RJF-2013.03.31-10Q
Index

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
 

Commission File Number: 1-9109

RAYMOND JAMES FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Florida
 
No. 59-1517485
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
880 Carillon Parkway, St. Petersburg, Florida 33716
(Address of principal executive offices)    (Zip Code)
(727) 567-1000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨                               No x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

139,645,677 shares of common stock as of May 6, 2013



RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Form 10-Q for the quarter ended March 31, 2013

INDEX

 
 
 
PAGE
PART I.
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
Signatures

2
Index

PART I FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

 
 
 
 
 
March 31, 2013
 
September 30, 2012
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
2,174,149

 
$
1,980,020

Assets segregated pursuant to regulations and other segregated assets
3,635,430

 
2,784,199

Securities purchased under agreements to resell and other collateralized financings
623,966

 
565,016

Financial instruments, at fair value:
 

 
 

Trading instruments
827,629

 
804,272

Available for sale securities
755,620

 
733,874

Private equity investments
397,715

 
336,927

Other investments
282,206

 
310,806

Derivative instruments associated with offsetting matched book positions
375,545

 
458,265

Receivables:
 

 
 

Brokerage clients, net
2,074,469

 
2,067,117

Stock borrowed
146,081

 
200,160

Bank loans, net
8,416,245

 
7,991,512

Brokers-dealers and clearing organizations
304,847

 
225,306

Loans to financial advisors, net
424,690

 
445,497

Other
454,691

 
427,641

Deposits with clearing organizations
108,990

 
163,848

Prepaid expenses and other assets
671,134

 
605,566

Investments in real estate partnerships held by consolidated variable interest entities
282,465

 
299,611

Property and equipment, net
248,849

 
231,195

Deferred income taxes, net
165,550

 
168,187

Goodwill and identifiable intangible assets, net
364,874

 
361,246

Total assets
$
22,735,145

 
$
21,160,265



See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

3
Index


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(continued from previous page)
 
 
 
 
 
March 31, 2013
 
September 30, 2012
 
($ in thousands)
Liabilities and equity:
 

 
 

Trading instruments sold but not yet purchased, at fair value
$
298,577

 
$
232,436

Securities sold under agreements to repurchase
397,712

 
348,036

Derivative instruments associated with offsetting matched book positions, at fair value
375,545

 
458,265

Payables:
 

 
 

Brokerage clients
5,424,415

 
4,584,656

Stock loaned
300,988

 
423,519

Bank deposits
9,074,351

 
8,599,713

Brokers-dealers and clearing organizations
143,128

 
103,164

Trade and other
735,469

 
628,734

Other borrowings
180,000

 
—

Accrued compensation, commissions and benefits
621,397

 
690,654

Loans payable of consolidated variable interest entities
72,420

 
81,713

Corporate debt
1,199,259

 
1,329,093

Total liabilities
18,823,261

 
17,479,983

Commitments and contingencies (see Note 16)


 


Equity
 

 
 

Preferred stock; $.10 par value; authorized 10,000,000 shares; issued and outstanding -0- shares
—

 
—

Common stock; $.01 par value; authorized 350,000,000 shares; issued 144,192,015 at March 31, 2013 and 142,853,667 at September 30, 2012
1,424

 
1,404

Additional paid-in capital
1,104,358

 
1,030,288

Retained earnings
2,472,960

 
2,346,563

Treasury stock, at cost; 5,114,462 common shares at March 31, 2013 and 5,117,049 common shares at September 30, 2012
(122,500
)
 
(118,762
)
Accumulated other comprehensive income
14,514

 
9,447

Total equity attributable to Raymond James Financial, Inc.
3,470,756

 
3,268,940

Noncontrolling interests
441,128

 
411,342

Total equity
3,911,884

 
3,680,282

Total liabilities and equity
$
22,735,145

 
$
21,160,265






See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


4
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

 
Three months ended March 31,
 
Six months ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Securities commissions and fees
$
764,989

 
$
558,527

 
$
1,503,573

 
$
1,069,861

Investment banking
50,255

 
57,954

 
135,125

 
97,290

Investment advisory fees
65,503

 
54,269

 
127,573

 
107,774

Interest
118,032

 
108,852

 
241,158

 
210,948

Account and service fees
88,400

 
75,855

 
176,851

 
149,865

Net trading profits
8,128

 
12,979

 
17,467

 
22,322

Other
74,991

 
21,417

 
106,060

 
30,610

Total revenues
1,170,298

 
889,853

 
2,307,807

 
1,688,670

Interest expense
27,203

 
17,916

 
55,224

 
33,956

Net revenues
1,143,095

 
871,937

 
2,252,583

 
1,654,714

Non-interest expenses:
 

 
 

 
 

 
 

Compensation, commissions and benefits
763,047

 
596,891

 
1,525,595

 
1,138,513

Communications and information processing
65,018

 
43,741

 
125,384

 
81,308

Occupancy and equipment costs
38,694

 
27,231

 
78,172

 
53,168

Clearance and floor brokerage
11,405

 
9,070

 
21,573

 
16,524

Business development
31,488

 
27,382

 
62,117

 
55,221

Investment sub-advisory fees
8,410

 
7,143

 
16,460

 
13,705

Bank loan loss provision
3,737

 
5,154

 
6,660

 
12,610

Acquisition related expenses
20,922

 
19,604

 
38,304

 
19,604

Other
41,071

 
27,819

 
71,848

 
51,511

Total non-interest expenses
983,792

 
764,035

 
1,946,113

 
1,442,164

Income including noncontrolling interests and before provision for income taxes
159,303

 
107,902

 
306,470

 
212,550

Provision for income taxes
51,057

 
42,628

 
104,330

 
86,154

Net income including noncontrolling interests
108,246

 
65,274

 
202,140

 
126,396

Net income (loss) attributable to noncontrolling interests
28,286

 
(3,595
)
 
36,306

 
(9,798
)
Net income attributable to Raymond James Financial, Inc.
$
79,960

 
$
68,869

 
$
165,834

 
$
136,194

 
 
 
 
 
 
 
 
Net income per common share – basic
$
0.57

 
$
0.52

 
$
1.19

 
$
1.05

Net income per common share – diluted
$
0.56

 
$
0.52

 
$
1.17

 
$
1.05

Weighted-average common shares outstanding – basic
137,817

 
129,353

 
137,156

 
126,201

Weighted-average common and common equivalent shares outstanding – diluted
140,722

 
130,644

 
139,669

 
126,989

 
 
 
 
 
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
79,960

 
$
68,869

 
$
165,834

 
$
136,194

Other comprehensive income, net of tax:(1)
 

 
 

 
 

 
 

Change in unrealized losses on available for sale securities and non-credit portion of other-than-temporary impairment losses
3,606

 
11,236

 
13,744

 
5,575

Change in currency translations and net investment hedges
(4,991
)
 
2,525

 
(8,677
)
 
7,345

Total comprehensive income
$
78,575

 
$
82,630

 
$
170,901

 
$
149,114

 
 
 
 
 
 
 
 
Other-than-temporary impairment:
 

 
 

 
 

 
 

Total other-than-temporary impairment, net
$
3,364

 
$
10,853

 
$
6,718

 
$
6,666

Portion of recoveries recognized in other comprehensive income (before taxes)
(3,364
)
 
(12,190
)
 
(7,103
)
 
(10,099
)
Net impairment losses recognized in other revenue
$
—

 
$
(1,337
)
 
$
(385
)
 
$
(3,433
)
 
(1)
The components of other comprehensive income, net of tax, are attributable to Raymond James Financial, Inc.  None of the components of other comprehensive income are attributable to noncontrolling interests.

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

5
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
 
Six months ended March 31,
 
 
2013
 
2012
 
 
(in thousands, except per share amounts)
 
Common stock, par value $.01 per share:
 
 
 
 
Balance, beginning of year
$
1,404

 
$
1,271

 
Issuances of shares, registered public offering
—

 
111

(1) 
Other issuances
20

  
14

 
Balance, end of period
1,424

  
1,396

 
 
 
 
 
 
Additional paid-in capital:
 

  
 

 
Balance, beginning of year
1,030,288

  
565,135

 
Issuances of shares, registered public offering
—

 
362,121

(1) 
Employee stock purchases
8,936

  
5,567

 
Exercise of stock options and vesting of restricted stock units, net of forfeitures
30,989

  
11,783

 
Restricted stock, stock option and restricted stock unit expense
31,460

  
28,426

 
Excess tax benefit from share-based payments
2,512

  
1,640

 
Other
173

  
221

 
Balance, end of period
1,104,358

  
974,893

 
 
 
 
 
 
Retained earnings:
 

  
 

 
Balance, beginning of year
2,346,563

  
2,125,818

 
Net income attributable to Raymond James Financial, Inc.
165,834

  
136,194

 
Cash dividends declared
(39,027
)
 
(34,318
)
 
Other
(410
)
 
(4,837
)
 
Balance, end of period
2,472,960

 
2,222,857

 
 
 
 
 
 
Treasury stock:
 

 
 

 
Balance, beginning of year
(118,762
)
 
(95,000
)
 
Purchases/surrenders
(7,841
)
 
(18,900
)
 
Exercise of stock options and vesting of restricted stock units, net of forfeitures
4,103

 
(708
)
 
Balance, end of period
(122,500
)
 
(114,608
)
 
 
 
 
 
 
Accumulated other comprehensive income:(2)
 

 
 

 
Balance, beginning of year
9,447

 
(9,605
)
 
Net change in unrealized losses on available for sale securities and non-credit portion of other-than-temporary impairment losses, net of tax
13,744

 
5,575

 
Net change in currency translations and net investment hedges, net of tax
(8,677
)
 
7,345

 
Balance, end of period
14,514

 
3,315

 
Total equity attributable to Raymond James Financial, Inc.
$
3,470,756

 
$
3,087,853

 
 
 
 
 
 
Noncontrolling interests:
 

 
 

 
Balance, beginning of year
$
411,342

 
$
324,226

 
Net income (loss) attributable to noncontrolling interests
36,306

 
(9,798
)
 
Capital contributions
14,767

 
27,383

 
Distributions
(34,627
)
 
(3,539
)
 
Consolidation of acquired entity (3)
7,592

 
—

 
Other
5,748

 
(10,254
)
 
Balance, end of period
441,128

 
328,018

 
Total equity
$
3,911,884

 
$
3,415,871

 

(1)
During the six months ended March 31, 2012, in a registered public offering, 11,075,000 common shares were issued generating approximately $363 million in net proceeds (after consideration of the underwriting discount and direct expenses of the offering).

(2)
The components of other comprehensive income are attributable to Raymond James Financial, Inc.  None of the components of other comprehensive income are attributable to noncontrolling interests.

(3)
On December 24, 2012, we acquired a 45% interest in ClariVest Asset Management, LLC, see Notes 1 and 3 for discussion.

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

6
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Six months ended March 31,
 
2013
 
2012
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
165,834

 
$
136,194

Net income (loss) attributable to noncontrolling interests
36,306

 
(9,798
)
Net income including noncontrolling interests
202,140

 
126,396

 
 
 
 
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
 

 
 

Depreciation and amortization
33,011

 
20,053

Deferred income taxes
(196
)
 
(10,033
)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
(70,542
)
 
(13,425
)
Provisions for loan losses, legal proceedings, bad debts and other accruals
10,965

 
9,638

Share-based compensation expense
33,688

 
30,340

Goodwill impairment expense
6,933

 
—

Other
5,597

 
(1,310
)
Net change in:
 

 
 

Assets segregated pursuant to regulations and other segregated assets
(851,231
)
 
90,319

Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
(9,274
)
 
6,370

Stock loaned, net of stock borrowed
(68,452
)
 
(242,949
)
Repayments of loans (loans provided) to financial advisors
20,807

 
(12,842
)
Brokerage client receivables and other accounts receivable, net
(113,581
)
 
(5,811
)
Trading instruments, net
84,875

 
44,653

Prepaid expenses and other assets
39,111

 
27,713

Brokerage client payables and other accounts payable
867,203

 
83,022

Accrued compensation, commissions and benefits
(70,863
)
 
(90,531
)
Proceeds from sales of securitizations and loans held for sale, net of purchases and originations of loans held for sale
58,329

 
9,677

Excess tax benefits from share-based payment arrangements
(2,512
)
 
(2,210
)
Net cash provided by operating activities
176,008

 
69,070

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property and equipment
(46,933
)
 
(31,182
)
Increase in bank loans, net
(442,727
)
 
(961,708
)
Redemptions of Federal Home Loan Bank/Federal Reserve Bank stock, net
1,067

 
(1,168
)
Sales (purchases) of private equity and other investments, net
2,006

 
(8,361
)
Purchases of available for sale securities
(62,102
)
 
(111,884
)
Available for sale securities maturations, repayments and redemptions
62,272

 
61,380

Proceeds from sales of available for sale securities
13

 
—

Investments in real estate partnerships held by consolidated variable interest entities, net of other investing activity
1,575

 
330

Business acquisition, net of cash acquired
(6,450
)
 
—

Net cash used in investing activities
$
(491,279
)
 
$
(1,052,593
)

(continued on next page)

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


7
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(continued from previous page)
 
Six months ended March 31,
 
2013
 
2012
 
(in thousands)
Cash flows from financing activities:
 
 
 
Proceeds from borrowed funds, net
$
180,000

 
$
936,783

Repayments of borrowed funds, net
(130,054
)
 
(4,704
)
Proceeds from issuance of shares in registered public offering
—

 
362,232

Repayments of borrowings by consolidated variable interest entities which are real estate partnerships
(11,344
)
 
(11,600
)
Proceeds from capital contributed to and borrowings of consolidated variable interest entities which are real estate partnerships
908

 
101

Purchase of additional equity interest in subsidiary
—

 
(4,017
)
Exercise of stock options and employee stock purchases
44,219

 
16,144

Increase in bank deposits
474,638

 
174,524

Purchase of treasury stock
(9,311
)
 
(19,222
)
Dividends on common stock
(37,457
)
 
(32,878
)
Excess tax benefits from share-based payment arrangements
2,512

 
2,210

Net cash provided by financing activities
514,111

 
1,419,573

 
 
 
 
Currency adjustment:
 
 
 
Effect of exchange rate changes on cash
(4,711
)
 
113

Net increase in cash and cash equivalents
194,129

 
436,163

Cash and cash equivalents at beginning of year
1,980,020

 
2,439,695

Cash and cash equivalents at end of period
$
2,174,149

 
$
2,875,858

 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
53,442

 
$
36,311

Cash paid for income taxes
$
83,111

 
$
110,488

Non-cash transfers of loans to other real estate owned
$
1,902

 
$
10,954



See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

8
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2013

NOTE 1 – INTRODUCTION AND BASIS OF PRESENTATION

Description of business

Raymond James Financial, Inc. (“RJF”) is a financial holding company headquartered in Florida whose broker-dealer subsidiaries are engaged in various financial service 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, other subsidiaries of RJF provide investment management services for retail and institutional clients, corporate and retail banking, and trust services.  As used herein, the terms “we,” “our” or “us” refer to RJF and/or one or more of its subsidiaries.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of RJF and its consolidated subsidiaries that are generally controlled through a majority voting interest. We consolidate all of our 100% owned subsidiaries. In addition we consolidate any variable interest entity (“VIE”) in which we are the primary beneficiary. Additional information on these VIEs is provided in Note 2 on pages 114 - 117 in the section titled, “Evaluation of VIEs to determine whether consolidation is required” as presented in our Annual Report on Form 10-K for the year ended September 30, 2012, as filed with the United States (“U.S.”) Securities and Exchange Commission (the “2012 Form 10-K”) and in Note 9 herein. When we do not have a controlling interest in an entity, but we exert significant influence over the entity, we apply the equity method of accounting. All material intercompany balances and transactions have been eliminated in consolidation.

Accounting estimates and assumptions

Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) but not required for interim reporting purposes has been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented.

The nature of our business is such that the results of any interim period are not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis and the consolidated financial statements and notes thereto included in our 2012 Form 10-K. To prepare condensed consolidated financial statements in conformity with GAAP, we must make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed 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 condensed consolidated financial statements.

Acquisitions

On December 24, 2012, we completed our acquisition of a 45% interest in ClariVest Asset Management, LLC (“ClariVest”), an acquisition that bolsters our platform in the large-cap strategy space. See Note 3 for additional information.

On April 2, 2012 (the “Closing Date”) RJF completed its acquisition of all of the issued and outstanding shares of Morgan Keegan & Company, Inc. (a broker-dealer hereinafter referred to as “MK & Co.”) and MK Holding, Inc. and certain of its affiliates (collectively referred to hereinafter as “Morgan Keegan”) from Regions Financial Corporation (“Regions”).  This acquisition expands both our private client and our capital markets businesses. See Note 3 for further information regarding our acquisition of Morgan Keegan. The results of operations of Morgan Keegan have been included in our results prospectively from April 2, 2012.


9
Index

Significant subsidiaries

Our significant subsidiaries, all wholly owned, include: Raymond James & Associates, Inc. (“RJ&A”) a domestic broker-dealer carrying client accounts, MK & Co. a domestic broker-dealer carrying client accounts, Raymond James Financial Services, Inc. (“RJFS”) an introducing domestic broker-dealer, Raymond James Ltd. (“RJ Ltd.”) a broker-dealer headquartered in Canada, Eagle Asset Management, Inc., and Raymond James Bank, N.A. (“RJ Bank”), a national bank. In mid-February 2013, the client accounts of MK & Co. were transferred to RJ&A pursuant to our Morgan Keegan acquisition integration strategy.

NOTE 2 – UPDATE OF SIGNIFICANT ACCOUNTING POLICIES

A summary of our significant accounting policies is included in Note 2 on pages 100 - 117 of our 2012 Form 10-K. There have been no significant changes in our significant accounting policies since September 30, 2012.
Brokerage client receivables, loans to financial advisors and allowance for doubtful accounts
As more fully described in Note 2, page 107, of our 2012 Form 10-K, we have certain financing receivables that arise from businesses other than our banking business. Specifically, we offer loans to financial advisors and certain key revenue producers, primarily for recruiting and retention purposes. We present the outstanding balance of loans to financial advisors on our Condensed Consolidated Statements of Financial Condition, net of their applicable allowances for doubtful accounts. The allowance for doubtful accounts balance associated with all of our loans to financial advisors is $2.8 million and $2.5 million at March 31, 2013 and September 30, 2012, respectively. Of the March 31, 2013 loans to financial advisors, the portion of the balance associated with financial advisors who are no longer affiliated with us, after consideration of the allowance for doubtful accounts, is approximately $2 million.
Reclassifications
Certain prior period amounts, none of which are material, have been reclassified to conform to the current presentation.

NOTE 3 – ACQUISITIONS

On December 24, 2012, (the “ClariVest Acquisition Date”) we completed our acquisition of a 45% interest in ClariVest, an acquisition that bolsters our platform in the large-cap strategy space. On the ClariVest Acquisition Date, we paid approximately $8.8 million in cash to the sellers for our interest. On the first anniversary of the ClariVest Acquisition Date, a computation based upon the actual earnings of ClariVest during the one year period will be performed and additional consideration may be owed to the sellers within 45 days thereof.

As of the ClariVest Acquisition Date, it managed more than $3.1 billion in client assets and marketed its investment advisory services to corporate and public pension plans, foundations, endowments and Taft-Hartley clients worldwide. As a result of certain protective rights we have under the operating agreement with ClariVest, we are consolidating Clarivest in our financial statements as of the Clarivest Acquisition Date. In addition, a put and call agreement was entered into on the Clarivest Acquisition Date that provides our wholly owned Eagle Asset Management, Inc. subsidiary with various paths to majority ownership in ClariVest, the timing of which would depend upon the financial results of ClariVest’s business and the tenure of existing ClariVest management. The results of operations of ClariVest have been included in our results prospectively since December 24, 2012. For the purposes of certain acquisition related financial reporting requirements, the Clarivest acquisition is not considered to be material to our overall financial condition.

See Note 10 for information regarding the identifiable intangible assets we recorded as a result of the ClariVest acquisition.

Prior year acquisition of Morgan Keegan

On April 2, 2012 RJF completed its acquisition of Morgan Keegan. For a discussion of the significant terms of this acquisition, see Note 3 on pages 118 - 121 in our 2012 Form 10-K.  

In February 2013, we successfully completed the transfer of client accounts from MK & Co. to RJ&A and as a result, are now operating all of the retained historical MK & Co. operations under one (the RJ&A) platform.

10
Index


Selected Unaudited Pro forma financial information

The following unaudited pro forma financial information assumes the Morgan Keegan acquisition had been completed as of October 1, 2011. Pro forma results have been prepared by adjusting our historical results to include Morgan Keegan’s results of operations adjusted for the following: amortization expense related to the identifiable intangible assets arising from the acquisition; interest expense to reflect the impact of senior notes issued in March 2012; incremental bonus expense resulting from the bonus agreements made for retention purposes to certain Morgan Keegan financial advisors, incremental compensation expense related to restricted stock units granted to certain executives and key revenue producers for retention purposes; our acquisition expenses; a $545 million goodwill impairment charge included in Morgan Keegan’s pre-Closing Date financial statements directly resulting from the transaction; and the applicable tax effect of each adjustment described above. The weighted average common shares used in the computation of both pro forma basic and pro forma diluted earnings per share were adjusted to reflect that the issuance of additional RJF shares that occurred in February 2012 had been outstanding for the entirety of each respective period presented.

The unaudited pro forma results presented do not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable period presented, nor does it indicate the results of operations in future periods. Additionally, the unaudited pro forma results do not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions on revenues, reduction of expenses, asset dispositions, or other factors. The impact of these items could alter the following unaudited pro forma results.
Pro forma results (Unaudited):
 
Three months ended March 31, 2012
 
Six months ended March 31, 2012
 
($ in thousands except per share amounts)
Total net revenues
 
$
1,119,154

 
$
2,167,716

Net income
 
$
75,114

 
$
168,473

Net income per share:
 
 
 
 
Basic
 
$
0.55

 
$
1.23

Diluted
 
$
0.54

 
$
1.22


Acquisition related expenses

Acquisition related expenses are recorded in the Condensed Consolidated Statement of Income and Comprehensive Income and include certain incremental expenses arising from our acquisitions.  We incurred the following acquisition related expenses:

 
Three months ended March 31,
 
Six months ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Integration costs
$
13,082

 
$
—

 
$
28,618

 
$
—

Severance
7,658

 
3,183

 
8,057

 
3,183

Financial advisory fees
—

 
7,020

 
1,176

 
7,020

Acquisition bridge financing facility fees
—

 
5,684

 
—

 
5,684

Legal
—

 
2,495

 
—

 
2,495

Other
182

 
1,222

 
453

 
1,222

Total acquisition related expenses
$
20,922

 
$
19,604

 
$
38,304

 
$
19,604






11
Index

NOTE 4 – CASH AND CASH EQUIVALENTS, ASSETS SEGREGATED PURSUANT TO REGULATIONS, AND DEPOSITS WITH CLEARING ORGANIZATIONS

Our cash equivalents include money market funds or highly liquid investments with original maturities of 90 days or less, other than those used for trading purposes.  For discussion of our accounting policies regarding assets segregated pursuant to regulations and other segregated assets, see Note 2 on page 101 of our 2012 Form 10-K.

Our cash and cash equivalents, assets segregated pursuant to regulations or other segregated assets, and deposits with clearing organization balances are as follows:

 
March 31,
2013
 
September 30,
2012
 
(in thousands)
Cash and cash equivalents:
 
 
 
Cash in banks
$
2,170,618

 
$
1,973,897

Money market fund investments
3,531

 
6,123

Total cash and cash equivalents (1)
2,174,149

 
1,980,020

Cash segregated pursuant to federal regulations and other segregated assets (2)
3,635,430

 
2,784,199

Deposits with clearing organizations (3)
108,990

 
163,848

 
$
5,918,569

 
$
4,928,067


(1)
The total amounts presented include cash and cash equivalents of $719 million and $539 million as of March 31, 2013 and September 30, 2012, respectively, which are either held directly by RJF or are otherwise invested by one of our subsidiaries on behalf of RJF.

(2)
Consists of cash maintained in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934. RJ&A and MK & Co., as broker-dealers carrying client accounts, are subject to requirements related to maintaining cash or qualified securities in segregated reserve accounts for the exclusive benefit of their clients. Additionally, RJ Ltd. is required to hold client Registered Retirement Savings Plan funds in trust.

(3)
Consists of deposits of cash and cash equivalents or other short-term securities held by other clearing organizations or exchanges.

12
Index


NOTE 5 – FAIR VALUE

For a discussion of our valuation methodologies for assets, liabilities measured at fair value, and the fair value hierarchy, see Note 2, pages 101 - 107, in our 2012 Form 10-K.

There have been no material changes to our valuation methodologies since our year ended September 30, 2012.

Assets and liabilities measured at fair value on a recurring and nonrecurring basis are presented below:
March 31, 2013
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
March 31,
2013
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
1,662

 
$
231,956

 
$
—

 
$
—

 
$
233,618

Corporate obligations
 
36,225

 
91,873

 
—

 
—

 
128,098

Government and agency obligations
 
10,701

 
131,135

 
—

 
—

 
141,836

Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
 
931

 
206,435

 
—

 
—

 
207,366

Non-agency CMOs and asset-backed securities (“ABS”)
 
—

 
15,768

 
17

 
—

 
15,785

Total debt securities
 
49,519

 
677,167

 
17

 
—

 
726,703

Derivative contracts
 
—

 
122,380

 
—

 
(78,287
)
 
44,093

Equity securities
 
28,790

 
5,287

 
21

 
—

 
34,098

Other securities
 
761

 
16,251

 
5,723

 
—

 
22,735

Total trading instruments
 
79,070

 
821,085

 
5,761

 
(78,287
)
 
827,629

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
370,767

 
—

 
—

 
370,767

Non-agency CMOs
 
—

 
143,784

 
420

 
—

 
144,204

Other securities
 
—

 
—

 
—

 
—

 
—

Auction rate securities (“ARS”):
 
 

 
 

 
 

 
 

 
 

Municipals
 
—

 
—

 
134,630

(3) 
—

 
134,630

Preferred securities
 
—

 
—

 
106,019

 
—

 
106,019

Total available for sale securities
 
—

 
514,551

 
241,069

 
—

 
755,620

Private equity investments
 
—

 
—

 
397,715

(4) 
—

 
397,715

Other investments (5)
 
276,505

 
1,719

 
3,982

 
—

 
282,206

Derivative instruments associated with offsetting matched book positions
 
—

 
375,545

 
—

 
—

 
375,545

Other assets
 
—

 
—

 
15

 
—

 
15

Total assets at fair value on a recurring basis
 
$
355,575

 
$
1,712,900

 
$
648,542

 
$
(78,287
)
 
$
2,638,730

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis (6):
 
 

 
 

 
 

 
 

 
 

Bank loans, net:
 
 

 
 

 
 

 
 

 
 

Impaired loans
 
$
—

 
$
38,290

 
$
57,030

 
$
—

 
$
95,320

Loans held for sale(7)
 
—

 
8,707

 
—

 
—

 
8,707

Total bank loans, net
 
—

 
46,997

 
57,030

 
—

 
104,027

Other real estate owned (“OREO”)(8)
 
—

 
881

 
—

 
—

 
881

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
47,878

 
$
57,030

 
$
—

 
$
104,908

 
(continued on next page)

13
Index

March 31, 2013
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
March 31,
2013
 
 
(in thousands)
 
 
(continued from previous page)
Liabilities at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments sold but not yet purchased:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
406

 
$
2,690

 
$
—

 
$
—

 
$
3,096

Corporate obligations
 
1,013

 
24,976

 
—

 
—

 
25,989

Government obligations
 
243,434

 
—

 
—

 
—

 
243,434

Agency MBS and CMOs
 
369

 
—

 
—

 
—

 
369

Non-agency MBS and CMOs
 
—

 
—

 
—

 
—

 
—

Total debt securities
 
245,222

 
27,666

 
—

 
—

 
272,888

Derivative contracts
 
—

 
106,762

 
—

 
(102,931
)
 
3,831

Equity securities
 
21,513

 
342

 
—

 
—

 
21,855

Other securities
 
—

 
3

 
—

 
—

 
3

Total trading instruments sold but not yet purchased
 
266,735

 
134,773

 
—

 
(102,931
)
 
298,577

Derivative instruments associated with offsetting matched book positions
 
—

 
375,545

 
—

 
—

 
375,545

Trade and other payables:
 
 
 
 
 
 
 
 
 


Derivative contracts
 
—

 
671

 
—

 
—

 
671

Other liabilities
 
—

 
—

 
98

 
—

 
98

Total trade and other payables
 
—

 
671

 
98

 
—

 
769

Total liabilities at fair value on a recurring basis
 
$
266,735

 
$
510,989

 
$
98

 
$
(102,931
)
 
$
674,891



(1)
We had $105 thousand in transfers of financial instruments from Level 1 to Level 2 during the three and six months ended March 31, 2013.  These transfers were a result of a decrease in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. We had $11 thousand in transfers of financial instruments from Level 2 to Level 1 during the three months ended March 31, 2013 and $168 thousand in transfers of financial instruments from Level 2 to Level 1 during the six months ended March 31, 2013.  These transfers were a result of an increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement.  Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.

(2)
Where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists.

(3)
Includes $54 million of Jefferson County, Alabama Limited Obligation School Warrants ARS and $25 million of Jefferson County, Alabama Sewer Revenue Refunding Warrants ARS.

(4)
Includes $290 million in private equity investments, the weighted-average portion we own is approximately 27%. Our indirect investment in Albion Medical Holdings, Inc. (“Albion”) in the amount of $169 million is included in this balance, the portion of which we own is $36 million as of March 31, 2013.  Effectively, the economics associated with the portions of these investments we do not own become a component of noncontrolling interests on our Condensed Consolidated Statements of Financial Condition, and amounted to approximately $211 million of that total as of March 31, 2013.

(5)
Other investments include $172 million of financial instruments we hold that are related to MK & Co.’s obligations to perform under certain of its deferred compensation plans (see Note 2 page 114, and Note 23 page 170, of our 2012 Form 10-K for further information regarding these plans).

(6)
Goodwill fair value measurements are classified within Level 3 of the fair value hierarchy, which are generally determined using unobservable inputs. See Note 10 for additional information regarding the annual impairment analysis and our methods of estimating the fair value of reporting units that have an allocation of goodwill, including the key assumptions.

(7)
Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

(8)
Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as OREO. The recorded value in the Condensed Consolidated Statements of Financial Condition is net of the estimated selling costs.

14
Index



September 30, 2012
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
September 30,
2012
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
7

 
$
346,030

 
$
553

 
$
—

 
$
346,590

Corporate obligations
 
15,916

 
70,815

 
—

 
—

 
86,731

Government and agency obligations
 
10,907

 
156,492

 
—

 
—

 
167,399

Agency MBS and CMOs
 
1,085

 
104,084

 
—

 
—

 
105,169

Non-agency CMOs and ABS
 
—

 
1,986

 
29

 
—

 
2,015

Total debt securities
 
27,915

 
679,407

 
582

 
—

 
707,904

Derivative contracts
 
—

 
144,259

 
—

 
(93,259
)
 
51,000

Equity securities
 
23,626

 
2,891

 
6

 
—

 
26,523

Other securities
 
864

 
12,131

 
5,850

 
—

 
18,845

Total trading instruments
 
52,405

 
838,688

 
6,438

 
(93,259
)
 
804,272

 
 
 
 
 
 
 
 
 
 
 
Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
352,303

 
—

 
—

 
352,303

Non-agency CMOs
 
—

 
147,558

 
249

 
—

 
147,807

Other securities
 
12

 
—

 
—

 
—

 
12

ARS:
 
 

 
 

 
 

 
 

 


Municipals
 
—

 
—

 
123,559

(3) 
—

 
123,559

Preferred securities
 
—

 
—

 
110,193

 
—

 
110,193

Total available for sale securities
 
12

 
499,861

 
234,001

 
—

 
733,874

 
 
 
 
 
 
 
 
 
 
 
Private equity investments
 
—

 
—

 
336,927

(4) 
—

 
336,927

Other investments (5)
 
303,817

 
2,897

 
4,092

 
—

 
310,806

Derivative instruments associated with offsetting matched book positions
 
—

 
458,265

 
—

 
—

 
458,265

Total assets at fair value on a recurring basis
 
$
356,234

 
$
1,799,711

 
$
581,458

 
$
(93,259
)
 
$
2,644,144

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 

 
 

 
 

 
 

 
 

Bank loans, net
 
 
 
 
 
 
 
 
 
 
Impaired loans(6)
 
—

 
47,409

 
46,383

 
—

 
93,792

Loans held for sale(7)
 
—

 
81,093

 
—

 
—

 
81,093

Total bank loans, net
 
—

 
128,502

 
46,383

 
—

 
174,885

OREO(8)
 
—

 
6,216

 
—

 
—

 
6,216

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
134,718

 
$
46,383

 
$
—

 
$
181,101

 
 
 
 
 
 
 
 
 
 
 
(continued on next page)

15
Index

September 30, 2012
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)

 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)

 
Netting
adjustments (2)
 
Balance as of
September 30,
2012
 
 
(in thousands)
 
 
(continued from previous page)
Liabilities at fair value on a recurring basis:
 
 

 
 

 
 

 
 

Trading instruments sold but not yet purchased:
 
 

 
 

 
 

 
 

 
 

Municipal and provincial obligations
 
$
—

 
$
212

 
$
—

 
$
—

 
$
212

Corporate obligations
 
33

 
12,355

 
—

 
—

 
12,388

Government obligations
 
199,501

 
587

 
—

 
—

 
200,088

Agency MBS and CMOs
 
556

 
—

 
—

 
—

 
556

Non-agency MBS and CMOs
 
—

 
121

 
—

 
—

 
121

Total debt securities
 
200,090

 
13,275

 
—

 
—

 
213,365

Derivative contracts
 
—

 
128,081

 
—

 
(124,979
)
 
3,102

Equity securities
 
9,636

 
64

 
—

 
—

 
9,700

Other securities
 
—

 
6,269

 
—

 
—

 
6,269

Total trading instruments sold but not yet purchased
 
209,726

 
147,689

 
—

 
(124,979
)
 
232,436

Derivative instruments associated with offsetting matched book positions
 
—

 
458,265

 
—

 
—

 
458,265

Trade and other payables:
 
 
 
 
 
 
 
 
 
 
Derivative contracts
 
—

 
1,370

 
—

 
—

 
1,370

Other liabilities
 
—

 
—

 
98

 
—

 
98

Total trade and other payables
 
—

 
1,370

 
98

 
—

 
1,468

Total liabilities at fair value on a recurring basis
 
$
209,726

 
$
607,324

 
$
98

 
$
(124,979
)
 
$
692,169


(1)
We had no transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 2012.  We had $541 thousand in transfers of financial instruments from Level 2 to Level 1 during the year ended September 30, 2012.  These transfers were a result of an increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement.  Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.

(2)
Where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists.

(3)
Includes $48 million of Jefferson County, Alabama Limited Obligation School Warrants ARS and $22 million of Jefferson County, Alabama Sewer Revenue Refunding Warrants ARS.

(4)
Includes $224 million in private equity investments of which the weighted-average portion we own is approximately 28%.  Effectively, the economics associated with the portions of these investments we do not own become a component of noncontrolling interests on our Condensed Consolidated Statements of Financial Condition, and amounted to approximately $161 million of that total as of September 30, 2012.

(5)
Other investments include $185 million of financial instruments we hold that are related to MK & Co.’s obligations to perform under certain of its deferred compensation plans (see Note 2 page 114, and Note 23, page 170, of our 2012 Form 10-K for further information regarding these plans).

(6)
During the year ended September 30, 2012, we initially transferred $55 million of impaired loans from Level 3 to Level 2. The transfer was a result of the increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement.  Our analysis indicates that comparative sales data is a reasonable estimate of fair value, therefore, more consideration was given to this observable input.

(7)
Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

(8)
Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as OREO. The recorded value in the Condensed Consolidated Statements of Financial Condition is net of the estimated selling costs.

The adjustment to fair value of the nonrecurring fair value measures for the six months ended March 31, 2013 resulted in $5.7 million in additional provision for loan losses and $49 thousand in other losses.


16
Index

Changes in Level 3 recurring fair value measurements

The realized and unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs.

Additional information about Level 3 assets and liabilities measured at fair value on a recurring basis is presented below:
Three months ended March 31, 2013 Level 3 assets at fair value
(in thousands)
Financial assets
 
Financial
liabilities
 
Trading instruments
 
Available for sale securities
 
Private equity, other investments and other assets
 
Payables-
trade and
other
 
Non-
agency
CMOs &
ABS
 
Equity
securities
 
Other
securities
 
Non-
agency
CMOs
 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other assets
 
Other
liabilities
Fair value
   December 31, 2012
$
18

 
$
19

 
$
6,451

 
$
125

 
$
133,318

 
$
104,976

 
$
329,767

 
$
4,123

 
$
—

 
$
(98
)
Total gains (losses) for the period:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Included in earnings
4

 
—

 
(20
)
 
—

 
9

 
—

 
63,033

(1) 
17

 
—

 
—

Included in other comprehensive income
—

 
—

 
—

 
310

 
1,328

 
1,043

 
—

 
—

 
—

 
—

Purchases and contributions
—

 
—

 
1,937

 
—

 
—

 
—

 
7,060

 
—

 
—

 
—

Sales
—

 
—

 
(2,005
)
 
—

 
—

 
—

 
—

 
(50
)
 
—

 
—

Redemptions by issuer
—

 
—

 
—

 
—

 
(25
)
 
—

 
—

 
—

 
—

 
—

Distributions
(5
)
 
—

 
(625
)
 
(15
)
 
—

 
—

 
(2,145
)
 
(108
)
 
—

 
—

Transfers: (2)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Into Level 3
—

 
2

 
—

 
—

 
—

 
—

 
—

 
—

 
15

 
—

Out of Level 3
—

 
—

 
(15
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value
   March 31, 2013
$
17

 
$
21

 
$
5,723

 
$
420

 
$
134,630

 
$
106,019

 
$
397,715

 
$
3,982

 
$
15

 
$
(98
)