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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 1999
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-14243
RAGEN MACKENZIE GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Washington 91-1898738
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
999 Third Avenue, Suite 4300 Seattle, Washington 98104
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (206) 343-5000
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 _____
As of August 2, 1999 the Company had 12,901,618 shares of common stock
outstanding.
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RAGEN MACKENZIE GROUP INCORPORATED
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 25, 1999
<TABLE>
<CAPTION>
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBIT INDEX 21
</TABLE>
2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
RAGEN MACKENZIE GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 25, September 25,
1999 1998
---------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 3,856 $ 2,143
Cash and market value of securities required to be segregated under
Federal or other regulations 234,251 315,997
Deposits with clearing organizations 1,757 1,207
Receivable from:
Brokers, dealers, and clearing organizations 2,823 2,661
Customers 157,897 110,428
Securities owned, at market value 144,354 169,410
Securities purchased under agreements to resell 139,507 172,384
Securities borrowed 3,969 2,144
Furniture, equipment, and leasehold improvements - net 2,501 1,293
Other assets 8,206 4,182
-------- --------
Total $699,121 $781,849
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Borrowings $ 37,600 $ 47,225
Payable to:
Brokers, dealers, and clearing organizations 8,605 11,986
Customers 347,952 390,697
Securities sold but not yet purchased, at market value 134,408 164,095
Securities sold under agreements to repurchase 41,100 45,900
Accrued compensation and related benefits 9,892 8,300
Other liabilities and accrued expenses 3,621 4,707
-------- --------
Total liabilities 583,178 672,910
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value--Authorized 10,000,000
shares; no shares issued and outstanding
Common stock, $.01 par value--Authorized 50,000,000
shares; issued and outstanding, 13,457,390 shares 135 135
Additional paid-in capital 47,700 47,872
Common shares issuable under deferred compensation
arrangements, less unamortized purchase discount of $211 922
Treasury stock 574,196 and 50,600 shares, respectively, at cost (6,669) (511)
Retained earnings 73,855 61,443
-------- --------
Total shareholders' equity 115,943 108,939
-------- --------
Total $699,121 $781,849
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
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RAGEN MACKENZIE GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three-Month Period Ended Nine-Month Period Ended
------------------------ -----------------------
June 25, June 26, June 25, June 26,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Principal transactions, net $ 7,149 $ 5,947 $22,340 $18,859
Commissions 9,316 7,635 25,513 25,456
Other 1,676 1,262 4,116 4,296
-------- --------- --------- --------
Total operating revenues 18,141 14,844 51,969 48,611
Interest Income 8,566 8,863 26,909 27,228
-------- --------- --------- --------
Total revenues 26,707 23,707 78,878 75,839
Interest expense 4,900 5,645 15,899 17,799
-------- --------- --------- --------
Net revenues 21,807 18,062 62,979 58,040
-------- --------- --------- --------
NONINTEREST EXPENSES:
Compensation and benefits 11,037 8,935 31,209 29,663
Nonrecurring compensation charges
related to IPO 3,480 3,480
Occupancy and equipment 1,576 1,142 4,319 3,783
Communications 961 894 2,888 2,668
Clearing and exchange fees 842 627 2,152 2,055
Other 1,171 1,118 3,630 2,752
-------- -------- -------- --------
Total noninterest expenses 15,587 16,196 44,198 44,401
-------- -------- -------- --------
INCOME BEFORE TAXES ON INCOME 6,220 1,866 18,781 13,639
TAXES ON INCOME 2,102 1,266 6,369 5,784
-------- -------- -------- --------
NET INCOME $ 4,118 $ 600 $12,412 $ 7,855
======== ======== ======== ========
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 12,873 11,098 13,105 10,650
Diluted 13,014 11,315 13,252 11,049
EARNINGS PER COMMON SHARE:
Basic $.32 $.05 $.95 $.74
Diluted .32 .05 .94 .71
</TABLE>
See Notes to Consolidated Financial Statements
4
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RAGEN MACKENZIE GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine-Month Period Ended
-----------------------------------
June 25, June 26,
1999 1998
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 12,412 $ 7,855
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 636 388
Stock option expense 2,932
Deferred tax benefit (555) (631)
Gain on sale of Pacific Stock Exchange membership (290)
Deferred compensation expense 60
Amounts retained under deferred compensation arrangements 862
Cash provided (used) by changes in operating assets and liabilities:
Cash and market value of securities required to be segregated
under Federal or other regulations 81,746 54,756
Deposits with clearing organizations (550) (200)
Receivable from:
Brokers, dealers, and clearing organizations (140) (241)
Customers (47,469) (15,789)
Securities owned 25,367 (36,305)
Securities purchased under agreements to resell 32,877 (38,593)
Securities borrowed (1,825) 5,720
Other assets (2,492) (1,288)
Payable to:
Brokers, dealers, and clearing organizations (3,028) (2,705)
Customers (42,745) (59,127)
Securities sold but not yet purchased (29,687) 37,669
Securities sold under agreements to repurchase (4,800) 3,750
Accrued compensation and related benefits 993 1,326
Other liabilities and accrued expenses (1,112) 344
--------- ---------
Net cash provided (used) by operating activities 20,550 (40,429)
INVESTING ACTIVITIES:
Purchases of furniture, equipment, and leasehold improvements (1,811) (800)
Proceeds from sale of Pacific Stock Exchange membership 317
Cash paid for Columbia Pacific Securities, Inc. (CPS), net of cash acquired (636)
--------- ---------
Net cash provided (used) by operating activities (2,447) (483)
FINANCING ACTIVITIES:
Proceeds from (repayment of) borrowings, net (9,625) 15,600
Proceeds from initial public offering, net of issuance costs 18,609
Proceeds from exercise of stock options and other stock issuance 386 7,296
Repurchases of common stock for treasury (7,151) (1,581)
--------- ---------
Net cash provided (used) by financing activities (16,390) 39,924
--------- ---------
INCREASE (DECREASE) IN CASH 1,713 (988)
CASH:
Beginning of period 2,143 4,980
--------- ---------
End of period $ 3,856 $ 3,992
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the fiscal period for:
Interest $ 15,800 $ 17,861
Federal income taxes 7,900 7,500
Issuance of common stock in connection with acquisition of CPS 435
</TABLE>
See Notes to Consolidated Financial Statements
5
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RAGEN MACKENZIE GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include Ragen
MacKenzie Group Incorporated and its subsidiaries (collectively, the Company).
Ragen MacKenzie Group Incorporated is a holding company engaged, through its
subsidiaries, in securities brokerage and related investment services that
include retail and institutional brokerage of securities, investment research,
market making, trading, underwriting, distribution of corporate securities and
correspondent clearing. Ragen MacKenzie Group Incorporated's two operating
subsidiaries, Ragen MacKenzie Incorporated (RMI) and Ragen MacKenzie Investment
Services, Inc. (RMIS), are each registered with the Securities and Exchange
Commission (the SEC) as a broker/dealer, and have retail offices located in
seven western states. RMI is a member firm of the New York Stock Exchange (the
NYSE).
These financial statements have been prepared pursuant to the rules and
regulations of the SEC and, therefore, do not include all information and notes
required by generally accepted accounting principles for complete financial
statements. The interim financial statements reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for the periods presented. The
nature of the Company's business is such that the results of any interim period
are not necessarily indicative of results for a full year. These financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto for the fiscal year ended September 25, 1998
included in the Company's Annual Report on Form 10-K (the 1998 Annual Report) as
filed with the SEC.
Note 2: ACQUISITIONS
On March 30, 1999, the Company completed an acquisition of the outstanding
common stock of Columbia Pacific Securities, Inc. and subsequently renamed the
subsidiary Ragen MacKenzie Investment Services, Inc. (hereinafter referred to as
RMIS). The consolidated financial statements include the results of RMIS from
the date of acquisition and the transaction was accounted for using the purchase
method of accounting. The consideration paid for the acquisition included the
issuance of 40,000 shares of the Company's common stock held in treasury and
cash as specified in the purchase agreement. The excess of the purchase price
over the estimated fair value of net assets acquired, which was recorded as
goodwill, was $1,040,000 and is being amortized on a straight-line basis over 15
years. Pro Forma Financial information showing the results of operations as if
the acquisition had occurred at the beginning of the year is not presented as
the acquisition would not have had a material impact on previously reported
results.
Note 3: SHAREHOLDERS' EQUITY
In August 1998, the Board of Directors authorized the repurchase of up to
1,000,000 shares of the Company's common stock over the following 12 months.
Purchases of the common stock may be made from time to time at prevailing prices
in the open market, by block purchases, or in privately negotiated transactions.
The repurchased shares are to be accounted for as treasury stock and used for
the Company's employee stock option plans and other general corporate purposes.
During the nine-month period ended June 25, 1999 the Company repurchased 626,000
shares at a total cost of $7,151,000.
6
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During the nine-month period ended June 25, 1999, shares accounted for as
treasury stock were issued for the following purposes: 52,150 shares upon the
exercise of options under the Company's employee stock option plans; 10,254
shares upon the exercise of options under the Company's employee stock purchase
plan; and 40,000 shares in connection with the acquisition of RMIS.
Note 4: NET CAPITAL REQUIREMENTS
The broker/dealer subsidiaries of the Company are subject to the Uniform Net
Capital Rule 15c3-1 (the Rule) under the Securities Exchange Act of 1934, which
requires the maintenance of minimum net capital. RMI has elected to compute net
capital under the alternative provisions of the Rule, which require RMI to
maintain net capital, as defined, equal to the greater of $1,000,000 or 2% of
aggregate debit items arising from customer transactions, as defined. At June
25, 1999, RMI's net capital was $96,259,000, which was 64% of aggregate debit
items, and which exceeded the minimum net capital requirement of $3,011,000 by
$93,248,000.
RMIS follows the primary (aggregate indebtedness) method under the Rule, which
requires the maintenance of minimum net capital and requires that the ratio of
aggregate indebtedness to net capital, both as defined, not exceed 15 to 1. At
June 25, 1999, RMIS had net capital of $434,000, which was $334,000 in excess of
its required net capital of $100,000, and had a net capital ratio of 1.6 to 1.
The net capital rules of the NYSE also provide that equity capital of RMI may
not be withdrawn or cash dividends paid without notification if resulting net
capital would be less than 5% of aggregate debit items.
Note 5: TAXES ON INCOME
Taxes on income for the three- and nine-month periods ended June 26, 1998 do not
bear a normal relationship to income before taxes on income due to certain
permanent differences between tax and financial reporting. A summary
reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate for the 1999 and 1998 periods is as follows:
<TABLE>
<CAPTION>
Three-Month Period Ended Nine-Month Period Ended
---------------------------- ----------------------------
June 25, 1999 June 26, 1998 June 25, 1999 June 26, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0% 35.0%
Nondeductible stock option plan expense 33.4 7.5
Other (1.2) (.6) (1.1) (.1)
------- -------- ------- -------
Effective tax rate 33.8% 67.8% 33.9% 42.4%
======= ======== ======= =======
</TABLE>
Note 6: EARNINGS PER COMMON SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
required to be computed using the methods specified in Statement of Financial
Accounting Standards No. 128, Earnings per Share. Basic EPS is calculated using
the weighted average number of common shares outstanding for the period, and
diluted EPS is computed using the weighted average number of shares and dilutive
common equivalent shares outstanding calculated under the treasury stock method.
For the purpose of calculating the dilutive effect of stock options in diluted
EPS for periods prior to the completion of the Company's initial public offering
(IPO) of common stock on June 26, 1998, the Company utilizes the per-share book
7
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value at the end of each corresponding period as the Company's share repurchase
plan in effect prior to the IPO required selling shareholders to offer their
shares to the Company for redemption at book value as calculated in accordance
with the terms of the share repurchase plan.
The following table sets forth the computations for basic and diluted earnings
per common share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three-Month Period Ended Nine-Month Period Ended
---------------------------- ----------------------------
June 25, 1999 June 26, 1998 June 25, 1999 June 26, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net income $ 4,118 $ 600 $12,412 $ 7,855
======== ======== ========= ========
DENOMINATOR:
Weighted-average basic shares outstanding 12,873 11,098 13,105 10,650
Dilutive effect of employee stock plans 141 217 147 399
-------- -------- --------- --------
Weighted-average diluted shares outstanding 13,014 11,315 13,252 11,049
======== ======== ========= ========
Earnings per common share:
Basic $ .32 $ .05 $ .95 $ .74
======== ======== ========= ========
Diluted $ .32 $ .05 $ .94 $ .71
======== ========= ========= ========
</TABLE>
Options to purchase 622,610 shares and 530,422 shares for the three-month and
nine-month periods ended June 25, 1999, respectively, were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common shares for the related
period.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and the related Notes thereto
appearing in Item 1 of this report. In addition to historical information, this
Form 10-Q contains and may incorporate by reference statements which may
constitute forward-looking statements that involve risks and uncertainties. The
words "believe", "expect", "intend", "anticipate", variations of such words, and
similar expressions identify forward-looking statements, but their absence does
not mean that the statement is not forward-looking. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict. Accordingly,
actual results may differ materially from those anticipated or expressed in such
statements. Potential risks and uncertainties include, among other things, the
general risks of the securities industry, risks of reduced revenue during
periods of lower stock prices or reduced trading volume; dependence on, and
ability to retain and recruit, key personnel; recent changes in management;
risks relating to the departure of Brooks G. Ragen and related personnel;
dependence on proprietary research; significant fluctuations in quarterly
operating results; regional concentration; competition; management of growth of
new and existing businesses; the risks relating to proprietary trading and
correspondent brokerage services; risks of extension of credit; risks relating
to regulation; risks relating to litigation and potential securities law
liability; risks relating to Year 2000 compliance; and market, credit and
liquidity risks associated with market-making, principal trading and
underwriting activities. More information about factors that could affect the
Company's financial results is included in the section of the Company's 1998
Annual Report entitled "Additional Factors That May Affect Future Results."
The Company's discussion of the issues surrounding the Year 2000 contain
forward-looking statements. These forward-looking statements include, but are
not limited to, discussions concerning (1) the financial impact of the Year 2000
project; (2) the Company's estimated timetables for completion of each phase of
the project; (3) the readiness of third-party service providers, including the
functioning of the Company's core brokerage software provided by an outside
software provider; and (4) contingency plans. Many factors, including those
outside of the control of the Company and those that are difficult or impossible
to predict at this time, could cause actual results to be materially different
than those anticipated and expressed in these forward-looking statements.
OVERVIEW
The Company's primary business is retail securities brokerage, which it conducts
through its two operating subsidiaries RMI and RMIS. Both operating subsidiaries
are headquartered in Seattle, Washington and together they have 32 additional
offices, including 25 offices operated by independent contractors, located in
seven western states in which they conduct retail business. This business is
directly supported by the Company's proprietary research efforts, which are
based on a value-oriented, contrarian approach to investing. The Company's
research department covers approximately 100 publicly traded companies
headquartered in the Pacific Northwest and maintains a recommended list of
selected regional and national stocks. Other aspects of the Company's business
include proprietary trading of certain fixed income securities, institutional
brokerage services, correspondent brokerage services and investment banking
services.
On March 30, 1999, the Company completed an acquisition of the outstanding
9
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common stock of Columbia Pacific Securities, Inc., a privately-held retail
brokerage firm with independent contractors operating branch offices located in
California, Idaho, Montana, Oregon, Washington, and Wyoming. On April 9, 1999,
the Company announced that it had changed the name of Columbia Pacific
Securities, Inc. to Ragen MacKenzie Investment Services, Inc. The third quarter
of fiscal 1999 is the first period to include the results of operations from
this new subsidiary as the acquisition was completed after the conclusion of the
second fiscal quarter. While the Company does not expect this acquisition to
significantly affect its consolidated earnings in the near term, the
consolidated results for the third quarter of fiscal 1999 reflect higher
revenues and expenses that are in part attributable to the results of operations
from this new subsidiary. The Company believes the creation of Ragen MacKenzie
Investment Services, Inc. will provide a platform on which it can grow its
independent contractor business over the longer term.
RESULTS OF OPERATIONS
Comparison of three months ended June 25, 1999 and June 26, 1998
Net revenues increased by $3,745,000, or 20.7%, to $21,807,000 for the third
quarter of fiscal 1999 as compared to the same period in fiscal 1998. The
increase in net revenues was due primarily to the third quarter 1999 acquisition
of RMIS, increased revenue from the Company's proprietary trading of U.S.
government and agency zero coupon bonds and higher fees from underwriting
management and participation.
Revenues from principal transactions increased by $1,202,000, or 20.2%, to
$7,149,000 for the third quarter of fiscal 1999 as compared to the same period
in fiscal 1998. Revenues from trading debt securities increased by $787,000, or
21.1%, to $4,509,000, due primarily to revenue growth from trading in U.S.
government and agency zero coupon bonds, resulting in part from opportunistic
reconstitution of certain U.S. government and agency zero coupon bonds. Similar
opportunities for growth in the trading of U.S. government and agency zero
coupon bonds may not recur in future periods. Revenues from principal
transactions in equity securities increased by $415,000, or 18.7%, to $2,640,000
for the third quarter of fiscal 1999 as compared to the same period in fiscal
1998. The increase reflects a rise in sales credits due to an overall increase
in retail trading activity.
Commission revenues increased by $1,681,000, or 22.0%, to $9,316,000 for the
third quarter of fiscal 1999 as compared to the same period in fiscal 1998
primarily due to the third quarter 1999 acquisition of RMIS and an overall
increase in retail brokerage activity. The increase in commissions from retail
brokerage was partially offset by the January 1, 1999 change in status of Brooks
G. Ragen and his son from employee brokers to correspondent brokers. As a result
of this change, commission revenue generated by these two that was previously
reported on a gross basis before compensation and other expenses is now reported
on a net basis after payment has been made to their correspondent brokerage
firm.
Other revenue increased by $414,000, or 32.8%, to $1,676,000 for the third
quarter of fiscal 1999 as compared to the same period in fiscal 1998, due to
higher fees from underwriting management and participation which was partially
offset by a $290,000 gain recorded in the 1998 period for the Company's sale of
its Pacific Stock Exchange membership.
Net interest income increased by $448,000, or 13.9%, to $3,666,000 for the third
quarter of fiscal 1999 as compared to the same period in fiscal 1998. Interest
income decreased by $297,000, or 3.4%, to $8,566,000 due to lower interest rates
earned on customer credit and margin balances, which was partially offset by an
increase in customer margin and money-market balances. Interest expense
decreased by $745,000, or 13.2%, to $4,900,000 due to
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lower interest rates paid on customer credit balances and the application of
$18,634,000 net proceeds from the Company's June 1998 initial public offering
(IPO) to pay down current short-term borrowings.
Noninterest expenses decreased by $609,000, or 3.8%, to $15,587,000 for the
third quarter of fiscal 1999 as compared to the same period of fiscal 1998. This
decrease primarily reflects nonrecurring $3,480,000 compensation charges related
to the Company's June 1998 IPO, which was partially offset by increases in
compensation and benefits and occupancy and equipment expenses.
Compensation and benefits expenses increased by $2,102,000, or 23.5%, to
$11,037,000 for the third quarter of fiscal 1999 as compared to the same period
in fiscal 1998. Commission and other sales compensation expenses increased by
$1,083,000, or 26.2%, to $5,210,000 for the fiscal 1999 period, as a result of
the increase in commission revenues attributable to the third quarter 1999
acquisition of RMIS. The remaining increase in employee compensation and
benefits was primarily due to higher incentive bonus compensation paid to
trading-related personnel generally resulting from increased trading revenue.
The $3,480,000 compensation charges related to the IPO reflect nonrecurring
noncash stock option expense of $1,782,000 for the conversion of the Company's
variable-award, book-value-based stock option plans to fixed-award, fair-value-
based stock option plans and $1,698,000 in compensation expense related to stock
appreciation rights that were outstanding at the time of the IPO. Both charges
were recorded in the third quarter of fiscal 1998 upon consummation of the IPO.
Occupancy and equipment expenses increased $434,000, or 38.0%, to $1,576,000,
due to the Company's expansion of the retail sales force and supporting
functions. Communications expenses increased by $67,000, or 7.5%, to $961,000
due to higher printing costs and fees for information data services. Clearing
and exchange fees increased by $215,000, or 34.3%, to $842,000, primarily due to
higher trade-related costs. Other expenses increased by $53,000, or 4.7%, to
$1,171,000, generally due to increased levels of business activities.
The Company's effective income tax rate was 33.8% in the third quarter of fiscal
1999 and 67.8% in the third quarter of fiscal 1998. The Company's 1998 effective
income tax rate was higher than the federal statutory rate primarily due to
nondeductible stock option plan expenses which had the effect of increasing the
effective tax rate by 33.4 percentage points in the third quarter of fiscal
1998. As a result of the conversion of the variable-award, book-value-based
stock option plans to fixed-award, fair-value-based stock option plans upon
consummation of the Company's June 1998 IPO, the Company expects that its
effective income tax rate will remain generally consistent with the third
quarter of fiscal 1999 in future periods.
Comparison of nine months ended June 25, 1999 and June 26, 1998
Net revenues increased by $4,939,000, or 8.5%, to $62,979,000 for the first nine
months of fiscal 1999 as compared to the same period in fiscal 1998. The
increase in net revenues was due primarily to increased revenue from the
Company's proprietary trading of U.S. government and agency zero coupon bonds
and higher net interest income earned on retail customer balances.
Revenues from principal transactions increased by $3,481,000, or 18.5%, to
$22,340,000 for the first nine months of fiscal 1999 as compared to the same
period in fiscal 1998. Revenues from trading debt securities increased by
$2,792,000, or 25.4%, to $13,769,000, due primarily to significant revenue
growth from trading in U.S. government and agency zero coupon bonds, resulting
in part
11
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from opportunistic reconstitution of certain U.S. government and agency zero
coupon bonds. Similar opportunities for growth in the trading of U.S. government
and agency zero coupon bonds may not recur in future periods. Revenues from
principal transactions in equity securities increased by $689,000, or 8.7%, to
$8,571,000 for the first nine months of fiscal 1999 as compared to the same
period in fiscal 1998. The increase reflects a rise in sales credits due to
higher retail trading activity.
Commission revenues increased modestly to $25,513,000 for the first nine months
of fiscal 1999 as compared to the same period in fiscal 1998 primarily due to
the third quarter 1999 acquisition of RMIS and an overall increase in retail
brokerage activity. The increase in commissions from retail brokerage was
partially offset by the January 1, 1999 change in status of Brooks G. Ragen and
his son from employee brokers to correspondent brokers. As a result of this
change, commission revenue generated by these two that was previously reported
on a gross basis before compensation and other expenses is now reported on a net
basis after payment has been made to their correspondent brokerage firm.
Other revenue decreased by $180,000, or 4.2%, to $4,116,000 for the first nine
months of fiscal 1999 as compared to the same period in fiscal 1998, primarily
due to a $290,000 gain recorded in the 1998 period for the Company's sale of its
Pacific Stock Exchange membership.
Net interest income increased by $1,581,000, or 16.8%, to $11,010,000 for the
first nine months of fiscal 1999 as compared to the same period in fiscal 1998.
Interest income decreased modestly to $26,909,000 due to lower interest rates
earned on customer credit and margin balances, which was partially offset by an
increase in average money-market, customer credit, and margin balances. Interest
expense decreased by $1,900,000, or 10.7%, to $15,899,000 due to lower interest
rates paid on customer credit balances and the application of $18,634,000 net
proceeds from the Company's June 1998 IPO to pay down current short-term
borrowings, which was partially offset by an increase in average customer credit
balances.
Noninterest expenses decreased modestly to $44,198,000 for the first nine months
of fiscal 1999 as compared to the same period of fiscal 1998. This decrease
primarily reflects nonrecurring $3,480,000 compensation charges related to the
Company's June 1998 IPO, which was partially offset by increases in compensation
and benefits, occupancy and equipment and other expenses.
Compensation and benefits expenses increased by $1,546,000, or 5.2%, to
$31,209,000 for the first nine months of fiscal 1999 as compared to the same
period in fiscal 1998. Commission and other sales compensation expenses
decreased modestly to $13,594,000 for the fiscal 1999 period, as a result of a
decrease in guaranteed broker salary payments that the Company previously
provided to recently hired brokers. Stock option expense in the first nine
months of fiscal 1998 was $1,150,000 under the Company's variable-award, book-
value-based stock option plans. No expense was recorded in the first nine months
of fiscal 1999 as the Company's stock option plans became fixed-award, fair-
value-based plans upon consummation of the Company's June 1998 IPO. These
decreases were partially offset by higher incentive bonus compensation paid to
trading-related personnel generally resulting from increased trading revenue and
an increase in employee compensation and benefits due to increased staffing to
support the Company's expanding retail brokerage business.
Occupancy and equipment expenses increased $536,000, or 14.2%, to $4,319,000,
due to the Company's expansion of the retail sales force and supporting
functions. Communications expenses increased by $220,000, or 8.2%, to $2,888,000
due to higher printing and postage costs and fees for information data services.
Clearing and exchange fees increased by $97,000, or 4.7%, to $2,152,000, due to
higher trade-related costs. Other expenses
12
<PAGE>
increased by $878,000, or 31.9%, to $3,630,000, primarily due to state and local
tax refunds received in the 1998 period for overpayments in prior years.
The Company's effective income tax rate was 33.9% in the first nine months of
fiscal 1999 and 42.4% in the first nine months of fiscal 1998. The Company's
1998 effective income tax rate was higher than the federal statutory rate
primarily due to nondeductible stock option plan expenses which had the effect
of increasing the effective tax rate by 7.5 percentage points in the first nine
months of fiscal 1998. As a result of the conversion of the variable-award,
book-value-based stock option plans to fixed-award, fair-value-based stock
option plans upon consummation of the Company's June 1998 IPO, the Company
expects that its effective income tax rate in future periods will remain
generally consistent with the rate in the current period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied a large portion of its funding needs with
its own capital resources, consisting largely of internally generated retained
earnings and funds received upon exercise of employee stock options. A majority
of the Company's assets are highly liquid and short term in nature. The
Company's cash, cash equivalents and liquid assets, consisting of receivables
from customers, brokers and dealers, securities purchased under agreements to
resell, securities owned, securities borrowed and deposits with clearing
organizations, represented in excess of 98% of the Company's assets as of
September 25, 1998 and June 25, 1999. Substantially all of the Company's
receivables are secured by customer securities or security transactions in the
process of settlement.
The majority of the Company's assets are financed through daily operations by
securities sold under repurchase agreements, securities sold but not yet
purchased, bank loans, securities loaned, and payables to customers, brokers and
dealers. Short-term funding is generally obtained at rates relating to daily
federal funds rates. Other borrowing costs are negotiated depending on
prevailing market conditions. The Company monitors overall liquidity by tracking
the extent to which unencumbered marketable assets exceed short-term unsecured
borrowings. The Company maintains borrowing arrangements with two financial
institutions, which funds are used primarily to finance U.S. government and
agency zero coupon bond inventories. As of June 25, 1999, the Company had a
secured bank line of credit with $37,600,000 outstanding and a security
repurchase arrangement with $41,100,000 outstanding and available borrowing
capacity of approximately $30,000,000. The ratio of assets to equity as of June
25, 1999 was approximately 6.0:1.
On August 25, 1998, the Board of Directors authorized the repurchase of up to
1,000,000 shares of the Company's common stock over the following twelve months.
Purchases of the common stock may be made from time to time at prevailing prices
in the open market, by block purchases, or in privately negotiated transactions
using funds from operations or the Company's other existing financing sources.
The repurchased shares are to be accounted for as treasury stock and used for
the Company's employee stock option plans and other general corporate purposes.
During the nine-month period ended June 25, 1999, the Company repurchased
626,000 shares at a total cost of $7,151,000. No shares were repurchased during
the three months ended June 25, 1999. At June 25, 1999, the remaining number of
shares authorized to be repurchased, in the open market or otherwise, under the
Company's common stock repurchase program was 323,400 shares.
13
<PAGE>
Certain minimum amounts of capital must be maintained by RMI and RMIS, the
Company's broker-dealer subsidiaries, to satisfy the regulatory requirements of
the SEC and the NYSE. RMI and RMIS's regulatory net capital have historically
exceeded these minimum requirements. See Note 4 to the Company's Notes to
Consolidated Financial Statements.
The Company believes that its current level of liquid assets, combined with
funds anticipated to be generated from operations, will be adequate to fund its
operations for the next 18 to 24 months.
YEAR 2000 COMPLIANCE
The following Year 2000 discussion is a "Year 2000 Readiness Disclosure" within
the meaning of the Year 2000 Information Readiness and Disclosure Act.
The Company uses, and depends on third-parties who use, a wide variety of
computer programs and devices, some of which have used only the last two digits
of each year to represent the calendar year portion of dates. As a result,
calculations performed with these abbreviated date fields could misinterpret the
year 2000 resulting in erroneous calculations or program failures that could
cause significant disruptions in the Company's operations (the "Year 2000
Problem").
In 1996, the Company established a Year 2000 Committee to address the risks
associated with the Year 2000 Problem. The Committee is comprised of key
personnel from information technology, finance and operations departments within
the Company. With the direction of the Year 2000 Committee, the Company is
executing a project plan in an attempt to achieve Year 2000 compliance. In
developing the project plan, the Year 2000 Committee used an enterprise-wide
approach and grouped all of the Company's operations into the following five
broad areas: Business Partners; Computers and Technology (including hardware and
software associated with mainframe, distributed and desktop computer systems
operated by the Company, as well as the Company's core brokerage software
obtained from an unaffiliated software provider); Information Data Feeds
(including all data interfaces with external parties); Facilities and Work
Environments; and Customers and Correspondents. Within each of these areas, the
Year 2000 Committee has organized its activities to include the following steps
or phases: inventory, assessment, remediation, testing and contingency planning.
To date, the Company believes it has completed the following phases within all
areas of the project plan as they relate to its internal system: inventory,
assessment, remediation and testing. The project areas that comprise the
Company's internal systems include Computers and Technology and Facilities and
Work Environments, as well as certain aspects of the remaining areas.
Business Partners and Information Data Feed project areas involve an extensive
network of third-party relationships and external providers of products and
services that include the major securities exchanges, self- regulatory
organizations, industry clearing and depository institutions, other broker-
dealers, and hardware and software technology providers. Where deemed necessary,
the Company has inquired of these parties whether they are making the necessary
efforts to correct their own Year 2000 problems. The Company has received
correspondence from all of its mission critical business partners regarding
their Year 2000 readiness and will continue to monitor the progress of these and
other partners throughout 1999. The Company's assessment of these responses is
in progress. If necessary, and if alternatives exist, the Company will identify
and replace business partners that pose a risk to the success of the Company's
own Year 2000 readiness plans. With regard to Information Data Feeds, the
Company has completed assessment, remediation and testing (where available) on
approximately 90% of its mission critical information data feeds and plans to
complete these steps on the remaining Information Data Feeds in the summer of
1999.
14
<PAGE>
A significant aspect of the Company's Year 2000 project within the Computers and
Technology area relates to the functioning of the Company's core brokerage
software. This software, which is provided by an outside software provider under
a servicing contract, is used by the Company for the electronic processing and
recording of all data pertinent to securities transactions and general
accounting. While the Company is not directly responsible for the work or costs
associated with making this system Year 2000 ready, the Year 2000 Committee
closely monitors the Year 2000 work performed by the software provider through
regular progress updates and reviews. To date, remediation and testing of this
system has been completed and all of the twenty-six software subsystems that
comprise the Company's core brokerage software system are currently in use by
the Company. The Company continues to work with the outside software provider to
coordinate responsibilities and work effort related to the contingency planning
phase.
The testing phase of the project plan began in December 1998. In this phase, the
Company identified systems within each area of the overall project plan that it
believed required testing. For each of these systems, the Company determined the
nature and timing of this testing. An important element of the Company's
internal testing plan for its core brokerage software system was participation
in the securities industry-wide test. In this test, which was coordinated by the
Securities Industry Association and occurred in March and April 1999, RMI and
other participants were able to input transactions and send them to the
appropriate markets for execution, confirmation and clearance under simulated
Year 2000 conditions. The Company has been informed that the testing was a
success.
Nearly every aspect of the Company's business depends on the accurate processing
of date-related information. As a result, failure by the Company or one or more
of the third parties with which the Company has a relationship to successfully
remediate systems for Year 2000 issues poses the risk of material disruption to
operations and material financial loss. A failure on the part of the Company to
identify and implement solutions to all aspects of the Year 2000 Problem could
result in systems failures or outages, inaccuracies in processing trades or
other transactions affecting customer or proprietary accounts, an inability to
reconcile to and settle with counterparties and other business disruptions. In
addition, third parties with which the Company has a relationship could fail in
some element of their Year 2000 efforts. The Company's operations are highly
dependent on the services of the securities exchanges, depositories, its core
brokerage software provider, certain banking relationships, electric utilities
and telecommunications networks. A failure by one of these institutions to
become Year 2000 compliant could disrupt the operations of the Company as well
as the securities industry as a whole. The scope of the Company's relationship
with individual customers, broker-dealer counterparties and vendors varies
widely, as does the resulting risk should any one of them fail to achieve Year
2000 compliance. The Company has ongoing communications with important third
parties with which it has relationships, including its core brokerage software
provider, regarding third party Year 2000 risks. The likelihood of such third
parties achieving Year 2000 compliance cannot be adequately gauged at this time.
The Company has developed written contingency plans to be executed should a Year
2000 failure affect the Company's operations or those of a significant third
party. In developing its contingency plans, the Company has incorporated various
Year 2000 issues into its existing disaster recovery plans. These plans include
identification of various alternative procedures, where alternatives exist, that
could be performed should a Year 2000 failure affect the Company's mission
critical operations or those of a significant third party. Such alternatives
generally rely upon manual procedures or work-around techniques that could be
15
<PAGE>
performed for existing systems on a temporary basis. It is the Company's belief
that alternatives currently do not exist for many of the functions provided by
the exchanges and utilities used throughout the securities industry. The Company
intends to test these contingency plans during 1999. As these plans are tested
and reconsidered, the Company anticipates that it will make updates and
improvements to the plans throughout the year in preparation for the millennium
date change. There can be no assurance that the identified alternative
arrangements include every material risk or contingency, or that these
contingency plans will be effective.
Based on information currently available, including information provided by
third party vendors, the Company expects that the total cost of addressing the
Year 2000 Problem for its internal systems will not be material. Costs related
to the Year 2000 Problem are expensed as incurred. A significant portion of
the costs already incurred, and the estimated future costs, are not incremental
costs to the Company, but rather represent the redeployment of existing
information technology and operations personnel, primarily to test the
remediation efforts of the Company's third party vendors. The Company expects to
fund all Year 2000 related costs through operating cash flows and a reallocation
of the Company's overall information technology developmental spending. The
costs of the Company's Year 2000 project and the date on which the Company plans
to complete the Year 2000 modifications are based on management's best current
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
compliance plans and other factors. However, there can be no assurance that
these estimates will prove correct and actual results could differ materially
from those plans.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument represents a contractual agreement between
counterparties and has value that is derived from changes in the value of some
other underlying asset such as the price of another security, interest rates,
currency exchange rates, specified rates (e.g. LIBOR) or indices (e.g. S&P 500),
or the value referenced in the contract.
The Company does not act as dealer, trader or end-user of complex derivatives
such as swaps, collars and caps. From time to time, the Company enters into
exchange-listed financial futures contracts for the purpose of hedging certain
dealing activities. Any futures contract commitments are considered held for
trading purposes and are carried at market value. Financial futures contracts
are transactions in which one party agrees to deliver a financial instrument to
a counterparty at a specified price on a specified date. The Company's exposure
to market risk arises from the possibility of unfavorable changes in the market
price of the underlying financial instrument. The Company's exposure to credit
risk at any point is represented by the fair value or replacement cost on
contracts in which the Company has recorded an unrealized gain. The risks
inherent in derivative financial instruments are managed consistent with the
Company's overall risk management policies. See "-- Risk Management".
At June 25, 1999 the Company had no outstanding financial futures commitments.
RISK MANAGEMENT
Exposure to risk and the management of risk on a day-to-day basis are critical
to the Company's survival and financial success. The Company monitors its
market, credit and correspondent risks on a daily basis through a number of
control procedures designed to identify and evaluate the various risks to which
16
<PAGE>
the Company is exposed. There can be no assurance, however, that the Company's
risk management procedures and internal controls will prevent losses from
occurring as a result of such risks.
The Company's primary market risk arises from the fact that it owns a variety of
investments that are subject to changes in value and could result in the
Company's incurring material gains or losses. The Company also engages in
proprietary trading and makes dealer markets in equity securities, municipal
obligations, investment- grade corporate debt, U.S. government and agency
securities and collateralized mortgage obligation (CMO) securities. In doing
this, the Company may be required to maintain certain amounts of inventories in
order to facilitate customer order flow. The Company seeks to cover its exposure
to market risk by limiting its net long or short positions, by selling or buying
similar instruments and by utilizing various financial instruments such as
futures.
Trading activities generally result in the creation of inventory positions.
Trading and inventory accounts are monitored on an ongoing basis, and the
Company has established written position limits. Position and exposure reports
are prepared at the end of each trading day by operations staff in each of the
business groups engaged in trading activities and are reviewed by traders,
trading managers, department managers and management personnel. These reports
are reviewed independently by the Company's corporate accounting group on a
daily basis. In addition, on a daily basis, the corporate accounting group
prepares a consolidated summarized position report indicating both long and
short exposure, which is distributed to management and enables senior management
to review inventory levels and monitor results of the trading groups. The
Company also reviews and monitors, at various levels of management, inventory
pricing, concentration and securities ratings.
In addition to position and exposure reports, the Company produces a daily
revenue report that summarizes the trading, interest, commissions, fees,
underwriting and other revenue items for each of its business groups. The daily
revenue report is distributed to various levels of senior management and,
together with the position and exposure report, assists senior management in
monitoring and reviewing overall activity of the trading groups.
Credit risk represents the amount of accounting loss the Company would incur
should counterparties to its proprietary transactions fail to perform and the
value of any collateral proves inadequate. Credit risk relating to various
financing activities is reduced by the industry practice of obtaining and
maintaining collateral until commitments are settled. The Company monitors its
exposure to counterparty risk on a daily basis by using credit exposure
information and monitoring collateral values. Senior management approves various
actions, including setting higher margin requirements for large or concentrated
accounts, requiring a reduction of either the level of margin debt or investment
in high-risk securities or, in some cases, requiring the transfer of the account
to another broker-dealer. The Company actively manages the credit exposure
relating to its trading activities by entering into master agreements that
permit netting, when feasible, monitoring the creditworthiness of counterparties
and their related trading limits on an ongoing basis, requesting additional
collateral when deemed necessary and limiting the amount and duration of
exposure to individual counterparties. The Company also often acts as a
principal in customer-related transactions in financial instruments, which
exposes it to risks of default by customers and counterparties.
Management of risk relating to clearing activities for the Company's
correspondent firms begins with a review by certain members of senior management
of each prospective correspondent firm prior to commencing the relationship.
This review includes an examination of the firm's employees, trading history and
17
<PAGE>
finances. Each new correspondent is required to maintain a security deposit. The
amount required is based upon the volume and type of business to be done. The
correspondent agreement requires each correspondent to submit to RMI copies of
all financial information they are required to file with the SEC and the NASD
Regulation monthly or quarterly, including Financial and Operational Combined
Uniform Single Reports ("FOCUS Reports"). Correspondent FOCUS Reports and other
financial statements are reviewed by management. Additionally, each
correspondent's settlements are reviewed daily.
MARKET RISK
Market risk represents the potential loss the Company may incur as a result of
absolute and relative price movements in financial instruments due to changes in
interest rates, foreign exchange rates, equity prices, and other political
factors. The Company is not subject to direct market risk due to changes in
foreign exchange rates. However, the Company is subject to market risk as a
result of changes in interest rates and equity prices, which are affected by
global economic conditions. The principal source of this risk arises from
maintaining securities inventory positions and trading and market-making in
these securities. The Company carries inventories of marketable securities
including equities and municipal, U.S. government and agency zero coupon,
corporate, and CMO fixed income securities for resale to its retail and
institutional brokerage customers and other broker-dealers. All of the Company's
inventories are held for trading purposes.
In connection with the Company's dealing activities, the Company is exposed to
interest rate risk due to changes in the level or volatility of interest rates,
changes in the yield curve, mortgage prepayments and credit spreads. The Company
is exposed to equity price risk due to changes in the level and volatility of
equity prices primarily in the Nasdaq and over-the-counter markets. The Company
controls its market risk primarily through notional limits on trading
inventories. In addition, the Company attempts to mitigate its exposure to
interest rate risk on its long CMO and U.S. government and agency inventories by
entering into hedging transactions through the use of short cash positions in
U.S. government obligations and, to a lesser extent, financial futures
contracts.
The following table shows the quoted market values of the Company's securities
owned ("long"), securities sold but not yet purchased ("short"), net positions
and overall position limits as of June 25, 1999:
<TABLE>
<CAPTION>
Long Short Net Limit
------------- -------------- ------------- ------------------------
<S> <C> <C> <C> <C>
Corporate bonds, debentures, and notes $ 3,561,000 $ (864,000) $ 2,697,000 Long $ 7,000,000
U.S. Government and government
agency obligations 126,555,000 (133,136,000) (6,581,000) Long $180,000,000 (1)
Collateralized mortgage obligations 12,009,000 (9,000) 12,000,000 Long $ 30,000,000 (2)
State and municipal obligations 1,861,000 (75,000) 1,786,000 Long $ 5,000,000
Corporate stocks 368,000 (324,000) 44,000 Long $ 2,500,000
</TABLE>
(1) $175,000,000 of total long position limit must be adequately hedged.
(2) Unless approval is given, long inventory must be adequately hedged.
18
<PAGE>
The information regarding the Company's market risk included above does not
consider other factors that may influence the Company's market risk, such as
credit spread risk, prepayment risk on CMOs, or changes in the shape of the
yield curve. Information with regard to the Company's securities borrowed,
securities loaned, borrowings, and securities sold under agreements to
repurchase is not included, as the interest rates for such instruments are
generally reset on a daily basis.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Unregistered Securities:
On March 30, 1999 the Company issued an aggregate of 40,000 shares of common
stock to the former owners of CPS to acquire all of the outstanding common stock
of CPS. The Company issued such shares in a private placement transaction exempt
from registration under the Securities Act pursuant to Section 4(2) thereof on
the basis that the transaction did not involve a public offering.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings Per Share*
27 Financial Data Schedule (This financial data schedule is only required
to be submitted with the registrant's Quarterly Report on Form 10-Q as
filed electronically to the SEC's EDGAR database.)
* See Note 6 to the Company's Notes to Consolidated Financial
Statements.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended June 25,
1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAGEN MACKENZIE GROUP INCORPORATED
(REGISTRANT)
DATE: AUGUST 6, 1999 BY: /s/ Lesa A. Sroufe
-----------------------------
Lesa A. Sroufe
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
DATE: AUGUST 6, 1999 BY: /s/ V. Lawrence Bensussen
-----------------------------
V. Lawrence Bensussen
Senior Vice President, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- ------------------ ------------------------------------------------
11 Computation of Earnings per Share.*
27 Financial Data Schedule.
* See Note 6 to the Company's Notes to Consolidated Financial Statements
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RAGEN
MACKENZIE'S JUNE 25, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-24-1999
<PERIOD-START> SEP-26-1998
<PERIOD-END> JUN-25-1999
<CASH> 3,856
<RECEIVABLES> 160,720
<SECURITIES-RESALE> 373,758
<SECURITIES-BORROWED> 3,969
<INSTRUMENTS-OWNED> 144,354
<PP&E> 2,501
<TOTAL-ASSETS> 699,121
<SHORT-TERM> 37,600
<PAYABLES> 356,557
<REPOS-SOLD> 41,100
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 134,408
<LONG-TERM> 0
0
0
<COMMON> 135
<OTHER-SE> 115,720
<TOTAL-LIABILITY-AND-EQUITY> 669,121
<TRADING-REVENUE> 22,340
<INTEREST-DIVIDENDS> 26,909
<COMMISSIONS> 25,513
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 4,116
<INTEREST-EXPENSE> 15,899
<COMPENSATION> 31,209
<INCOME-PRETAX> 18,781
<INCOME-PRE-EXTRAORDINARY> 12,412
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,412
<EPS-BASIC> .95
<EPS-DILUTED> .94
</TABLE>
