenditure. During the second quarter of fiscal 2007, the
Company sold its interest in the Delta transaction for $2 million, which was
recognized as a pre-tax gain within Other Revenue. Upon closing, certain income
tax obligations of approximately $8.5 million were accelerated and paid during
the quarter. These tax payments did not impact net earnings, as these amounts
were previously recorded as deferred tax liabilities.
NOTE
8 - PROPERTY AND EQUIPMENT:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
|
|
|
Land
|
$ 18,644
|
$ 18,644
|
Construction
in Process
|
1,621
|
233
|
Software
Development
|
7,573
|
4,522
|
Buildings,
Leasehold and Land Improvements
|
142,329
|
137,117
|
Furniture,
Fixtures, and Equipment
|
182,851
|
155,198
|
|
353,018
|
315,714
|
Less: Accumulated
Depreciation
|
|
|
and
Amortization
|
(186,055)
|
(172,934)
|
|
$
166,963
|
$ 142,780
|
NOTE
9 - BANK DEPOSITS:
Bank
deposits include Negotiable Order of Withdrawal (“NOW”) accounts, demand
deposits, savings and money market accounts and certificates of deposit. The
following table presents a summary of bank deposits at September 30, 2007 and
September 30, 2006:
|
September
30, 2007
|
September
30, 2006
|
|
|
Weighted
|
|
Weighted
|
|
|
Average
|
|
Average
|
|
Balance
|
Rate
(1)
|
Balance
|
Rate
(1)
|
|
($
in 000's)
|
|
|
|
|
|
Bank
Deposits:
|
|
|
|
|
NOW
Accounts
|
$ 4,493
|
1.57%
|
$ 6,088
|
1.95%
|
Demand
Deposits (Non-Interest Bearing)
|
3,645
|
-
|
2,538
|
-
|
Savings
and Money Market Accounts
|
5,337,587
|
4.59%
|
2,542,894
|
4.59%
|
Certificates
of Deposit
|
239,534
|
4.75%
|
255,360
|
4.49%
|
Total
Bank Deposits
|
$5,585,259
|
4.59%
|
$2,806,880
|
4.57%
|
(1)
Weighted average rate calculation is based on the actual deposit balances at
September 30, 2007 and 2006.
RJBank
had deposits from officers and directors of $1,813,000 and $691,000 at September
30, 2007 and September 30, 2006, respectively.
Scheduled
maturities of certificates of deposit and brokered certificates of deposit
at
September 30, 2007 and 2006 were as follows:
|
September
30, 2007
|
September
30, 2006
|
|
Denominations
|
|
Denominations
|
|
|
Greater
than
|
Denominations
|
Greater
than
|
Denominations
|
|
or
Equal
|
Less
than
|
or
Equal
|
Less
than
|
|
to
$100,000
|
$100,000
|
to
$100,000
|
$100,000
|
|
(in
000's)
|
|
|
|
|
|
Three
Months or Less
|
$
14,386
|
$ 23,922
|
$
16,371
|
$ 37,835
|
Over
Three Through Six Months
|
10,949
|
28,980
|
11,945
|
26,276
|
Over
Six Through Twelve Months
|
11,790
|
38,005
|
7,821
|
25,373
|
Over
One Through Two Years
|
14,706
|
36,997
|
11,871
|
38,556
|
Over
Two Through Three Years
|
7,978
|
22,345
|
10,497
|
25,809
|
Over
Three Through Four Years
|
7,857
|
14,103
|
6,498
|
18,387
|
Over
Four Years
|
1,802
|
5,714
|
7,272
|
10,849
|
Total
|
$
69,468
|
$
170,066
|
$
72,275
|
$
183,085
|
Interest
expense on deposits is summarized as follows:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
(in
000's)
|
|
|
|
|
Certificates
of Deposit
|
$ 11,021
|
$
10,872
|
$ 6,577
|
Money
Market, Savings and
|
|
|
|
NOW
Accounts
|
179,741
|
51,313
|
12,041
|
Total
Interest Expense
|
$
190,762
|
$
62,185
|
$18,618
|
NOTE
10 – LOANS PAYABLE:
Loans
Payable
Loans
payable at September 30, 2007 and September 30, 2006 are presented
below:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
Short-Term
Borrowings:
|
|
|
Borrowings
on Lines of Credit (1)
|
$ 2,685
|
$ 13,040
|
Current
Portion of Mortgage Notes Payable
|
2,731
|
2,746
|
Federal
Home Loan Bank Advances (2)
|
5,000
|
-
|
Total
Short-Term Borrowings
|
10,416
|
15,786
|
|
|
|
Long-Term
Borrowings:
|
|
|
Mortgage
Notes Payable
(3)
|
62,224
|
65,852
|
Federal
Home Loan Bank Advances (2)
|
50,000
|
60,000
|
Total
Long-Term Borrowings
|
112,224
|
125,852
|
|
|
|
Total
Loans Payable
|
$
122,640
|
$
141,638
|
(1)
|
The
Company and its subsidiaries maintain one committed and several
uncommitted lines of credit denominated in U.S. dollars and one
uncommitted line of credit denominated in Canadian dollars (“CDN”). At
September 30, 2007, the aggregate domestic lines were $1.26 billion
and
CDN $40 million, respectively. The interest rates for these lines
of
credit are variable and are based on the Fed Funds rate, LIBOR, and
Canadian prime rate. For the fiscal year ended September 30, 2007,
interest rates on the lines of credit ranged from 5.25% to 6.70%.
For the
fiscal year ended September 30, 2006, interest rates on the lines
of
credit ranged from 4.50% to 6.76%. The Company’s committed $200 million
line of credit is subject to a 0.125% per annum facility fee. There
were
no outstanding balances against these lines of credit at September
30,
2007. In addition, the Company’s joint ventures in Turkey and Argentina
have multiple settlement lines of credit. The Company has guaranteed
certain of these settlement lines of credit as follows: four in Turkey
totaling $22.5 million and one in Argentina for $3.0 million. On
September
30, 2007, there were no outstanding balances on the settlement lines
in
Argentina and Turkey. At September 30, 2007 the aggregate unsecured
settlement lines of credit available were $76.5 million, and there
were
outstanding balances of $2.7 million on these lines. The interest
rates
for these lines of credit ranged from 9% to 20%. During the three
months
ended June 30, 2007, the Company entered into a $500 million uncommitted
tri-party repurchase agreement line of credit. Under this agreement,
the
Company pledges certain of its trading inventory as collateral against
borrowings on this line. The required market value of the collateral
is
generally 102% of the cash borrowed. The rate is set each day at
25 basis
points over the opening Fed Funds rate and this agreement can be
terminated by any party on any business day. Under this agreement,
there
were secured short-term borrowings of $195,000,000 outstanding at
September 30, 2007 which are included in Securities Sold Under Agreement
to Repurchase.
|
(2)
|
RJBank
has $55 million, $60 million, and $70 million in FHLB advances outstanding
at September 30, 2007, 2006, and 2005, respectively, which are comprised
of one short-term, fixed rate advance and several long-term, fixed
rate
advances. The weighted average interest rate on these fixed rate
advances
at September 30, 2007, 2006, and 2005 were 5.23%, 4.69%, and 4.60%,
respectively. The outstanding FHLB advances mature between May 2008
and
February 2011. The maximum amount of FHLB advances outstanding at
any
month-end during the year ended September 30, 2007, 2006, and 2005
was $70
million, $473.7 million, and $122.6 million, respectively. The average
amounts of FHLB advances outstanding and the weighted average interest
rate thereon for the years ended September 30, 2007, 2006, and 2005
were
$57 million at a rate of 5.24%, $233 million at a rate of 4.66%,
and $77 million at a rate of 4.01%, respectively. These advances are
secured by a blanket lien on RJBank's residential loan portfolio
granted
to FHLB. The FHLB has the right to convert advances totaling $35
million
and $50 million at September 30, 2007 and September 30, 2006,
respectively, to a floating rate at one or more future dates. RJBank
has
the right to prepay these advances without penalty if the FHLB exercises
its right.
|
(3)
|
Mortgage
note payable evidences a mortgage loan for the financing of the Company's
home office complex. The mortgage loan bears interest at 5.7% and
is
secured by land, buildings, and improvements with a net book value
of
$70.7 million at September 30,
2007.
|
Long-term
borrowings at September 30, 2007, based on their contractual terms, mature
as
follows (in 000's):
2009
|
$ 2,891
|
2010
|
8,060
|
2011
|
48,239
|
2012
|
3,429
|
2013
and Thereafter
|
49,605
|
Total
|
$112,224
|
Loans
Payable Related to Investments by Variable Interest Entities in Real Estate
Partnerships
The
borrowings of certain VIEs’ are comprised of several loans, which are
non-recourse to the Company. See Note 6 of the Notes to Consolidated
Financial Statements for additional information regarding the entities deemed
to
be variable interest entities under FIN 46R, which are consolidated by the
Company.
VIEs’
loans payable at September 30, 2007 and September 30, 2006 are presented
below:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
|
|
|
Current
Portion of Loans Payable
|
$ 13,839
|
$ 32,787
|
Long-Term
Portion of Loans Payable
|
102,640
|
160,860
|
Total
Loans Payable
|
$116,479
|
$193,647
|
|
|
|
VIEs’
long-term borrowings at September 30, 2007, based on their contractual terms,
mature as follows (in 000's):
2009
|
$ 13,267
|
2010
|
12,720
|
2011
|
12,748
|
2012
|
13,036
|
2013
and Thereafter
|
50,869
|
Total
|
$102,640
|
NOTE
11 – DERIVATIVE FINANCIAL INSTRUMENTS:
The
Company uses interest rate swaps as well as futures contracts as part of its
fixed income business. These positions are marked to market with the gain or
loss and the related interest recorded in Net Trading Profits within the
statement of income for the period. Any collateral exchanged as part of the
swap
agreement is recorded in Broker Receivables and Payables in the Consolidated
Statements of Financial Condition for the period. At September 30, 2007 and
September 30, 2006, the Company had outstanding interest rate derivative
contracts with notional amounts of $3.5 billion and $2.3 billion, respectively.
The notional amount of a derivative contract does not change hands; it is simply
used as a reference to calculate payments. Accordingly, the notional amount
of
the Company’s derivative contracts outstanding at September 30, 2007 vastly
exceeds the possible losses that could arise from such transactions. The net
market value of all open swap positions at September 30, 2007 and September
30,
2006 was $22.2 million and $13 million, respectively.
The
Company is exposed to credit losses in the event of nonperformance by the
counterparties to its interest rate swap agreements. The Company performs a
credit evaluation of counterparties prior to entering into swap transactions
and
monitors their credit standings. Currently, the Company anticipates that all
counterparties will be able to fully satisfy their obligations under those
agreements. The Company may require collateral from counterparties to support
these obligations as established by the credit threshold specified by the
agreement and/or as a result of monitoring the credit standing of the
counterparties. The Company is also exposed to interest rate risk related to
its
interest rate swap agreements. The Company monitors exposure in its derivatives
subsidiary daily based on established limits with respect to a number of
factors, including interest rate, spread, ratio and basis, and volatility risks.
These exposures are monitored both on a total portfolio basis and separately
for
selected maturity periods.
NOTE
12 - INCOME TAXES:
The
provision (benefit) for income taxes consists of the following:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
|
(in
000’s)
|
|
Current
Provision:
|
|
|
|
Federal
|
$
142,531
|
$
102,665
|
$ 78,783
|
State
|
17,098
|
16,844
|
15,483
|
International
|
(5,813)
|
13,379
|
8,231
|
|
153,816
|
132,888
|
102,497
|
Deferred
benefit:
|
|
|
|
Federal
|
(26,132)
|
(3,742)
|
(3,058)
|
State
|
(1,463)
|
(495)
|
(1,867)
|
International
|
15,573
|
(927)
|
(647)
|
|
(12,022)
|
(5,164)
|
(5,572)
|
|
$
141,794
|
$
127,724
|
$ 96,925
|
The
Company's income tax expense differs from the amount computed by applying the
statutory federal income tax rate due to the following:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
|
(in
000’s)
|
|
|
|
|
|
Provision
Calculated at Statutory Rates
|
$
137,279
|
$
119,723
|
$ 85,909
|
State
Income Taxes, Net of Federal Benefit
|
10,163
|
10,627
|
8,851
|
Other
|
(5,648)
|
(2,626)
|
2,165
|
|
$
141,794
|
$
127,724
|
$ 96,925
|
U.S.
and
international components of income before income taxes were as
follows:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
|
(in
000’s)
|
|
|
|
|
|
U.S.
|
$
356,591
|
$
308,003
|
$
230,790
|
International
|
35,633
|
34,063
|
17,181
|
Income
Before Provision for Income Taxes
|
$
392,224
|
$
342,066
|
$
247,971
|
The
major
deferred tax asset (liability) items, as computed under SFAS 109, are as
follows:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000’s)
|
Deferred
Tax Assets:
|
|
|
Deferred
Compensation
|
$ 65,392
|
$
56,584
|
Capital
Expenditures
|
10,812
|
7,286
|
Accrued
Expenses
|
49,036
|
40,904
|
Unrealized
Loss
|
3,035
|
1,932
|
Net
Operating Loss Carryforward
|
5,259
|
13,496
|
Total
Deferred Tax Assets
|
133,534
|
120,202
|
|
|
|
Deferred
Tax Liabilities:
|
|
|
Aircraft
Leases
|
(10,420)
|
(19,796)
|
Other
|
(15,192)
|
(5,449)
|
Total
Deferred Tax Liabilities
|
(25,612)
|
(25,245)
|
Net
Deferred Tax Assets
|
$
107,922
|
$
94,957
|
The
Company has recorded a deferred tax asset at September 30, 2007 and September
30, 2006. A deferred tax asset has also been recognized for net operating loss
carryforwards that will expire between 2008 and 2016. No valuation allowance
as
defined by SFAS 109 is required for the years then ended as Management believes
that it is more likely than not the deferred tax asset is
realizable.
The
“American Jobs Creation Act of 2004” provides for a one-time deduction for
qualifying repatriations of foreign earnings in either fiscal year 2005 or
2006.
The 85% dividends received deduction can result in a lower tax rate if the
eligible dividends are reinvested within the limitations and requirements of
Internal Revenue Code Section 965. During fiscal year 2006, the Company
repatriated $1.9 million in extraordinary dividends and recorded a tax liability
of $102,000. To the degree that the cumulative undistributed earnings of
non-U.S. subsidiaries were permanently invested, no deferred U.S. federal income
taxes have been provided. The Company has provided for U.S. deferred income
taxes in the amount of $11.6 million on undistributed earnings not considered
permanently reinvested in its non-U.S. subsidiaries.
NOTE
13 – COMMITMENTS AND CONTINGENCIES:
Long-term
lease agreements expire at various times through 2017. Minimum annual rentals
under such agreements for the succeeding five fiscal years are approximately:
$28.7 million in 2008, $22.2 million in 2009, $19.3 million in 2010, $12.5
million in 2011, $8.8 million in 2012 and $8.9 million thereafter. Rental
expense incurred under all leases, including equipment under short-term
agreements, aggregated $40 million, $34.3 million and $31.9 million in 2007,
2006 and 2005, respectively.
See
Note
7 of the Notes to Consolidated Financial Statements with respect to the
Company's interest in certain commercial aircraft leveraged leases.
At
September 30, 2007 and September 30, 2006, no securities other than FHLB stock
were pledged by RJBank as collateral with the FHLB for advances. In addition
to
the FHLB stock pledged as collateral for advances, RJBank provided the FHLB
with
a blanket lien against RJBank's entire portfolio of residential mortgage
loans.
As
of
September 30, 2007, RJBank has entered into reverse repurchase agreements
totaling $905 million with two counterparties, with individual exposures of
$500
million and $405 million. Although RJBank is exposed to risk that these
counterparties may not fulfill their contractual obligations, the risk of
default is minimal due to the creditworthiness of these counterparties,
collateral received and the short duration of these agreements.
As
of
September 30, 2007, RJBank had not settled the purchases of $300.6 million
in
syndicated loans. These loans are expected to be settled during the three months
ended December 31, 2007.
See
Note
20 of the Notes to Consolidated Financial Statements with respect to RJBank’s
commitments to extend credit and other credit-related off balance sheet
financial instruments such as standby letters of credit and loan
purchases.
As
part
of an effort to increase brand awareness, the Company entered into a stadium
naming rights contract in July 1998. The contract expires in 2016 and has a
4%
annual escalator. Expenses of $3.0 million, $2.9 million and $2.8 million were
recognized in the fiscal 2007, 2006 and 2005, respectively.
In
the
normal course of business, the Company enters into underwriting commitments.
Transactions relating to such commitments of RJA that were open at September 30,
2007 and were subsequently settled had no material effect on the consolidated
financial statements as of that date. Transactions relating to such commitments
of RJ Ltd. that were recorded and open at September 30, 2007 were approximately
$11.8 million.
The
Company utilizes client marginable securities to satisfy deposits with clearing
organizations. At September 30, 2007, the Company had client margin securities
valued at $135.7 million pledged with a clearing organization to meet the point
in time requirement of $67.5 million. At September 30, 2006, the Company had
client margin securities valued at $93.5 million pledged with a clearing
organization to meet the point in time requirement of $57.4
million.
In September 2007, Sirchie Acquisition Company, LLC (“SAC”), a 100% owned
indirect subsidiary of the Company, entered into two agreements. Under the
Stock
Purchase Agreement SAC will acquire 51% of the common stock of Law Enforcement
Associates Corporation from two sellers. Under the Stock and Asset Purchase
Agreement with several sellers, SAC will acquire substantially all of the
business, assets, and properties of Sirchie Finger Print Laboratories, Inc.,
the
assets or stock of several other companies and certain real estate. SAC and
sellers negotiated a single purchase price for all of the items to be acquired
under the two agreements. At closing, one of the sellers will become a member
of
SAC. The Company’s share of the purchase price obligation is approximately $50
million. The closing of the two agreements is expected to occur before January
31, 2008.
The Company has committed a total of $46.6 million, in amounts ranging from
$200,000 to $2 million, to 41 different independent venture capital or private
equity partnerships. As of September 30, 2007, the Company has invested $30.4
million of that amount and has received $27 million in distributions.
Additionally, the Company is the general partner in two internally sponsored
private equity limited partnerships to which it has committed $14 million.
Of
that amount, the Company has invested $12.2 million and has received $8.6
million in distributions as of September 30, 2007.
The
Company is the general partner in EIF Funds. These limited partnerships invest
in the merchant banking and private equity activities of the Company and other
unaffiliated venture capital limited partnerships. The EIF Funds were
established as compensation and retention measures for certain qualified key
employees of the Company. At September 30, 2007, the funds have unfunded
commitments of $3.4 million.
At
September 30, 2007, the approximate market values of collateral received that
can be repledged by the Company, were:
Sources
of Collateral (In 000's):
|
|
Securities
Purchased Under Agreements to Resell and Other
|
|
Collateralized
Financings
|
$
1,310,415
|
Securities
Received in Securities Borrowed Vs. Cash Transactions
|
1,279,127
|
Collateral
Received for Margin Loans
|
1,472,819
|
Total
|
$
4,062,361
|
During
the year certain collateral was repledged. At September 30, 2007, the
approximate market values of this portion of collateral and financial
instruments owned that were repledged by the Company, were:
Uses
of Collateral and Trading Securities (In 000's):
|
|
Securities
Purchased Under Agreements to Resell and Other
|
|
Collateralized
Financings
|
$ 253,522
|
Securities
Received in Securities Borrowed Vs. Cash Transactions
|
1,248,775
|
Collateral
Received for Margin Loans
|
148,596
|
Total
|
$
1,650,893
|
In
the
normal course of business, certain subsidiaries of the Company act as general
partner and may be contingently liable for activities of various limited
partnerships. These partnerships engaged primarily in 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.
The
Company and its subsidiaries maintain one committed and several uncommitted
lines of credit denominated in U.S. dollars and one uncommitted line of credit
denominated in Canadian dollars (“CDN”). At September 30, 2007, the aggregate
domestic lines were $1.26 billion and CDN $40 million, respectively. There
were
no outstanding balances against these lines of credit at September 30, 2007.
The
interest rates for these lines of credit are variable and are based on the
Fed
Funds rate, LIBOR, and Canadian prime rate. The Company’s committed $200 million
line of credit is subject to a 0.125% per annum facility fee. RJBank has $55
million in FHLB advances outstanding at September 30, 2007, which are comprised
of one short-term, fixed rate advance and several long-term, fixed rate
advances. RJBank had $1.32 billion in credit available from the FHLB at
September 30, 2007. During the three months ended June 30, 2007, the Company
entered into a $500 million uncommitted tri-party repurchase agreement line
of
credit. Under this agreement, the Company pledges certain of its trading
inventory as collateral against borrowings on this line. The required market
value of the collateral is generally 102% of the cash borrowed. The rate is
set
each day at 25 basis points over the opening Fed Funds rate and this agreement
can be terminated by any party on any business day. Under this agreement, there
were secured short-term borrowings of $195,000,000 outstanding at September
30,
2007 which are included in Securities Sold Under Agreement to
Repurchase.
The
Company’s joint ventures in Turkey and Argentina have multiple settlement lines
of credit. The Company has guaranteed certain of these settlement lines of
credit as follows: four in Turkey totaling $22.5 million and one in Argentina
for $3.0 million. On September 30, 2007, there were no outstanding balances
on
the settlement lines in Argentina and Turkey. At September 30, 2007 the
aggregate unsecured settlement lines of credit available were $76.5 million,
and
there were outstanding balances of $2.7 million on these lines. The Company
has
also from time to time authorized performance guarantees for the completion
of
trades with counterparties in Argentina and Turkey. At September 30, 2007,
there
were no outstanding performance guarantees in Argentina or Turkey.
The
Company guarantees the existing mortgage debt of RJA of approximately $65
million. The Company guarantees interest rate swap obligations of RJ Capital
Services, Inc. The Company has also committed to lend to or guarantee
obligations of RJTCF of up to $100 million upon request, subject to certain
limitations as well as annual review and renewal. RJTCF borrows in order to
invest in partnerships which purchase and develop properties qualifying for
tax
credits. These investments in project partnerships are then sold to various
tax
credit funds, which have third party investors, and for which RJTCF serves
as
the managing member or general partner. RJTCF typically sells these investments
within 90 days of their acquisition, and the proceeds from the sales are used
to
repay RJTCF’s borrowings. Additionally, RJTCF may make short-term loans or
advances to project partnerships on behalf of the tax credit funds in which
it
serves as managing member or general partner. At September 30, 2007, cash funded
to invest in either loans or investments in project partnerships was $38.7
million. In addition, at September 30, 2007, RJTCF is committed to additional
future fundings of $6.1 million related to project partnerships that have not
yet been sold to various tax credit funds. RJTCF has also issued certain
guarantees to various third parties related to elements of specific performance
of certain project partnerships which have been sold to various tax credit
funds. RJTCF is not the primary guarantor of these obligations which aggregate
to a cumulative maximum obligation of approximately $5.1 million as of September
30, 2007.
See
Note
14 of the Notes to Consolidated Financial Statements with respect to the
Company's legal and regulatory proceedings.
NOTE
14 – LEGAL AND REGULATORY PROCEEDINGS:
As
a
result of the extensive regulation of the securities industry, the Company's
broker-dealer subsidiaries are subject to regular reviews and inspections by
regulatory authorities and self-regulatory organizations, which can result
in
the imposition of sanctions for regulatory violations, ranging from non-monetary
censure to fines and, in serious cases, temporary or permanent suspension from
business. In addition, from time to time regulatory agencies and self-regulatory
organizations institute investigations into industry practices, which can also
result in the imposition of such sanctions.
Raymond
James Yatyrym Menkul Kyymetler A. S., (“RJY”), the Company’s Turkish affiliate,
was assessed for the year 2001 approximately $7.6 million by the Turkish tax
authorities. The authorities applied a significantly different methodology
than
in the prior year’s audit which the Turkish tax court affirmed. RJY is
vigorously contesting most aspects of this assessment and has filed an appeal
with the Turkish Counsel of State. A significant portion of the matters at
issue
involved the activities of an employee terminated in 2004. Audits of 2002
through 2004 are anticipated and their outcome is unknown in light of the change
in methodology and the pending litigation. As
such,
the potential tax liability combined for these subsequent
years could range from a few hundred thousand dollars to $7.5
million. The Company has recorded a provision for loss in its
consolidated financial statements for its net equity interest in this joint
venture. As of September 30, 2007, RJY had total capital of approximately $12.2
million, of which the Company owns approximately 73%.
The
Company is a defendant or co-defendant in various lawsuits and arbitrations
incidental to its securities business. The Company is contesting the allegations
in these cases and believes that there are meritorious defenses in each of
these
lawsuits and arbitrations. 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 the Company's management,
based on current available information, review with outside legal counsel,
and
consideration of amounts provided for in the accompanying consolidated financial
statements with respect to these matters, ultimate resolution of these matters
will not have a material adverse impact on the Company's financial position
or
results of operations. However, resolution of one or more of these matters
may
have a material effect on the results of operations in any future period,
depending upon the ultimate resolution of those matters and upon the level
of
income for such period.
NOTE
15 - CAPITAL TRANSACTIONS:
The
following table presents information on a monthly basis for purchases of the
Company’s stock for the quarter ended September 30, 2007:
|
Number
of
|
|
Average
|
Period
|
Shares
Purchased (1)
|
|
Price
Per Share
|
|
|
|
|
July
1, 2007 – July 31, 2007
|
-
|
|
$ -
|
August
1, 2007 – August 31, 2007
|
-
|
|
-
|
September
1, 2007 – September 30, 2007
|
1,548
|
|
33.64
|
Total
|
1,548
|
|
$33.64
|
(1)
|
The
Company does not have a formal stock repurchase plan. Shares are
repurchased at the discretion of management pursuant to prior
authorization from the Board of Directors. On May 20, 2004, the Board
of
Directors authorized purchases of up to $75 million. Since that date
461,500 shares have been repurchased for a total of $9.6 million,
leaving
$65.4 million available to repurchase shares. Historically the Company
has
considered such purchases when the price of its stock approaches 1.5 times
book value or when employees surrender shares as payment for option
exercises. The decision to repurchase shares is subject to cash
availability and other factors. During 2007 and 2006, 69,986 and
189,664
shares were repurchased at an average price of $31.54 and $28.97,
respectively. During the three months ended December 31, 2006, 42,618
shares were purchased for the trust fund that was established and
funded
to acquire Company common stock in the open market to be used to
settle
restricted stock units granted as a retention vehicle for certain
employees of the Company’s wholly owned Canadian subsidiary (see Note 17
below for more information on this trust fund). With the exception
of the
shares purchased through this trust fund, the Company only purchased
shares during the balance of the year that were surrendered by employees
as a payment for option exercises.
|
NOTE
16 - OTHER COMPREHENSIVE INCOME:
The
activity in other comprehensive income and related tax effects are as
follows:
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
(in
000's)
|
|
|
|
|
Net
Unrealized (Loss) Gain on Available for Sale Securities, Net
of
|
|
|
|
Tax
Effect Of ($1,217) in 2007, $129 in 2006, and $51 in 2005
|
$ (2,150)
|
$ 217
|
$ 79
|
|
|
|
|
Net
Unrealized Gain on Interest Rate Swaps Accounted for as Cash
Flow
|
|
|
|
Hedges,
Net of Tax Effect of $0 in 2007, $28 in 2006, and
|
|
|
|
$566
in 2005
|
-
|
44
|
882
|
|
|
|
|
Net
Change in Currency Translations, Net of Tax Effect of $11,463
in
|
|
|
|
2007,
$1,312 in 2006, and $3,078 in 2005
|
20,246
|
2,202
|
4,796
|
|
|
|
|
Other
Comprehensive Income
|
$
18,096
|
$
2,463
|
$
5,757
|
The
components of accumulated other comprehensive income, net of income
taxes:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
|
|
|
Net
Unrealized (Loss) Gain on Securities Available for Sale, Net of Tax
Effect
of ($998) in 2007
|
|
|
and
$245 in 2006
|
$ (1,747)
|
$ 403
|
|
|
|
Net
Currency Translations, Net of Tax Effect of $18,593 in 2007 and $7,285
in
2006
|
31,938
|
11,692
|
|
|
|
Accumulated
Other Comprehensive Income
|
$ 30,191
|
$
12,095
|
NOTE
17 - 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. The plans are noncontributory. Contributions by the
Company, if any, are determined annually by the Company’s Board of Directors on
a discretionary basis and are recognized as compensation cost throughout the
year. Benefits become fully vested after seven years of qualified service.
All
shares owned by the ESOP are included in earnings per share calculations. Cash
dividends paid to the ESOP are reflected as a reduction of retained earnings.
The number of shares of RJF common stock held by the ESOP at September 30,
2007
and 2006 was approximately 5,538,000 and 5,370,000, respectively. The Company
also offers a plan pursuant to section 401(k) of the Internal Revenue Code,
which 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
Long Term Incentive Plan (“LTIP”) is a non-qualified deferred compensation plan
that provides benefits to employees who meet certain compensation or production
requirements. The Company has purchased and holds life insurance on the lives
of
most of those employees participating in the LTIP, to earn a competitive rate
of
return for participants and to provide a source of funds available to satisfy
its obligations under this plan. Contributions to the qualified plans and the
LTIP contribution for management are made in amounts approved annually by the
Board of Directors. Compensation expense includes aggregate contributions to
these plans of $40,476,439, $36,912,285, and $26,872,875 for fiscal years 2007,
2006, and 2005, respectively.
Stock-Based
Compensation Plans
At
September 30, 2007, the Company had multiple stock-based employee compensation
plans, which are described below. The Company issues new shares under all plans
approved by shareholders. Effective October 1, 2005, the Company adopted SFAS
No. 123R, “Share-Based Payment”. The adoption of this statement did not have a
material impact on the Company’s consolidated financial statements given that it
adopted the fair value recognition provisions of SFAS No. 123 effective
September 28, 2002 using the modified prospective application transition method
within the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation
– Transition and Disclosure”. Prior to the adoption of SFAS No. 123R, benefits
of tax deductions in excess of recognized compensation costs were reported
as
operating cash flows. SFAS No. 123R requires excess tax benefits to be reported
as a financing cash inflow rather than as a reduction of taxes paid, as part
of
operating cash flows.
Fixed
Stock Option Plans
The
Company has two qualified and two non-qualified fixed stock option plans
available for grants to employees and members of the Company’s Board of
Directors. Under the 2002 Incentive Stock Option Plan, one of the Company’s
qualified plans, the Company may grant options to its management personnel
for
up to 9,000,000 shares of common stock. The 2002 Plan was established to
replace, on substantially the same terms and conditions, the 1992 Plan. As
of
September 30, 2007, the 1992 Plan still has options outstanding. Options are
granted to key administrative employees and Financial Advisors of Raymond James
& Associates, Inc. who achieve certain gross commission levels. Options 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, disabled,
deceased or recently retired.
As
noted
above, the Company has two non-qualified fixed stock option plans. Under the
first of those plans, the Company may grant up to 854,298 shares of common
stock
to the Company's outside directors. Options vest over a three-year period from
grant date provided that the director is still serving on the Board of the
Company. Under the Company's second non-qualified stock option plan, the Company
may grant up to 2,531,250 shares of common stock to key management personnel.
Option terms are specified in individual agreements and expire on a date no
later than the tenth anniversary of the grant date. Under all fixed stock option
plans, the exercise price of each option equals the market price of the
Company's stock on the date of grant.
The
Company’s net income for the years ended September 30, 2007, September 30, 2006,
and September 30, 2005 includes $5.9 million, $5.6 million, and $6.2 million,
respectively, of compensation costs and $212,000, $281,000, and $293,000,
respectively of income tax benefits related to the Company’s four fixed stock
option plans available for grants to employees and members of its Board of
Directors.
These
amounts may not be representative of future stock-based compensation expense
since the estimated fair value of stock options is amortized to expense straight
line over the vesting period and additional options may be granted in future
years. The fair value of each fixed option grant for these plans is estimated
on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for stock option grants in years
ended 2007, 2006, and 2005:
|
2007
|
|
2006
|
|
2005
|
Dividend
Yield
|
1.32%
|
|
1.19%
|
|
1.10%
|
Expected
Volatility
|
29.44%
|
|
29.38%
|
|
38.56%
|
Risk-free
Interest Rate
|
4.68%
|
|
4.41%
|
|
3.69%
|
Expected
Lives
|
4.8
yrs
|
|
4.9
yrs
|
|
5.1
yrs
|
The
dividend yield assumption is based on the Company’s current declared dividend as
a percentage of the stock price. The expected volatility assumption for the
current period and fiscal 2006 is based on the Company’s historical stock price
and is a weighted average combining (1) the volatility of the most recent year,
(2) the volatility of the most recent time period equal to the expected lives
assumption, and (3) the annualized volatility of the price of the Company’s
stock since the late 1980’s. The expected volatility used by the Company in
fiscal 2005 was based on the annualized volatility of the price of the Company’s
stock since the late 1980’s. The risk-free interest rate assumption is based on
the U.S. Treasury yield curve in effect at the time of grant of the options.
The
expected lives assumption is based on the average of (1) the assumption that
all
outstanding options will be exercised at the midpoint between their vesting
date
and full contractual term and (2) the assumption that all outstanding options
will be exercised at their full contractual term.
A
summary
of option activity of the Company's four fixed stock option plans available
for
grants to employees and members of its Board of Directors for the year ended
September 30, 2007 is presented below:
|
|
|
Weighted
|
|
|
|
Weighted
|
Average
|
|
|
|
Average
|
Remaining
|
Aggregate
|
|
Options
For
|
Exercise
|
Contractual
|
Intrinsic
|
|
Shares
|
Price
($)
|
Term
(Years)
|
Value
($)
|
Outstanding
at
|
|
|
|
|
October
1, 2006
|
5,354,323
|
$
18.02
|
-
|
$ -
|
Granted
|
268,872
|
31.71
|
-
|
-
|
Exercised
|
(1,475,530)
|
14.29
|
-
|
-
|
Canceled
|
(148,539)
|
21.13
|
-
|
-
|
Expired
|
(13,500)
|
15.06
|
-
|
-
|
Outstanding
at
|
|
|
|
|
September
30, 2007
|
3,985,626
|
$
20.19
|
2.52
|
$
50,459,546
|
Exercisable
at
|
|
|
|
|
September
30, 2007
|
1,002,972
|
$
15.26
|
1.05
|
$
17,644,932
|
As
of
September 30, 2007, there was $9.6 million of total unrecognized compensation
cost related to stock options for these plans. These costs are expected to
be
recognized over a weighted average period of approximately 2.2 years. The
weighted average grant date fair value of stock options granted under these
plans during the years ended September 30, 2007, September 30, 2006 and
September 30, 2005 was $9.37 per share, $7.36 per share and $6.44 per share,
respectively. The total intrinsic value of stock options exercised for these
plans during the years ended September 30, 2007, September 30, 2006 and
September 30, 2005 was $25.0 million, $15.3 million and $11.2 million,
respectively. The total grant date fair value of stock options vested for these
plans during the years ended September 30, 2007, September 30, 2006 and
September 30, 2005 was $8.0 million, $5.4 million and $7.0 million,
respectively.
Cash
received from stock option exercises for these plans for the year ended
September 30, 2007 was $20.2 million. The actual tax benefit realized for the
tax deductions from option exercise for these stock option plans was $612,000
for the year ended September 30, 2007.
Restricted
Stock Plan
Under
the
2005 Restricted Stock Plan the Company is authorized to issue up to 4,250,000
restricted stock units or restricted shares of common stock to employees and
independent contractors. The 2005 Plan was established to replace, on
substantially the same terms and conditions, the 1999 Plan. During the three
months ended March 31, 2006, this plan was amended to allow the issuance of
restricted stock units as retention measures for certain employees of the
Company. In addition, the Company, through its wholly owned Canadian subsidiary,
established a trust fund which is associated with the 2005 Plan. This trust
fund
was established and funded to enable the trust fund to acquire Company common
stock in the open market to be used to settle restricted stock units granted
as
a retention vehicle for certain employees of the Canadian subsidiary. Awards
under this plan may be granted by the Company in connection with initial
employment or under various retention plans for individuals who are responsible
for a contribution to the management, growth, and/or profitability of the
Company. These awards are forfeitable in the event of termination other than
for
death, disability or retirement. The compensation cost is recognized over the
vesting period of the awards and is calculated as the market value of the awards
on the date of grant. The following employee related activity occurred during
the year ended September 30, 2007:
|
|
Weighted
|
|
|
Average
|
|
|
Grant
Date
|
|
Shares/Units
|
Fair
Value ($)
|
Nonvested
at
|
|
|
October
1, 2006
|
1,855,869
|
$
21.77
|
Granted
|
930,060
|
30.73
|
Vested
|
(139,526)
|
17.02
|
Canceled
|
(95,735)
|
25.04
|
Nonvested
at
|
|
|
September
30, 2007
|
2,550,668
|
$
25.30
|
The
Company’s net income for the year ended September 30, 2007 includes $11.7
million of compensation costs and $4.5 million of income tax benefits related
to
the Company’s Restricted Stock Plan. The Company’s net income for the years
ended September 30, 2006 and September 30, 2005 includes $7.5 million and $3.7
million, respectively, of compensation costs and $2.9 million and $1.4 million,
respectively, of income tax benefits related to this plan.
As
of
September 30, 2007, there was $44.2 million of total unrecognized compensation
cost related to grants under the Company’s Restricted Stock Plan. These costs
are expected to be recognized over a weighted average period of approximately
3.4 years. The total fair value of shares vested under this plan during the
year
ended September 30, 2007 was $2.4 million.
Employee
Stock Purchase Plan
Under
the
2003 Employee Stock Purchase Plan, the Company is authorized to issue up to
3,375,000 shares of common stock to its full-time employees, nearly all of
whom
are eligible to participate. Under the terms of the Plan, employees can choose
each year to have up to 20% of their annual compensation specified to purchase
the Company's common stock. Share purchases in any calendar year are limited
to
the lesser of 1,000 shares or shares with a market value of $25,000. The
purchase price of the stock is 85% of the market price on the day prior to
the
purchase date. Under the Plan the Company sold approximately 444,000, 379,000
and 493,000 shares to employees during the years ended September 30, 2007,
September 30, 2006 and September 30, 2005, respectively. The compensation cost
is calculated as the value of the 15% discount from market value and was $2.1
million, $1.6 million and $1.4 million during the years ended September 30,
2007, September 30, 2006 and September 30, 2005, respectively.
Stock
Bonus Plan
The
Company's 2007 Stock Bonus Plan authorizes the Company to issue up to 3,000,000
restricted shares to officers and certain other employees in lieu of cash for
10% to 20% of annual bonus amounts in excess of $250,000. The 2007
Plan was established to replace, on substantially the same terms and conditions,
the 1999 Plan. The determination of the number of shares to be
granted may encompass a discount from market value at the discretion of the
Compensation Committee of the Board of Directors. Under the plan the shares
are
generally restricted for a three year period, during which time the shares
are
forfeitable in the event of voluntary termination other than for death,
disability or retirement. The compensation cost is recognized over the
three-year vesting period based on the market value of the shares on the date
of
grant. The following activity occurred during the year ended September 30,
2007:
|
|
Weighted
|
|
|
Average
|
|
|
Grant
Date
|
|
Shares
|
Fair
Value ($)
|
Nonvested
at
|
|
|
October
1, 2006
|
989,946
|
$
21.49
|
Granted
|
339,969
|
30.73
|
Vested
|
(217,145)
|
16.75
|
Canceled
|
(16,989)
|
25.06
|
Nonvested
at
|
|
|
September
30, 2007
|
1,095,781
|
$
25.24
|
The
Company’s net income for the year ended September 30, 2007 includes $9.1 million
of compensation costs and $3.5 million of income tax benefits related to the
Company’s Stock Bonus Plan. The Company’s net income for the years ended
September 30, 2006 and September 30, 2005 includes $5.4 million and $3.5
million, respectively, of compensation costs and $2.0 million and $1.3 million,
respectively, of income tax benefits related to this plan.
As
of
September 30, 2007, there was $10.2 million of total unrecognized compensation
cost related to grants under the Company’s Stock Bonus Plan. These costs are
expected to be recognized over a weighted average period of approximately 1.2
years. The total fair value of shares vested under this plan during the fiscal
year ended September 30, 2007 was $3.6 million.
Employee
Investment Funds
Certain
key employees of the Company participate in the Raymond James Employee
Investment Funds I and II, which are limited partnerships that invest in the
merchant banking and venture capital activities of the Company and other
unaffiliated venture capital limited partnerships. The Company makes
non-recourse loans to these employees for two thirds of the purchase price
per
unit. The loans and applicable interest are to be repaid based solely on the
distributions from the funds.
NOTE
18 – NON-EMPLOYEE STOCK-BASED COMPENSATION:
Under
two
of its non-qualified fixed stock option plans, the Company may grant stock
options to its independent contractor Financial Advisors. Under the 2007 Stock
Option Plan for Independent Contractors, the Company may grant up to 2,000,000
shares of common stock to independent contractor Financial Advisors. The 2007
Plan was established to replace, on substantially the same terms and conditions,
the 1990 Plan. As of September 30, 2007, the 1990 Plan still has options
outstanding. Options are exercisable five years after grant date provided that
the Financial Advisors are still associated with the Company, disabled, deceased
or recently retired. Under these fixed stock option plans, the exercise price
of
each option equals the market price of the Company's stock on the date of
grant.
Prior
to
fiscal 2006, the Company valued stock options awarded to its independent
contractor Financial Advisors at fair value on the date of grant and amortized
these options over their expected service period in accordance with SFAS No.
123. However, after further analysis on the application of SFAS No. 123R, the
SEC guidance contained in Staff Accounting Bulletin (“SAB”) No. 107, and
Emerging Issues Task Force (“EITF”) No. 96-18, “Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services”, to these non-employee awards, the
Company concluded that absent a specific performance commitment, these grants
are to be measured at their vesting date fair value and their fair value
estimated at reporting dates prior to that time. The compensation expense
recognized each period should be based on the most recent estimated value.
The
Company’s recording of compensation expenses prior to fiscal 2006 for these
grants were an estimate based on grant date fair value. Fiscal 2006 includes
the
effect of the change for that year. The effect on years prior to fiscal 2006
was
not material. Further, in accordance with EITF 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock,” the Company classifies these non-employee awards as liabilities at fair
value upon vesting, with changes in fair value reported in earnings until these
awards are exercised or forfeited.
The
Company’s net income for the years ended September 30, 2007, September 30, 2006,
and September 30, 2005 includes $7.0 million, $9.7 million, and $2.1 million,
respectively, of compensation costs and $2.7 million, $3.7 million, and
$804,000, respectively, net of income tax benefits related to option grants
to
its independent contractor Financial Advisors.
The
fair
value of each fixed option grant awarded to an independent contractor Financial
Advisor is estimated on the date of grant and periodically revalued using the
Black-Scholes option pricing model with the following weighted average
assumptions used for fiscal years ended 2007, 2006, and
2005:
|
2007
|
|
2006
|
|
2005
|
Dividend
Yield
|
1.27%
|
|
1.11%
|
|
1.10%
|
Expected
Volatility
|
29.65%
|
|
30.89%
|
|
38.20%
|
Risk-free
Interest Rate
|
4.70%
|
|
4.62%
|
|
3.37%
|
Expected
Lives
|
2.92
yrs
|
|
2.76
yrs
|
|
2.56
yrs
|
The
dividend yield assumption is based on the Company’s current declared dividend as
a percentage of the stock price. The expected volatility assumption for the
current period and fiscal 2006 is based on the Company’s historical stock price
and is a weighted average combining (1) the volatility of the most recent year,
(2) the volatility of the most recent time period equal to the expected lives
assumption, and (3) the annualized volatility of the price of the Company’s
stock since the late 1980’s. The expected volatility used by the Company in
fiscal 2005 was based on the annualized volatility of the price of the Company’s
stock since the late 1980’s. The risk-free interest rate assumption is based on
the U.S. Treasury yield curve in effect at each point in time the options are
valued. The expected lives assumption is based on the difference between the
option’s vesting date plus 90 days (the average exercise period) and the date of
the current reporting period.
A
summary
of option activity of the Company's fixed stock option plans under which awards
are granted to its independent contractor Financial Advisors for the year ended
September 30, 2007 is presented below:
|
|
|
Weighted
|
|
|
|
Weighted
|
Average
|
|
|
|
Average
|
Remaining
|
Aggregate
|
|
Options
For
|
Exercise
|
Contractual
|
Intrinsic
|
|
Shares
|
Price
($)
|
Term
(Years)
|
Value
($)
|
Outstanding
at
|
|
|
|
|
October
1, 2006
|
1,687,325
|
$
16.64
|
-
|
-
|
Granted
|
327,200
|
31.78
|
-
|
-
|
Exercised
|
(383,728)
|
15.27
|
-
|
-
|
Canceled
|
(58,568)
|
17.73
|
-
|
-
|
Expired
|
(4,263)
|
19.62
|
-
|
-
|
Outstanding
at
|
|
|
|
|
September
30, 2007
|
1,567,966
|
$
20.25
|
3.17
|
$
19,761,733
|
Exercisable
at
|
|
|
|
|
September
30, 2007
|
107,675
|
$
13.54
|
0.71
|
$ 2,078,723
|
As
of
September 30, 2007, there was $7.7 million of total unrecognized compensation
cost related to unvested stock options granted to its independent contractor
Financial Advisors based on estimated fair value at that date. These costs
are
expected to be recognized over a weighted average period of approximately 2.3
years. The weighted average grant date fair value of stock options granted
under
these plans during the years ended September 30, 2007, September 30, 2006 and
September 30, 2005 was $9.70 per share, $11.87 per share and $9.51 per share,
respectively. The total intrinsic value of stock options exercised for these
plans during the years ended September 30, 2007, September 30, 2006 and
September 30, 2005 was $6.1 million, $5.6 million and $2.7 million,
respectively. The total estimated fair value of stock options vested for these
plans during the years ended September 30, 2007, September 30, 2006 and
September 30, 2005 was $6.2 million, $4.1 million and $3.5 million,
respectively.
Cash
received from stock option exercises for these plans for the year ended
September 30, 2007 was $5.9 million. There were no actual tax benefits realized
for the tax deductions from option exercise of awards to its independent
contractor Financial Advisors for the year ended September 30,
2007.
Under
the
2005 Restricted Stock Plan the Company may grant restricted shares of common
stock or restricted stock units to employees and independent contractor
Financial Advisors. The following activity for independent contractor
Financial Advisors occurred during the year ended September 30,
2007:
|
|
Weighted
|
|
|
Average
|
|
|
Grant
Date
|
|
Shares
|
Fair
Value ($)
|
Nonvested
at
|
|
|
October
1, 2006
|
-
|
-
|
Granted
|
75,850
|
$32.85
|
Vested
|
(549)
|
32.85
|
Canceled
|
(900)
|
32.85
|
Nonvested
at
|
|
|
September
30, 2007
|
74,401
|
$32.85
|
The
Company’s net income for the year ended September 30, 2007 includes $276,000 of
compensation costs and $105,000 of income tax benefits related to restricted
shares granted to its independent contractor Financial Advisors.
As
of
September 30, 2007, there was $2.0 million of total unrecognized compensation
cost related to grants issued to its independent contractor Financial Advisors
based on estimated fair value at that date. These costs are expected to be
recognized over a weighted average period of approximately 4.7 years. The total
fair value of shares vested under this plan during the year ended September
30,
2007 was $18,000.
NOTE
19 - REGULATIONS AND CAPITAL REQUIREMENTS:
Certain
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. RJA, a member firm of the Financial Industry Regulatory Authority
(“FINRA”), is also subject to the rules of FINRA, whose requirements are
substantially the same. Rule 15c3-1 requires that aggregate indebtedness, as
defined, not exceed 15 times net capital, as defined. Rule 15c3-1 also provides
for an “alternative net capital requirement”, which RJA, Raymond James Financial
Services, Inc. (“RJFS”) and Heritage Fund Distributors, Inc. (“HFD”) have
elected. It requires that minimum net capital, as defined, be equal to the
greater of $250,000 or two percent of Aggregate Debit Items arising from client
transactions. FINRA may require a member firm to reduce its business if its
net
capital is less than four percent of Aggregate Debit Items and may prohibit
a
member firm from expanding its business and declaring cash dividends if its
net
capital is less than five percent of Aggregate Debit Items. The net capital
position of RJA at September 30, 2007 and September 30, 2006 was as
follows:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
($
in 000's)
|
Raymond
James & Associates, Inc.:
|
|
(Alternative
Method Elected)
|
|
|
Net
Capital as a Percent of Aggregate
|
|
|
Debit
Items
|
21.94%
|
27.58%
|
Net
Capital
|
$
332,873
|
$
369,443
|
Less:
Required Net Capital
|
(30,344)
|
(26,793)
|
Excess
Net Capital
|
$
302,529
|
$
342,650
|
At
September 30, 2007 and September 30, 2006, RJFS had no Aggregate Debit Items
and
therefore the minimum net capital of $250,000 was applicable. The net capital
position of RJFS at September 30, 2007 and September 30, 2006 was as
follows:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
Raymond
James Financial Services, Inc.:
|
|
(Alternative
Method Elected)
|
|
|
Net
Capital
|
$
70,583
|
$
41,200
|
Less:
Required Net Capital
|
(250)
|
(250)
|
Excess
Net Capital
|
$
70,333
|
$
40,950
|
At
September 30, 2007 and September 30, 2006, HFD had no Aggregate Debit Items
and
therefore the minimum net capital of $250,000 was applicable. The net capital
position of HFD at September 30, 2007 and September 30, 2006 was as
follows:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000’s)
|
Heritage
Fund Distributors, Inc.
|
|
(Alternative
Method Elected)
|
|
|
Net
Capital
|
$
6,039
|
$
1,669
|
Less:
Required Net Capital
|
(250)
|
(250)
|
Excess
Net Capital
|
$
5,789
|
$
1,419
|
RJ
Ltd.
is subject to the Minimum Capital Rule (By-Law No. 17 of the Investment Dealers
Association ("IDA") and the Early Warning System (By-Law No. 30 of the IDA).
The
Minimum Capital Rule requires that every member shall have and maintain at
all
times Risk Adjusted Capital greater than zero calculated in accordance with
Form
1 (Joint Regulatory Financial Questionnaire and Report) and with such
requirements as the Board of Directors of the IDA may from time to time
prescribe. Insufficient Risk Adjusted Capital may result in suspension from
membership in the stock exchanges or the IDA.
The
Early
Warning System is designed to provide advance warning that a member firm is
encountering financial difficulties. This system imposes certain sanctions
on
members who are designated in Early Warning Level 1 or Level 2 according to
their capital, profitability, liquidity position, frequency of designation
or at
the discretion of the IDA. Restrictions on business activities and capital
transactions, early filing requirements, and mandated corrective measures are
sanctions that may be imposed as part of the Early Warning System. RJ Ltd.
was
not in Early Warning Level 1 or Level 2 at September 30, 2007 or September
30,
2006.
The
Risk
Adjusted Capital of RJ Ltd. was CDN $47,724,293 and CDN $42,841,000 September
30, 2007 and September 30, 2006, respectively.
The
Company’s other domestic and international broker-dealers are in compliance with
and meet all net capital requirements.
RJBank
is
subject to various regulatory and capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions
by
regulators. Under capital adequacy guidelines and the regulatory framework
for
prompt corrective action, RJBank must meet specific capital guidelines that
involve quantitative measures of RJBank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
RJBank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative
measures established by regulation to ensure capital adequacy require RJBank
to
maintain minimum amounts and ratios (set forth in the table below) of total
and
Tier I Capital (as defined in the regulations) to risk-weighted assets (as
defined). Management believes that, as of September 30, 2007, RJBank meets
all
capital adequacy requirements to which it is subject.
As
of
September 30, 2007, the most recent notification from the Office of Thrift
Supervision categorized RJBank as “well capitalized” under the regulatory
framework for prompt corrective action. To be categorized as “well capitalized”,
RJBank must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as set forth in the table below. There are no conditions
or
events since that notification that management believes have changed RJBank's
category.
|
|
|
To
be well capitalized
|
|
|
Requirement
for capital
|
under
prompt
|
|
|
adequacy
|
corrective
action
|
|
Actual
|
purposes
|
provisions
|
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|
($
in 000's)
|
As
of September 30, 2007:
|
|
|
|
|
|
|
Total
Capital (to
|
|
|
|
|
|
|
Risk-Weighted
Assets)
|
$
420,704
|
10.1%
|
$
332,832
|
8.0%
|
$
416,040
|
10.0%
|
Tier I
Capital (to
|
|
|
|
|
|
|
Risk-Weighted
Assets)
|
368,699
|
8.9%
|
166,416
|
4.0%
|
249,624
|
6.0%
|
Tier I
Capital (to
|
|
|
|
|
|
|
Average
Assets)
|
368,699
|
5.8%
|
253,048
|
4.0%
|
316,309
|
5.0%
|
|
|
|
|
|
|
|
As
of September 30, 2006:
|
|
|
|
|
|
|
Total
Capital (to
|
|
|
|
|
|
|
Risk-Weighted
Assets)
|
$
219,339
|
12.0%
|
$
146,716
|
8.0%
|
$
183,396
|
10.0%
|
Tier I
Capital (to
|
|
|
|
|
|
|
Risk-Weighted
Assets)
|
196,415
|
10.7%
|
73,358
|
4.0%
|
110,037
|
6.0%
|
Tier I
Capital (to
|
|
|
|
|
|
|
Average
Assets)
|
196,415
|
6.4%
|
122,975
|
4.0%
|
153,719
|
5.0%
|
NOTE
20 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET
RISK:
In
the
normal course of business, the Company purchases and sells securities as either
principal or agent on behalf of its clients. If either the client or
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 amounts 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 $1,159,689,000 and
$1,159,615,000, respectively, at September 30, 2007 and $1,034,563,000 and
$1,197,215,000, respectively, at September 30, 2006. The contract value of
securities borrowed and securities loaned was $1,200,798,000 and $1,204,702,000,
respectively, at September 30, 2007 and $1,068,102,000 and $1,235,104,000,
respectively, at September 30, 2006. Additional cash is obtained as necessary
to
ensure such transactions are adequately collateralized. If another party to
the
transaction fails to perform as agreed (for example 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-dealers and other financial institutions,
securities owned by clients and others for which it has received cash or other
collateral. The market value of securities loaned was $74,074,000 at September
30, 2007. 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 collateral received from the financial
institution or the broker-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 $138.4 million and $94 million at September 30, 2007 and September
30,
2006, 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 fiscal
year
end. The Company utilizes short government obligations and equity securities
to
economically hedge long proprietary inventory positions. At September 30, 2007,
the Company had $106,010,000 in short government obligations and $11,048,000
in
short equity securities, which represented economic hedge positions. At
September 30, 2006, the Company had $31,636,000 in short government obligations,
$34,023,000 in short agency securities and $19,068,000 in short equity
securities, which represented hedge positions.
The
Company enters into security transactions involving forward settlement. Forward
contracts provide for the delayed delivery of the underlying instrument. The
Company has entered into transactions with contract values of $2,036,818,000
and
$2,304,629,000 and market values of $2,033,023,000 and $2,297,824,000 as of
September 30, 2007 and September 30, 2006, respectively. The contractual amounts
related to these financial instruments reflect the volume and activity and
do
not reflect the amounts at risk. The gain or loss on these transactions is
recognized on a trade date basis. 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
duration, size, composition and diversification of positions held, the absolute
and relative levels of interest rates, and market volatility. The credit risk
for these transactions is limited to the unrealized market valuation gains
recorded in the Consolidated Statements of Financial Condition.
The
majority of the Company's transactions, and consequently, the concentration
of
its credit exposure is with clients, broker-dealers and other financial
institutions in the U.S. 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.
RJBank
has outstanding at any time a significant number of commitments to extend credit
and other credit-related off balance sheet financial instruments such as standby
letters of credit and loan purchases. These arrangements are subject to strict
credit control assessments and each customer’s credit worthiness is evaluated on
a case-by-case basis. A summary of commitments to extend credit and other
credit-related off balance sheet financial instruments outstanding at September
30, 2007 and 2006, is as follows:
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000's)
|
|
|
|
Standby
Letters of Credit
|
$ 100,397
|
$ 55,193
|
Open
End Consumer Lines of Credit
|
27,871
|
25,772
|
Commercial
Lines of Credit
|
1,218,690
|
760,253
|
Unfunded
Loan Commitments - Variable Rate
|
397,752
|
264,663
|
Unfunded
Loan Commitments - Fixed Rate
|
12,831
|
6,412
|
Because
many loan commitments expire without being funded in whole or part, the contract
amounts are not estimates of future cash flows.
Credit
risk represents the accounting loss that would be recognized at the reporting
date if counterparties failed completely to perform as contracted. The credit
risk amounts are equal to the contractual amounts, assuming that the amounts
are
fully advanced and that the collateral or other security is of no value. RJBank
uses the same credit approval and monitoring process in extending loan
commitments and other credit-related off balance sheet instruments as it does
in
making loans.
RJBank’s
policy is generally to require customers to provide collateral at the time
of
closing. The amount of collateral obtained, if it is deemed necessary by RJBank
upon extension of credit, is based on RJBank’s credit evaluation of the
borrower. Collateral held varies but may include accounts receivable, inventory,
real estate, and income producing commercial properties.
In
the
normal course of business, RJBank issues, or participates in the issuance of,
financial standby letters of credit whereby it provides an irrevocable guarantee
of payment in the event the letter of credit is drawn down by the beneficiary.
As of September 30, 2007, $100.4 million of such letters of credit were
outstanding. Of the letters of credit outstanding, $100 million are underwritten
as part of a larger corporate credit relationship. In the event that a letter
of
credit is drawn down, RJBank would pursue repayment from the account party
under
the existing borrowing relationship, or would liquidate collateral, or both.
The
proceeds from repayment or liquidation of collateral are expected to satisfy
the
maximum potential future amount of any payments of amounts drawn down under
the
existing letters of credit. At September 30, 2007, RJBank had $1.6 million
in
unearned fees related to these instruments. The credit risk involved in issuing
letters of credit is essentially the same as that involved with extending loan
commitments to clients, and accordingly, RJBank uses a credit evaluation process
and collateral requirements similar to those for loan commitments.
NOTE
21 – EARNINGS PER SHARE:
The
following table presents the computation of basic and diluted earnings per
share:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
(in
000’s, except per share amounts)
|
|
|
|
|
Net
Income
|
$ 250,430
|
$ 214,342
|
$ 151,046
|
|
|
|
|
Weighted
Average Common Shares
|
|
|
|
Outstanding
During the Period*
|
115,608
|
112,614
|
110,217
|
|
|
|
|
Dilutive
Effect of Stock Options and Awards (1)*
|
3,085
|
3,124
|
2,831
|
|
|
|
|
Weighted
Average Diluted Common
|
|
|
|
Shares
(1)*
|
118,693
|
115,738
|
113,048
|
|
|
|
|
Net
Income per Share – Basic*
|
$ 2.17
|
$ 1.90
|
$ 1.37
|
|
|
|
|
Net
Income per Share - Diluted (1)*
|
$ 2.11
|
$ 1.85
|
$ 1.33
|
|
|
|
|
Securities
Excluded from Weighted Average
|
|
|
|
Diluted
Common Shares Because Their Effect
|
|
|
|
Would
Be Antidilutive*
|
1,321
|
0
|
108
|
*
2005 amounts have been adjusted for the March 22, 2006 3-for-2 stock split
.
(1)
Diluted earnings per share is computed on the basis of the weighted average
number of shares of common stock plus the effect of dilutive potential common
shares outstanding during the period using the treasury stock method. Dilutive
potential common shares include stock options, units and awards.
NOTE
22 – SEGMENT ANALYSIS:
SFAS
No.
131, “Disclosures about Segments of an Enterprise and Related Information”,
establishes standards for reporting information about operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by
the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. Revisions have been made in
the
segment disclosures for the fiscal years ended September 30, 2006 and 2005
to
conform to the current period presentation. As a result, financial service
fees
revenue and investment advisory fees expense increased by approximately $12.8
million and $11.2 million, respectively, for the fiscal years ended September
30, 2006 and 2005 in the Asset Management segment. These revisions did not
impact the Company’s net income for the fiscal years ended September 30, 2006
and 2005.
The
Company currently operates through the following eight business segments:
Private Client Group; Capital Markets; Asset Management; RJBank; Emerging
Markets; Stock Loan/Borrow; Proprietary Capital and various corporate activities
combined in the "Other" segment. In the quarter ended September 30,
2007, a new segment was established: Proprietary Capital. The components of
this
segment were previously included in Asset Management and Other.
Reclassifications have been made in the segment disclosure for previous years
to
conform to this presentation. The business segments are based upon factors
such
as the services provided and the distribution channels served and are consistent
with how the Company assesses performance and determines how to allocate
resources throughout the Company and its subsidiaries. The financial results
of
the Company's segments are presented using the same policies as those described
in Note 1, “Summary of Significant Accounting Policies”. Segment data includes
charges allocating corporate overhead and benefits to each segment. Intersegment
revenues, charges, receivables and payables are eliminated between segments
upon
consolidation.
The
Private Client Group segment includes the retail branches of the Company's
broker-dealer subsidiaries located throughout the U.S., Canada and the United
Kingdom. These branches provide securities brokerage services including the
sale
of equities, mutual funds, fixed income products and insurance products to
their
individual clients. The segment includes net interest earnings on client margin
loans and cash balances. Additionally, this segment includes the correspondent
clearing services that the Company provides to other broker-dealer
firms.
The
Capital Markets segment includes institutional sales and trading in the U.S.,
Canada and Europe. It provides securities brokerage, trading, and research
services to institutions with an emphasis on the sale of U.S. and Canadian
equities and fixed income products. This segment also includes the Company's
management of and participation in underwritings, merger and acquisition
services, public finance activities, and the operations of Raymond James Tax
Credit Funds.
The
Asset
Management segment includes investment portfolio management services of Eagle
Asset Management, Inc., Awad Asset Management, Inc., and Raymond James
Consulting Services (RJA’s asset management services division), mutual fund
management by Heritage Asset Management, Inc., and trust services of Raymond
James Trust Company and Raymond James Trust Company West. In addition to the
asset management services noted above, this segment also offers fee-based
programs to clients who have contracted for portfolio management services from
outside money managers.
RJBank
is
a separate segment, which provides consumer, residential, and commercial loans,
as well as FDIC-insured deposit accounts to clients of the Company's
broker-dealer subsidiaries and to the general public.
The
Emerging Markets segment includes various joint ventures in Turkey and Latin
America. These joint ventures operate in securities brokerage, investment
banking and asset management.
The
Stock
Loan/Borrow segment involves the borrowing and lending of securities from and
to
other broker-dealers, financial institutions and other counterparties, generally
as an intermediary.
The
Proprietary Capital segment consists of the Company’s principal capital and
private equity activities including: various direct and third party private
equity and merchant banking investments (including Raymond James Capital, Inc.
a
captive private equity business), Special Situations Investments, the EIF Funds,
and two private equity funds sponsored by the Company: Raymond James Capital
Partners, L.P., and Ballast Point Ventures, L.P.
The
Other
segment includes certain corporate activities of the Company.
Information
concerning operations in these segments of business is as follows:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
(in
000’s)
|
Revenues:
|
|
|
|
Private
Client Group
|
$ 1,938,154
|
$ 1,679,813
|
$ 1,397,578
|
Capital
Markets
|
506,498
|
487,419
|
455,151
|
Asset
Management
|
234,875
|
207,821
|
179,845
|
RJBank
|
279,572
|
114,692
|
45,448
|
Emerging
Markets
|
59,083
|
55,263
|
38,768
|
Stock
Loan/Borrow
|
68,685
|
59,947
|
31,876
|
Proprietary
Capital
|
8,280
|
17,312
|
10,952
|
Other
|
14,432
|
23,311
|
8,578
|
Total
Revenues
|
$
3,109,579
|
$
2,645,578
|
$
2,168,196
|
|
|
|
|
Income
Before Provision for Income Taxes:
|
Private
Client Group
|
$ 219,864
|
$ 168,519
|
$ 102,245
|
Capital
Markets
|
68,966
|
78,221
|
77,333
|
Asset
Management
|
60,517
|
48,749
|
40,442
|
RJBank
|
27,005
|
16,003
|
14,204
|
Emerging
Markets
|
3,640
|
2,857
|
5,927
|
Stock
Loan/Borrow
|
5,003
|
8,001
|
5,962
|
Proprietary
Capital
|
3,577
|
8,468
|
4,182
|
Other
|
3,652
|
11,248
|
(2,324)
|
Pre-Tax
Income
|
$ 392,224
|
$ 342,066
|
$ 247,971
|
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
(in
000’s)
|
Net
Interest Income (Expense):
|
Private
Client Group
|
$ 124,656
|
$ 109,116
|
$ 80,011
|
Capital
Markets
|
(8,566)
|
(8,036)
|
1,009
|
Asset
Management
|
1,535
|
1,096
|
394
|
RJBank
|
84,501
|
40,536
|
22,997
|
Emerging
Markets
|
2,967
|
2,180
|
1,422
|
Stock
Loan/Borrow
|
9,409
|
12,354
|
9,003
|
Proprietary
Capital
|
1,122
|
290
|
102
|
Other
|
11,704
|
15,775
|
12,835
|
Net
Interest Income (Expense)
|
$ 227,328
|
$ 173,311
|
$ 127,773
|
The
following table presents the Company's total assets on a segment
basis:
|
|
|
|
September
30,
|
September
30,
|
|
2007
|
2006
|
|
(in
000’s)
|
Total
Assets:
|
|
|
Private
Client Group *
|
$ 6,608,059
|
$ 5,370,018
|
Capital
Markets **
|
1,533,273
|
1,369,479
|
Asset
Management
|
95,894
|
66,007
|
RJBank
|
6,312,966
|
3,074,782
|
Emerging
Markets
|
104,238
|
58,950
|
Stock
Loan/Borrow
|
1,302,937
|
1,250,857
|
Proprietary
Capital
|
115,062
|
57,254
|
Other
|
181,739
|
269,303
|
Total
|
$
16,254,168
|
$
11,516,650
|
*Includes
$46 million of goodwill allocated pursuant to SFAS No. 142, "Goodwill and Other
Intangible Assets".
**Includes
$17 million of goodwill allocated pursuant to SFAS No. 142.
The
Company has operations in the U.S., Canada, Europe and joint ventures in Turkey
and Latin America. Substantially all long-lived assets are located in the U.S.
Revenues, classified by the major geographic areas in which they are earned,
were as follows:
|
Year
Ended
|
|
September
30,
|
September
30,
|
September
30,
|
|
2007
|
2006
|
2005
|
|
(in
000’s)
|
Revenues:
|
|
|
|
United
States
|
$
2,757,314
|
$
2,322,518
|
$
1,923,776
|
Canada
|
249,372
|
222,365
|
162,525
|
Europe
|
52,156
|
52,489
|
46,432
|
Other
|
50,737
|
48,206
|
35,463
|
Total
|
$
3,109,579
|
$
2,645,578
|
$
2,168,196
|
The
Company has $18.4 million invested in emerging market joint ventures, which
carry greater risk than amounts invested in developed markets.
*****
QUARTERLY
FINANCIAL INFORMATION
(unaudited)
2007
|
1st
Qtr.
|
2nd
Qtr.
|
3rd
Qtr.
|
4th
Qtr.
|
|
(in
000’s, except per share data)
|
|
|
|
|
|
Revenues
|
$
709,629
|
$
738,271
|
$
822,753
|
$
838,926
|
Net
Revenues
|
603,900
|
625,719
|
688,660
|
691,636
|
Non-Interest
Expenses
|
513,109
|
530,764
|
583,133
|
600,412
|
Income
Before Income Taxes
|
93,766
|
92,955
|
109,898
|
95,605
|
Net
Income
|
59,395
|
59,715
|
68,353
|
62,967
|
Net
Income per Share – Basic
|
.52
|
.52
|
.59
|
.54
|
Net
Income per Share – Diluted(1)
|
.50
|
.50
|
.57
|
.53
|
Dividends
Declared per Share
|
.10
|
.10
|
.10
|
.10
|
2006
|
1st
Qtr.
|
2nd
Qtr.
|
3rd
Qtr.
|
4th
Qtr.
|
|
(in
000’s, except per share data)
|
|
|
|
|
|
Revenues(2)
|
$
578,397
|
$
660,023
|
$
714,665
|
$
692,493
|
Net
Revenues(2)
|
529,586
|
596,007
|
632,976
|
590,339
|
Non-Interest
Expenses(2)
|
458,766
|
504,743
|
538,647
|
512,845
|
Income
Before Income Taxes
|
71,335
|
95,310
|
96,502
|
78,919
|
Net
Income
|
45,109
|
61,531
|
56,774
|
50,928
|
Net
Income per Share - Basic(3)
|
.41
|
.54
|
.50
|
.45
|
Net
Income per Share - Diluted(3)
|
.40
|
.53
|
.48
|
.44
|
Dividends
Declared per Share(3)
|
.08
|
.08
|
.08
|
.08
|
(1)
|
Due
to rounding the quarterly results do not add to the total for the
year.
|
(2)
|
Financial
service fees revenue and investment advisory fees expense were revised
to
conform to the current year presentation. These revisions did not
impact
the Company’s prior period net income. See Note 1 to the Consolidated
Financial Statements for further
information.
|
(3)
|
Adjusted
for three-for-two stock split paid on March 22,
2006.
|
None.
Disclosure
controls are procedures designed to ensure that information required to be
disclosed in the Company's reports filed under the Exchange Act, such as this
report, is recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms. Disclosure controls are also designed
to
ensure that such information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance of achieving
the
desired control objectives, as the Company's are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Under
the
supervision and with the participation of the Company’s management, including
the Chief Executive Officer and Chief Financial Officer, the Company has
evaluated the effectiveness of its disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15(b) as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that these disclosure controls and procedures
are effective. There were no changes in the Company’s internal control over
financial reporting during the year ended September 30, 2007 that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
REPORT
OF
MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. Internal control
over
financial reporting is a process to provide reasonable assurance regarding
the
reliability of the Company’s financial reporting for external purposes in
accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting includes maintaining records that
in
reasonable detail accurately and fairly reflect the Company’s transactions;
providing reasonable assurance that transactions are recorded as necessary
for
preparation of its financial statements; providing reasonable assurance that
receipts and expenditures of Company assets are made in accordance with
management authorization; and providing reasonable assurance that unauthorized
acquisition, use or disposition of Company assets that could have a material
effect on the Company’s financial statements would be prevented or detected on a
timely basis. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of the Company’s financial statements would be prevented or
detected.
Management
conducted an evaluation of the effectiveness of the Company’s internal control
over financial reporting based on the framework in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations
of the
Treadway Commission (COSO). Based on this evaluation, management concluded
that the Company’s internal control over financial reporting was effective as of
September 30, 2007. KPMG LLP, who audited and reported on the consolidated
financial statements of the Company included in this report, has issued an
attestation report on the Company’s internal control over financial reporting as
of September 30, 2007 (included below).
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Shareholders
Raymond
James Financial, Inc.:
We
have
audited Raymond James Financial, Inc.’s internal control over financial
reporting as of September 30, 2007, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Raymond James Financial,
Inc.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Report of
Management on Internal Control Over Financial Reporting. Our responsibility
is
to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, Raymond James Financial, Inc. maintained, in all material respects,
effective internal control over financial reporting as of September 30, 2007,
based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Consolidated Statements of Financial
Condition of Raymond James Financial, Inc. and subsidiaries as of September
30,
2007 and 2006, and the related Consolidated Statements of Income and
Comprehensive Income, Changes in Shareholders’ Equity, and Cash Flows for each
of the years in the three-year period ended September 30, 2007, and our report
dated November 29, 2007 expressed an unqualified opinion on those
consolidated financial statements.
KPMG
LLP
Tampa,
Florida
November
29, 2007
Certified
Public Accountants
None.
PART
III
Executive
officers of the registrant (including its significant subsidiaries) who are
not
Directors of the registrant are as follows:
Jennifer
C. Ackart
|
43
|
Controller
and Chief Accounting Officer
|
|
|
|
Richard
G. Averitt, III
|
62
|
Chairman
and CEO - Raymond James Financial Services, Inc.
|
|
|
|
Peter
A. Bailey
|
65
|
President
and CEO – Raymond James Ltd.
|
|
|
|
George
Catanese
|
48
|
Senior
Vice President and Chief Risk Officer
|
|
|
|
Tim
Eitel
|
58
|
Chief
Information Officer - Raymond James & Associates
|
|
|
|
Jeffrey
P. Julien
|
51
|
Senior
Vice President - Finance and Chief Financial Officer, Director and/or
officer
|
|
|
of
several RJF subsidiaries
|
|
|
|
Paul
L. Matecki
|
52
|
Senior
Vice President - General Counsel, Director of Compliance -
RJF
|
|
|
|
Richard
K. Riess
|
58
|
Executive
Vice President - RJF,
|
|
|
CEO
and Director of both Eagle and Heritage
|
|
|
|
Van
C. Sayler
|
52
|
Senior
Vice President - Fixed Income, Raymond James &
Associates
|
|
|
|
Thomas
R. Tremaine
|
51
|
Executive
Vice President - Operations and Administration, Raymond James
&
|
|
|
Associates
|
|
|
|
Jeffrey
E. Trocin
|
48
|
Executive
Vice President - Equity Capital Markets, Raymond James &
Associates
|
|
|
|
Dennis
W. Zank
|
53
|
President
- Raymond James & Associates
|
The
information required by Item 10 is incorporated herein by reference to the
registrant's definitive proxy statement for the 2008 Annual Meeting of
Shareholders. Such proxy statement will be filed with the SEC prior to January
10, 2008.
The
information required by Items 11, 12, 13 and 14 is incorporated herein by
reference to the registrant's definitive proxy statement for the 2008 Annual
Meeting of Shareholders. Such proxy statement will be filed with the SEC prior
to January 10, 2008.
PART
IV
(a)
|
Financial
Statements and Schedules
|
The
financial statements are set forth under Item 8 of this Annual Report on Form
10-K. Financial statement schedules have been omitted since they are either
not
required, not applicable, or the information is otherwise included.
(b)Exhibit
Listing
Exhibit
Number
|
Description
|
|
|
|
|
3(i).1
|
Amended
and restated Articles of Incorporation of Raymond James Financial,
Inc. as
filed with the Secretary of State Florida on March 21, 2001, incorporated
by reference to Exhibit 3.1 as filed with Form 10-K on December 21,
2001.
|
|
|
|
|
3(i).2
|
Articles
of Amendment to Articles of Incorporation of Raymond James Financial,
Inc., incorporated by reference to Exhibit 3 as filed with Form 10-Q
on
May 4, 2005.
|
|
|
|
|
3(ii).1
|
Amended
and Restated By-Laws of Raymond James Financial, Inc. reflecting
amendments adopted by the Board of Directors on May 25, 2006, incorporated
by reference to Exhibit 3(ii) as filed with Form 10-Q on August 9,
2006.
|
|
|
|
|
3(ii).2
|
Amended
and Restated By-Laws of Raymond James Financial, Inc. reflecting
amendments adopted by the Board of Directors on May 24, 2007, incorporated
by reference to Exhibit 3(ii).1 as filed with Form 10-Q on August
9,
2007.
|
|
|
|
|
3(ii).3
|
Amended
and Restated By-Laws of Raymond James Financial, Inc. reflecting
amendments adopted by the Board of Directors on June 28, 2007,
incorporated by reference to Exhibit 3(ii).2 as filed with Form 10-Q
on
August 9, 2007.
|
|
|
|
|
10.1*
|
Raymond
James Financial, Inc. 2002 Incentive Stock Option Plan effective
February
14, 2002, incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8, No. 333-98537, filed August 22,
2002.
|
|
|
|
|
10.2*
|
Raymond
James Financial, Inc. Restricted Stock Plan and Stock Bonus Plan
effective
October 1, 1999, incorporated by reference to Exhibits 4.1 and 4.2,
respectively to Registration Statement on Form S-8, No. 333-74716,
filed
December 7, 2001.
|
|
|
|
|
10.3
|
Arrangement
Agreement between Goepel McDermid Inc. as seller, and Raymond James
Holdings (Canada), Inc. incorporated by reference to Exhibit 10 to
Registration Statement on Form S-3, No. 333-51840, filed on December
14,
2000.
|
|
|
|
|
10.4
|
Mortgage
Agreement for $75 million dated as of December 13, 2002 incorporated
by
reference to Exhibit No. 10 as filed with Form 10-K on December 23,
2002.
|
|
|
|
|
10.5*
|
Raymond
James Financial, Inc.'s Stock Option Plan for Key Management Personnel
effective November 21, 1996, incorporated by reference to Exhibit
4.1 to
Registration Statement on Form S-8, No. 333-103277, filed February
18,
2003.
|
|
|
|
|
10.6*
|
Raymond
James Financial, Inc. 2003 Employee Stock Purchase Plan incorporated
by
reference to Exhibit 4.1 to Registration Statement on Form S-8, No.
333-103280, filed February 18, 2003.
|
|
|
|
|
10.7
|
Form
of Indemnification Agreement with Directors, incorporated by reference
to
Exhibit 10.18 as filed with Form 10-K on December 8, 2004.
|
|
|
|
|
10.8*
|
|
|
Exhibit
Number
|
Description
|
|
|
|
|
10.9.1
|
Amended
and Restated Revolving Credit Agreement for $200 million dated as
of
October 13, 2005, incorporated by reference to Exhibit 10.9 as filed
with
Form 10-K on December 14, 2005.
|
|
|
|
|
10.9.2
|
Amendment
No. 1 and Waiver to Amended and Restated Revolving Credit Agreement,
dated
as of October 11, 2006, incorporated by reference to Exhibit 10.9.2
as
filed with Form 10-K on December 14, 2006.
|
|
|
|
|
10.9.3
|
Amendment
No. 2 and Waiver to Amended and Restated Revolving Credit Agreement,
dated
as of April 16, 2007, incorporated by reference to Exhibit 10.9.3
as filed
with Form 10-Q on May 10, 2007.
|
|
|
|
|
10.9.4
|
Amendment
No. 3 to Amended and Restated Revolving Credit Agreement, dated as
of July
11, 2007, incorporated by reference to Exhibit 10.9.4 as filed with
Form
10-Q on August 9, 2007.
|
|
|
|
|
10.9.5
|
|
|
|
|
|
10.10*
|
Raymond
James Financial, Inc. Amended Stock Option Plan for Outside Directors,
incorporated by reference to Exhibit 10 as filed with Form 10-Q on
February 9, 2006.
|
|
|
|
|
10.11*
|
Amended
and Restated Raymond James Financial Long Term Incentive Plan,
incorporated by reference to Exhibit 10.11 as filed with Form 10-K
on
December 14, 2006.
|
|
|
|
|
10.12*
|
The
2007 Raymond James Financial, Inc. Stock Bonus Plan effective February
15,
2007, incorporated by reference to Exhibit 4.1 to Registration Statement
on Form S-8, No. 333-141999, filed April 10, 2007.
|
|
|
|
|
10.13
|
The
2007 Raymond James Financial, Inc. Stock Option Plan for Independent
Contractors effective February 15, 2007, incorporated by reference
to
Exhibit 4.1 to Registration Statement on Form S-8, No. 333-142000,
filed
April 10, 2007.
|
|
|
|
|
11
|
Computation
of Earnings per Share is set forth in Note 21 of the Notes to the
Consolidated Financial Statements in this Form 10-K.
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14.1
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Code
of Ethics for Senior Financial Officers, incorporated by reference
to
Exhibit 10.18 as filed with Form 10-K on December 2008.
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14.2 |
Business
Ethics and Corporate Policy as amended on
November 27, 2007, filed herewith. |
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21
|
List
of Subsidiaries, filed herewith.
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23
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Consent
of Independent Auditors, filed herewith.
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31
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002, filed herewith.
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32
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002, filed herewith.
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99(i).1
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99(i).2
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*Indicates
a management contract or compensatory plan or arrangement in which
a
director or named executive officer
participates.
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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 29th day of
November,
2007.
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RAYMOND
JAMES FINANCIAL, INC.
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By
/s/ THOMAS A. JAMES
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Thomas
A. James, Chairman
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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.
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Signature
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Title
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Date
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/s/
THOMAS A. JAMES
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Chairman
and Chief
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November
29, 2007
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Thomas
A. James
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Executive
Officer, Director
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/s/
CHET B. HELCK
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President
and Chief Operating Officer, Director
|
November
29, 2007
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Chet
B. Helck
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/s/
FRANCIS S. GODBOLD
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Vice
Chairman and Director
|
November
29, 2007
|
Francis
S. Godbold
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/s/
JEFFREY P. JULIEN
|
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Senior
Vice President - Finance
|
November
29, 2007
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Jeffrey
P. Julien
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and
Chief Financial Officer
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/s/
JENNIFER C. ACKART
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Controller
and Chief Accounting Officer
|
November
29, 2007
|
Jennifer
C. Ackart
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/s/
ANGELA M. BIEVER
|
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Director
|
November
29, 2007
|
Angela
M. Biever
|
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/s/
H. WILLIAM HABERMEYER
|
|
Director
|
November
29, 2007
|
H.
William Habermeyer
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Director
|
November
29, 2007
|
Paul
W. Marshall
|
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/s/
PAUL C. REILLY
|
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Director
|
November
29, 2007
|
Paul
C. Reilly
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/s/
KENNETH A. SHIELDS
|
|
Director
|
November
29, 2007
|
Kenneth
A. Shields
|
|
|
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|
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/s/
HARDWICK SIMMONS
|
|
Director
|
November
29, 2007
|
Hardwick
Simmons
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87