<PAGE> 1
- --------------------------------------------------------------------------------
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 QUARTER ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8186
DAIN RAUSCHER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 41-1228350
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
DAIN RAUSCHER PLAZA, 60 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402-4422
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 371-2711
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 April 28, 1999, the Company had 12,817,831 shares of common stock
outstanding.
- --------------------------------------------------------------------------------
<PAGE> 2
DAIN RAUSCHER CORPORATION
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet......................................................... 3
Consolidated Statement of Income................................................... 4
Consolidated Statement of Cash Flows............................................... 5
Notes to Consolidated Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................ 8
II. OTHER INFORMATION:
Item 1. Legal Proceedings.................................................................. 14
Item 6. Exhibits and Reports on Form 8-K................................................... 15
Signatures......................................................................... 16
Index of Exhibits.................................................................. 17
Exhibits........................................................................... 18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAIN RAUSCHER CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Assets:
Cash and cash equivalents................................................ $ 28,994 $ 39,087
Receivable from customers................................................ 1,755,165 1,453,488
Receivable from brokers and dealers...................................... 389,563 321,571
Securities purchased under agreements to resell.......................... 154,845 67,357
Trading securities owned................................................. 371,092 243,740
Equipment and leasehold improvements, at cost, net of depreciation....... 46,274 47,578
Other receivables........................................................ 153,744 123,805
Deferred income taxes.................................................... 74,365 58,891
Goodwill, net of amortization............................................ 113,153 114,485
Other assets............................................................. 35,772 29,853
------------ ------------
$ 3,122,967 $ 2,499,855
============ ============
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings.................................................... $ 136,453 $ 55,836
Customer drafts payable.................................................. 79,597 76,267
Payable to customers..................................................... 801,306 690,559
Payable to brokers and dealers........................................... 931,695 677,056
Securities sold under repurchase agreements.............................. 50,969 23,213
Trading securities sold, but not yet purchased........................... 188,773 79,023
Accrued compensation..................................................... 181,742 235,858
Other liabilities and accrued expenses................................... 162,493 121,486
Subordinated and other debt.............................................. 144,371 150,807
------------ ------------
2,677,399 2,110,105
Shareholders' equity:
Common stock............................................................. 1,648 1,630
Additional paid-in capital............................................... 143,705 125,320
Retained earnings........................................................ 323,134 285,966
Treasury stock, at cost.................................................. (22,919) (23,166)
------------ ------------
445,568 389,750
------------ ------------
$ 3,122,967 $ 2,499,855
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
DAIN RAUSCHER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
Revenue:
Commissions................................... $ 114,870 $ 83,266
Investment banking and underwriting........... 98,720 33,435
Principal transactions........................ 67,814 42,488
Interest...................................... 42,468 30,860
Asset management.............................. 24,005 16,952
Correspondent services........................ 7,386 5,878
Gain on sale of investment.................... - 15,378
Other......................................... 16,585 7,778
-------------- -------------
Total revenue................................. 371,848 236,035
Interest expense................................. (20,838) (16,053)
-------------- -------------
Net revenue...................................... 351,010 219,982
-------------- -------------
Operating expenses:
Compensation and benefits..................... 223,842 130,908
Occupancy and equipment....................... 14,224 13,225
Communications................................ 12,007 12,146
Travel and promotional........................ 9,570 9,053
Floor brokerage and clearing fees............. 3,546 3,450
Other......................................... 22,798 15,055
-------------- -------------
Total operating expenses......................... 285,987 183,837
-------------- -------------
Income before income taxes....................... 65,023 36,145
Income tax expense............................... (25,034) (13,555)
-------------- -------------
Net income....................................... $ 39,989 $ 22,590
============== =============
Earnings per share:
Basic......................................... $ 3.14 $ 1.81
============== =============
Diluted....................................... $ 2.85 $ 1.70
============== =============
Dividends per share.............................. $ .22 $ .22
============== =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
DAIN RAUSCHER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 39,989 $ 22,590
Adjustments to reconcile income to cash provided (used)
by operating activities:
Depreciation and amortization ......................... 6,249 5,735
Deferred income taxes ................................. (15,474) (5,083)
Other non cash items .................................. 3,746 3,295
Net trading securities owned and trading
securities sold, but not yet purchased ............. (17,602) (25,601)
Other receivables ..................................... (29,939) (15,439)
Drafts payable and short-term borrowings
of securities companies ............................ 83,947 150,626
Net receivable from customers ......................... (190,930) (161,300)
Net payable to brokers and dealers .................... 186,647 21,666
Net securities under repurchase agreements ............ (59,732) 29,423
Other accrued liabilities ............................. 36,177 35,793
Accrued compensation .................................. (54,116) (52,464)
Other ................................................. 5,980 (7,843)
--------- ---------
Cash provided (used) by operating activities ................... (5,058) 1,398
--------- ---------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock for stock options ............... 286 664
Payments for:
Subordinated and other debt .............................. (5,000) --
Dividends on common stock ................................ (2,805) (2,764)
Purchase of common stock ................................. -- (9,567)
--------- ---------
Cash used by financing activities .............................. (7,519) (11,667)
--------- ---------
Cash flows from investing activities:
Gain on sale of investment securities .................... 6,333 15,378
Payments for equipment, leasehold improvements and other.. (3,849) (2,128)
--------- ---------
Cash provided by investing activities .......................... 2,484 13,250
--------- ---------
Increase (decrease) in cash and cash equivalents ............... (10,093) 2,981
Cash and cash equivalents:
At beginning of period ................................... 39,087 47,273
--------- ---------
At end of period ......................................... $ 28,994 $ 50,254
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
DAIN RAUSCHER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We have prepared the accompanying unaudited interim consolidated
financial statements in accordance with the instructions for Form 10-Q. These
instructions do not require including all the information and footnotes found in
complete financial statements prepared in accordance with generally accepted
accounting principles. These interim financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in our Annual Report on Form 10-K for the year ended December 31, 1999.
We believe we have included all adjustments necessary for a fair presentation of
these interim financial statements. We have made only normal, recurring
adjustments. However, financial results for the three-month period ended March
31, 2000, are not necessarily indicative of future results.
B. SHORT-TERM BORROWINGS
On March 16, 2000, we amended our committed, revolving credit agreement
to extend the maturity date to March 15, 2001, and increase the credit limit to
$80 million from $67 million. Loans under this agreement are unsecured and bear
interest at a floating rate of LIBOR plus 61 basis points. No amounts were
outstanding under this facility at March 31, 2000. Under the terms of this
credit agreement, we must comply with covenants regarding net worth, regulatory
net capital, minimum investment level in our broker-dealer subsidiary, Dain
Rauscher Incorporated (DRI), and limitations on indebtedness, among others.
C. SUBORDINATED AND OTHER DEBT
On November 2, 1999, we entered into a new $50 million five-year term
loan agreement with a group of banks. This loan is unsecured, bears an interest
rate of LIBOR plus 175 basis points, and is repayable in 12 equal quarterly
installments beginning January 2002. There are no restrictions on our use of the
loan proceeds.
On March 31, 1998, DRI entered into an $80 million subordinated term
loan agreement with a group of banks in connection with its acquisition of
Wessels, Arnold and Henderson, LLP (WAH). Proceeds from this loan qualify as
regulatory capital. Term loans under this agreement are unsecured, and consist
of advances bearing interest generally at either the current LIBOR plus 160
basis points, or the lead bank's published Reference Rate, at our discretion.
Under the agreement DRI makes quarterly payments of $5.0 million. These payments
began on April 1, 1999, and the final payment is due on December 31, 2002. DRI
must also comply with covenants in the agreement regarding, among others, net
worth and regulatory net capital. During the 1999 second quarter we entered into
an interest rate swap agreement for this subordinated debt (see footnote E for a
further discussion of this interest-rate swap).
D. SEGMENT INFORMATION
See Item 2 "Management's Discussion and Analysis" for a discussion of
our results by business line.
E. OFF-BALANCE-SHEET RISK
MARKET RISK
The types of transactions in which we participate and the types of
inventory we hold remain essentially unchanged since year-end 1999. See the
Market Risk discussion in Item 7 (Management's Discussion and Analysis) of our
Annual Report on Form 10-K for the year ended December 31, 1999, for a further
discussion of this issue.
6
<PAGE> 7
INTEREST RATE RISK
In April 1999 we entered into a fixed interest rate amortizing swap on
our subordinated debt payable to banks to reduce our risk of increased interest
costs should interest rates increase. Under the terms of our swap agreement, our
quarterly interest payments are made at a fixed interest rate of 6.895%. In
return, we receive variable payments based on the current 30-day LIBOR rate. The
difference between the amount of interest we pay and receive under the terms of
the swap is included in interest expense. The fair value of this interest rate
swap was approximately $1.2 million (unrealized gain, not recorded in our
consolidated income statement) at March 31, 2000. This interest rate swap
matures on December 31, 2002.
F. SUPPLEMENTARY CASH FLOW STATEMENT INFORMATION
Income tax payments totaled $21,263,000 and $5,671,000 during the three
months ended March 31, 2000 and 1999, respectively. Interest payments totaled
$16,407,000 and $14,544,000 during the same respective three-month periods.
During the three months ended March 31, 2000 and 1999, we credited common
stock to deferred compensation plan participants, resulting in net non-cash
financing activity of $17,307,000 and $4,580,000, respectively.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with Item 7 (Management's
Discussion and Analysis) of our Annual Report on Form 10-K for the year ended
December 31, 1999.
SUMMARY
Following is a consolidated summary of our income and results of
operations for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
-------------------------------
<S> <C> <C>
Revenue.......................................... $ 371,848 $ 236,035
Interest expense................................. (20,838) (16,053)
-------------- -------------
Net revenue*..................................... 351,010 219,982
Operating expenses............................... 285,987 183,837
-------------- -------------
Income before income taxes....................... 65,023 36,145
Income tax expense............................... (25,034) (13,555)
-------------- -------------
Net income....................................... $ 39,989 $ 22,590
============== =============
Earnings per share:
Basic......................................... $ 3.14 $ 1.81
Diluted*...................................... 2.85 1.70
</TABLE>
*Net revenue for the three months ended March 31, 1999 included a $15.4
million pre-tax gain on the sale of an equity investment, which increased net
earnings per diluted share by $0.72.
RESULTS OF OPERATIONS BY TRANSACTION TYPE
Commission revenue increased $31.6 million (38%) during the first quarter of
2000 over the same period in 1999. Strong sales of over-the-counter equity
securities sold on an agency basis led the commission increase, although sales
of listed securities were also robust. Trading volumes were heavy on both the
NASDAQ, which experienced record volume during the quarter, and the NYSE.
Securities prices, particularly on the NASDAQ, also rose in the period ending
March 31, 2000. These price and volume increases, which resulted in higher
commissions on a greater number of securities transactions, drove our commission
revenue during the first quarter of 2000. Sales of mutual funds were also
significantly stronger in 2000's first quarter than they were a year ago, and
sales of insurance and annuity products rose, although more modestly.
Investment banking and underwriting revenue increased more than 195%
($65.3 million) in the first three months of 2000 over the same period in 1999.
Initial and secondary public equity offerings, particularly in the technology
sector, accounted for much of this higher revenue. Delayed or cancelled public
offerings amid volatile equity markets since March 31, 2000 could negatively
impact investment banking revenue in the second quarter of 2000. Advisory fees
from mergers and acquisitions also rose strongly in the first quarter of 2000
over the first quarter of 1999. Public finance investment banking fees were down
in the first quarter of 2000 from the prior year, amid a soft market for new
issues.
Revenue from principal transactions increased $25.3 million (60%) in
first quarter of 2000 versus 1999's first quarter. Higher sales and trading of
over-the-counter equity securities drove much of this increase. Revenue from
trading of municipal bonds also rose during the period, although trading results
on taxable fixed income securities declined. Institutional sales of both
municipal and taxable fixed income securities were down from the prior year
first quarter amid interest rate uncertainty.
Correspondent services revenue rose 26% ($1.5 million) in the first
quarter of 2000 versus 1999's first three months, reflecting strong investor
activity in US equity markets.
8
<PAGE> 9
Net interest income increased $6.8 million (46%) in the first quarter of
2000 from 1999. Interest revenue was up significantly, reflecting the 31% rise
in customer margin loan balances. Interest expense grew mainly as a result of
the $50 million term loan we entered into in November of 1999. Average margin
spreads (the difference between the rate our customers pay us on margin loans
and our average borrowing cost) rose moderately from the first quarter of 1999
as we raised the rates we charge on margin loan balances in line with rate
increases by the Federal Reserve.
Asset management revenue increased $7.0 million (42%) in Q1of 2000 over
the prior year quarter. Assets under management grew from new assets in our
Private Client Group fee-based accounts and in our money market funds, and from
rising market valuations of existing assets.
Other revenue decreased $8.8 million in the first three months of 2000
from the same period a year ago. First quarter 1999 results included a pretax
gain of $15.4 million resulting from our sale of an equity investment made in
connection with our correspondent services business. First quarter 2000 results
include various gains on the sale of equity investments made in connection with
our Equity Capital Markets business, although none resulted in a return as
significant as that in 1999's first quarter.
Compensation and benefits expense increased 71% from Q1 1999, mirroring
significantly higher revenues. The increase in compensation and benefit dollars
reflects both the increase in our Equity Capital Markets business, which has a
higher compensation ratio, and increased sales activity by Private Client Group
investment executives, which results in higher compensation to these investment
executives. Compensation and benefits as a percent of net revenue, however,
remained essentially unchanged at 63.8% in Q1 2000 versus 64.0% in Q1 of 1999
(excluding the impact of the $15.4 million investment gain).
Operating expenses, excluding compensation and benefits, increased 17%
in the first quarter of 2000 from the same period a year ago. Occupancy and
equipment expenses increased 8% due to remodeling and expansions of current
office space. Travel and promotional expenses increased 6% in conjunction with
higher investment banking activity from our Equity Capital Markets Group.
Communication expenses decreased slightly primarily from a change in a major
telecommunications contract. Floor brokerage and clearing fees rose 3% on higher
trading volumes. Other expenses increased by $7.7 million (51%), primarily from
programming and development costs related to investments in web technology.
9
<PAGE> 10
RESULTS OF OPERATIONS BY BUSINESS LINE
Our business includes three major segments: Private Client Group, which
includes securities sales to individual investors, asset management for
individual investors, and correspondent services; Equity Capital Markets, which
includes corporate investment banking and underwriting, research, and
institutional equity sales and trading; and Fixed Income Capital Markets, which
includes fixed income securities trading, sales, underwriting, and advisory
services. All corporate expenses, and miscellaneous revenue and expenses, which
are not allocated to individual business lines, are included in "Corporate."
<TABLE>
<CAPTION>
(In thousands) THREE MONTHS ENDED MARCH 31,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
NET REVENUE
Private Client Group.......................... $ 191,644 $ 141,600
Equity Capital Markets........................ 125,702 33,415
Fixed Income Capital Markets.................. 20,746 25,015
Corporate:
Staff and other............................ 12,918 4,574
Gain on sale of investment................. - 15,378
-------------- -------------
TOTAL................................. $ 351,010 $ 219,982
============== =============
(In thousands)
PRE-TAX INCOME (LOSS)
Private Client Group.......................... $ 25,951 $ 15,211
Equity Capital Markets........................ 29,267 1,168
Fixed Income Capital Markets.................. (1,031) 2,097
Corporate:
Staff and other............................ 10,836 2,291
Gain on sale of investment................. - 15,378
-------------- -------------
TOTAL................................. $ 65,023 $ 36,145
============== =============
PRE-TAX MARGIN ON NET REVENUE
Private Client Group.......................... 13.5% 10.7%
Equity Capital Markets........................ 23.3 3.5
Fixed Income Capital Markets.................. nm 8.4
Corporate..................................... 83.9 88.6
-------------- -------------
TOTAL................................. 18.5% 16.4%
============== =============
</TABLE>
PRIVATE CLIENT GROUP: Private Client Group ("PCG") generates revenue
primarily from commissions earned by investment executives on individual
(retail) investor activity. PCG receives asset management fees paid from Insight
Investment Management Inc. ("Insight"), an affiliate of DRI which manages the
Great Hall(R) money market funds, and fees paid by customers for us to manage or
arrange the management of their portfolios. PCG also earns interest from
customers who have borrowed funds to purchase securities (margin purchasing).
Revenue generated from correspondent (or trade) services is also included in
PCG. Correspondent services fees are paid to us by independent introducing
brokers to clear and settle their clients' transactions, and to extend credit to
their clients to purchase securities (margin purchasing).
10
<PAGE> 11
PCG net revenue rose 35% in the first quarter of 2000 over the same
period in 1999, as both commissions and asset management fees increased
strongly. Commission revenue gains resulted primarily from higher sales of
over-the-counter securities and mutual funds, although sales of all equity
securities were strong. Although securities prices were volatile, trading
volumes on both the NASDAQ and NYSE were heavy during the three months ended
March 31, 2000, contributing to increased commissions. Sales of annuity and
other insurance products, which are included in commission revenue, also
increased in the first quarter of 2000.
PCG's asset management fees were up 58% in the first three months of
2000 from the same period in 1999, reflecting both new assets under
administration in fee-based managed account programs and rising market
valuations of existing assets under administration. Assets under administration
totaled $71 billion at March 31, 2000, up from $68 billion at December 31, 1999.
Correspondent services revenue also contributed to PCG's higher revenue in the
first quarter 2000, as correspondent customer transactions increased in line
with higher equity markets' trading volumes.
PCG pretax income increased 71% in the first quarter of 2000 versus the
same period in 1999, and pretax margin on net revenue rose to 13.5%.
Compensation and benefits expenses rose during 2000's first quarter, reflecting
the higher volume of commission-related transactions and increased broker
productivity. Compensation and benefits as a percent of net revenue, however,
declined slightly to 55.2% from 55.6% in the first quarter of 1999, reflecting
the impact of changes to PCG compensation plans. Total operating expenses, other
than compensation and benefits, rose modestly, reflecting increased expenses for
advertising, equity research (including fees from our Equity Capital Markets
group), and other professional fees.
EQUITY CAPITAL MARKETS: Equity Capital Markets' ("ECM") revenue comes
from several sources: trading and market-making in equity securities;
commissions earned from the purchase or sale of equity securities; principal
sales of equity securities to PCG clients; underwriting fees, private placements
and initial public offerings ("IPOs"); research; and merger and acquisition
("M&A") and other advisory fees. ECM revenue also includes fees from our
syndicate activities, which involve participating with other securities firms in
underwriting securities offerings, IPOs, and other registered securities. All of
these various fees are included in investment banking and underwriting revenue
on our consolidated income statement. ECM also makes-a-market (trades) and
provides research coverage in certain over-the-counter equity securities. ECM
trading gains and losses are included in principal transactions on our
consolidated income statement. ECM revenue also includes gains on venture
capital investments made by the group, which are included in other revenue on
our consolidated income statement. Most commissions earned from transactions on
newly issued securities sold through our Private Client Group are included in
PCG's business line revenue.
ECM's revenue rose strongly in the first quarter of 2000, led by
investment banking revenue, which increased 444% from the same period a year
ago. Robust underwriting activity, with 42 public equity transactions completed
during the first three months of 2000, accounted for much of the increased
revenue. The majority of these equity offerings were in the technology sector,
although ECM also completed underwriting transactions in its healthcare and
consumer sectors. Volatility in the NASDAQ since March 31st has caused the delay
or cancellation of a number of new offerings in the market, particularly in the
technology area, which could have a negative impact on ECM's revenues in the
second quarter of 2000. M&A revenue increases contributed to higher investment
banking revenue, with four transactions completed in the first three months of
2000. Revenue for the first three months of 2000 also included higher private
placement revenue. Trading results on over-the-counter stocks (included in
profits on principal transactions) rose significantly in 2000 on strong trading
volume in the NASDAQ, despite volatile securities prices.
ECM's pretax income rose significantly in the first quarter of 2000 and
margins improved considerably, from the same period a year ago, reflecting both
the rise in revenue and only slight increases in most operating expenses, apart
from compensation and benefits. Although total compensation and benefits expense
increased, compensation and benefits as a percent of ECM's higher net revenue
declined to 65.8% in 2000's first quarter versus 67.1% in 1999's first quarter.
Programming and other technology-related costs accounted for the only other
significant increase in operating expenses, as ECM invested in improvements to
its website and other technology programs.
11
<PAGE> 12
FIXED INCOME: Fixed Income Capital Markets' ("FICM") revenue comes from
municipal fixed income underwriting fees, as well as taxable and tax-exempt
fixed income securities sales and trading. FICM underwriting fees come from
purchasing and re-selling the tax-exempt fixed income securities of
municipalities, counties, cities, school districts and other community
development organizations. These securities are resold primarily to our
individual and institutional customers. FICM also generates revenue from acting
as a financial advisor to state and local governments and other community
development organizations reviewing financing options or preparing for bond
issues. All of these fees are included in investment banking and underwriting
revenue on our consolidated income statement. FICM also trades certain fixed
income securities, primarily to offer these securities to our individual and
institutional customers. This trading income is included as part of principal
transaction revenue on our consolidated income statement. FICM earns interest
from the fixed income securities purchased or held in inventory, as well as from
entering into reverse repurchase transactions. FICM also pays interest on the
short-term bank borrowings and repurchase agreements used to finance trading
inventories as well as securities sold short to hedge inventory positions.
FICM net revenue declined 17% in the first quarter of 2000 versus the
same period a year ago. Market concerns over actual and potential interest rate
increases by the Federal Reserve, resulted in a poor environment for new
tax-exempt bond issues and contributed to the revenue decline. Underwriting fees
dropped from 1999's first quarter, as fewer municipalities and other tax-exempt
organizations issued new bonds, again reflecting widespread interest rate
uncertainty. Revenue from institutional sales of all fixed income securities
also declined. Revenue from sales of taxable bonds dropped the most, perhaps
reflecting an investor preference for equities during the first three months of
2000. Trading results for municipal securities increased from first quarter
1999, although taxable trading results were down, resulting in a net decline in
trading revenue for the first quarter of 2000.
FICM's margins declined significantly in the first quarter of 2000 from
the 1999 first quarter, despite a decrease in operating expenses, reflecting the
drop in net revenue. Compensation and benefits as a percent of this lower net
revenue increased to 67.0% in Q1 2000, up from 62.2% in Q1 1999. Other operating
expenses remained essentially unchanged from the prior year first quarter.
CORPORATE: Corporate revenue consists primarily of asset management
fees generated by Insight (excluding the portion paid to PCG). Insight manages
the Great Hall money market funds and certain institutional fixed income managed
accounts. Corporate revenue also includes the portion of gains on venture
investments made via our Equity Capital Markets group not included in ECM's
revenue, and net interest that is not allocated to a specific business line.
Great Hall asset management fees increased in 2000 as assets under
management at Insight rose during the first three months of the year. Corporate
revenue in 1999 included a gain of $15.4 million representing our profit on the
sale of an equity investment. This investment was made in connection with our
correspondent services business, and was not an equity investment made by our
venture capital funds.
Corporate expense includes goodwill amortization, professional fees,
and any other non-allocated expenses. Compensation and benefit expenses
increased from 1999's first quarter, reflecting higher net revenue and
productivity. Travel and promotional expenses also increased on higher business
levels.
LIQUIDITY AND CAPITAL RESOURCES
Our assets consist mainly of cash or assets readily convertible into
cash. We finance our assets primarily through customer credit balances
(interest- and non-interest-bearing), repurchase agreements, deposits for
securities loaned, other payables, short-term and subordinated bank borrowings,
and equity capital. Our financing requirements are directly affected by changes
in the amount of our trading and underwriting securities, customer and broker
receivables, and securities purchased under agreements to resell. Repurchase
agreements and bank lines of credit are our primary methods of financing our
trading inventories.
Our levels of trading securities have risen since December 31, 1999
reflecting strong market activity, customer receivables (margin loans) have also
increased during this period. Our financing requirements have increased along
with these asset balances, resulting in higher levels of short-term borrowings
and repurchase agreements at March 31, 2000 from December 31, 1999.
On November 2, 1999, we entered into a new $50 million five-year term
loan agreement with a group of banks. This loan is unsecured and bears an
interest rate of LIBOR plus 175 basis points. This loan is repayable in 12 equal
quarterly
12
<PAGE> 13
installments beginning in January 2002. There are no restrictions on
the use of these proceeds and we have the right to transfer these funds as
capital to DRI.
On March 16, 2000 we amended our committed, revolving credit agreement
to extend the maturity date to March 15, 2001, and increase the credit limit to
$80 million from $67 million. Loans under this agreement are unsecured and bear
interest at a floating rate of LIBOR plus 61 basis points. No amounts were
outstanding under this facility at March 31, 2000.
Under the terms of both of the agreements described above, we must
comply with covenants regarding net worth, regulatory net capital and
indebtedness, among others.
As described in Note M of the Consolidated Financial Statements of our
1999 Annual Report on Form 10-K, DRI must comply with certain regulations of the
SEC and New York Stock Exchange, Inc. measuring capitalization and liquidity.
DRI continues to operate above minimum net capital standards of 5 percent of
aggregate debit items. At March 31, 2000, net capital was $175.2 million, or
9.15 percent of aggregate debit balances and $79.5 million in excess of the
5-percent requirement.
During the first quarter of 2000, we declared and paid a regular
quarterly dividend on our common stock of $.22 per share. The determination of
the amount of future cash dividends, if any, to be declared and paid will depend
on our future financial condition, earnings and available funds.
During the 1999 second quarter we entered into an interest rate swap
agreement on DRI's $80 million subordinated term loan agreement. (See Footnote C
"Subordinated and Other Debt," for more information on this subordinated debt.)
This interest rate swap allows us to pay a fixed rate on our subordinated loan,
rather than the variable LIBOR denominated rate of the original debt agreement.
FORWARD-LOOKING STATEMENTS
This document contains certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act") which reflect our current views regarding future events and our financial
performance. The words "believe," "expect," "anticipate," "intend," "estimate,"
"will," "look for," "hope to," "goals," "should," and similar expressions are
used to identify these "forward-looking statements". We desire to take advantage
of the "safe harbor" provisions of the Reform Act. We wish to caution investors
and potential investors that any forward-looking statements made by us or on our
behalf are subject to uncertainties and other factors that could cause actual
results to differ materially from those statements. These factors include, among
others: (a) the volatile nature of the securities industry; (b) rapidly growing
competition posed by other broker-dealers, including discount brokerages and
online trading firms and firms, which as a result of industry consolidation or
otherwise, are substantially larger, have substantially more capital or have
direct access to a greater array of products and services; (c) dependence on and
competition for experienced personnel; (d) successful implementation and
execution of our long-term strategies; (e) dependence on highly sophisticated
and expensive systems and technology, including systems maintained and operated
by third-parties over which we have no control; (f) dependence on external
sources to finance day-to-day operations; (g) use of interest-rate sensitive
derivative securities and other hedging instruments; (h) federal and state
regulatory and legislative changes, including any changes affecting net capital
requirements; and (i) adverse findings in existing litigation, increases in the
number of class action or regulatory proceedings filed against us, and other
litigation-related and regulator risks. This is not an exhaustive list of
factors that could have an adverse impact on our financial performance; other
factors which are not identified here or known to us currently may prove to be
important and may adversely affect our results of operations. It is also not
possible for our management to predict or assess the impact each factor will
have on our business or the extent to which any factor, or a combination of
factors, may cause results to differ materially from those contained in any
forward-looking statement(s). You should also not place undue reliance on these
forward-looking statements as they relate only to our views as of the date the
statements are made. We undertake no obligation to publicly update or revise any
forward-looking statements, even if new information, future events, or other
conditions occur.
We herein incorporate by reference Exhibit 99 of our Annual Report on
Form 10-K for the year ended December 31, 1999.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We (referred to as "the Company" below) are defendants in various
pending actions, suits and proceedings before courts, arbitrators and
governmental agencies. Certain of these actions claim substantial damages and,
if determined adversely, could have a material adverse effect on our
consolidated financial condition or results of operations. A list of certain of
such actions is included in Item 3 of our Annual Report on Form 10-K for the
year ended December 31, 1999, and they are described in more detail in Item 8,
Note I to the Consolidated Financial Statements included in that Annual Report.
The following description of recent developments in connection with certain of
these matters should be read in conjunction with that description.
MIDWEST LIFE INSURANCE COMPANY LITIGATION
Midwest Life Insurance Company v. Interra Financial Incorporated, et al. - The
Court permitted the plaintiff to amend the complaint to add claims for civil
conspiracy and unjust enrichment. The Court also stayed all claims against the
Company and DRI pending arbitration of the claims against co-defendant Central
National Life Insurance Company of Omaha. The motion to dismiss the RICO claim
against the Company and DRI remains pending.
STATE OF ARIZONA SEC PROCEEDING ("YIELD-BURNING")
SEC v. Rauscher Pierce Refsnes, Inc., et al. - In April 2000, DRI resolved this
action and federal government allegations of "yield-burning" relating to 418
other tax-exempt advance refunding municipal bond transactions in which RPR or
DBI served as escrow provider from 1990 through 1994. Parties to the settlement
were the SEC, the IRS, the United States Attorney's Office for the Southern
District of New York, and Michael Lissack, who had brought claims against a
number of dealers under the False Claims Act (which had been under seal in the
U.S. District Court for the Southern District of New York). DRI paid
approximately $13 million, of which approximately $750,000 was related to the
SEC Arizona litigation. The total amount was fully reserved and had no impact on
current earnings. Sixteen other dealers entered into similar settlements at the
same time, in amounts ranging from $500,000 to $45 million. DRI neither admitted
nor denied liability in connection with the settlement.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
ITEM NO. ITEM METHOD OF FILING
-------- ---- ----------------
<S> <C> <C>
4.8 First Amendment to Credit Agreement, by and among Dain Rauscher Filed herewith.
Corporation, U.S. Bank National Association, Wells Fargo Bank,
National Association, The Bank of New York, and Credit Lyonnais,
New York Branch, originally dated May 31, 1999.
11 Computation of Earnings Per Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
</TABLE>
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended March 31, 2000.
15
<PAGE> 16
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.
DAIN RAUSCHER CORPORATION
Registrant
Date: May 10, 2000 By Daniel J. Collins
---------------------------------------------
Daniel J Collins
Senior Vice President
and Controller
(Principal Accounting Officer)
By David J. Parrin
---------------------------------------------
David J Parrin
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
16
<PAGE> 17
DAIN RAUSCHER CORPORATION
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 2000
(a) Exhibits
<TABLE>
<CAPTION>
ITEM NO. ITEM METHOD OF FILING
-------- ---- ----------------
<S> <C> <C>
4.8 First Amendment to Credit Agreement, by and among Dain Rauscher Filed herewith.
Corporation, U.S. Bank National Association, Wells Fargo Bank,
National Association, The Bank of New York, and Credit Lyonnais,
New York Branch, originally dated May 31, 1999.
11 Computation of Earnings Per Share. Filed herewith.
27 Financial Data Schedule. Filed herewith.
</TABLE>
17
<PAGE> 1
EXHIBIT 4.8
FIRST AMENDMENT TO CREDIT AGREEMENT
This Amendment, dated as of March 16, 2000, is made by and among DAIN
RAUSCHER CORPORATION, a Delaware corporation (the "Borrower"), the banks or
financial institutions listed on the signature pages hereof or which hereafter
become parties to the Credit Agreement (as defined herein) by means of
assignment and assumption as described in the Credit Agreement (individually
referred to as a "Bank" or collectively as the "Banks"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, as agent for the Banks (in such
capacity, the "Agent").
Recitals
A. The Borrower, the Banks and the Agent have entered into a Credit
Agreement dated as of May 31, 1999 (the "Credit Agreement").
B. As of the date hereof, no Advances to the Borrower are
outstanding under the Credit Agreement and no Advances will be made to the
Borrower under the Credit Agreement until after the First Amendment Effective
Date (defined below). Also as of the date hereof, no Letters of Credit have been
issued for the account of the Borrower under the Credit Agreement and no Letters
of Credit will be issued for the account of the Borrower under the Credit
Agreement until after the First Amendment Effective Date.
C. The Borrower has requested, among other things, that (i) the
Termination Date be extended for three hundred and sixty-four (364) days to
March 15, 2001, and (ii) the Aggregate Commitment be increased to $80,000,000.
D. The Banks and the Agent are willing to grant the Borrower's
requests pursuant to the terms and conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Amendments to and Additions to Defined Terms. Defined terms used
in this Amendment which are defined in the Credit Agreement shall have the same
meanings as defined therein, unless otherwise defined herein. In addition,
Section 1.1 of the Credit Agreement is amended by adding or amending, as the
case may be, the following definitions:
"`Aggregate Commitment': The aggregate of the Commitments of the
Banks, being initially $80,000,000, as the same may be reduced from time to
time pursuant to Section 4.3."
<PAGE> 2
"`Applicable Eurodollar Rate Margin': A percentage equal to (i)
eighty-seven one-hundredths of one percent (.87%) at all times when the
Borrower's senior debt (A) is not rated by Moody's or by Standard & Poors,
(B) if rated by Standard & Poors and Moody's, has a rating of less than
BBB- by Standard & Poors and has a rating of less than Baa3 by Moody's, (C)
if rated only by Standard & Poors, has a rating of less than BBB- by
Standard & Poors, or (D) if rated only by Moody's, has a rating of less
than Baa3 by Moody's, and (ii) seventy one-hundredths of one percent (.70%)
at all times when the Borrower's senior debt (A) if rated by Standard &
Poors and Moody's, has a rating of BBB- or better by Standard & Poors or
has a rating of Baa3 or better by Moody's, (B) if rated only by Standard &
Poors, has a rating of BBB- or better by Standard & Poors, or (C) if rated
only by Moody's, has a rating of Baa3 or better by Moody's."
"`Applicable Facility Fee Percentage': A percentage equal to (i)
eighteen one-hundredths of one percent (.18%) at all times when the
Borrower's senior debt (A) is not rated by Standard & Poors or by Moody's,
(B) if rated by Standard & Poors and Moody's, has a rating of less than
BBB- by Standard & Poors and has a rating of less than Baa3 by Moody's, (C)
if rated only by Standard & Poors, has a rating of less than BBB- by
Standard & Poors, or (D) if rated only by Moody's, has a rating of less
than Baa3 by Moody's, and (ii) fourteen one-hundredths of one percent
(.14%) at all times when the Borrower's senior debt (A) if rated by
Standard & Poors and Moody's, has a rating of BBB- or better by Standard &
Poors or has a rating of Baa3 or better by Moody's, (B) if rated only by
Standard & Poors, has a rating of BBB- or better by Standard & Poors, or
(C) if rated only by Moody's, has a rating of Baa3 or better by Moody's."
"`Applicable Federal Funds Rate Margin': A percentage equal to (i) one
and ten one-hundredths of one percent (1.10%) at all times when the
Borrower's senior debt (A) is not rated by Standard & Poors or by Moody's,
(B) if rated by Standard & Poors and Moody's, has a rating of less than
BBB- by Standard & Poors and has a rating of less than Baa3 by Moody's, (C)
if rated only by Standard & Poors, has a rating of less than BBB- by
Standard & Poors, or (D) if rated only by Moody's, has a rating of less
than Baa3 by Moody's, and (ii) ninety-five one-hundredths of one percent
(.95%) at all times when the Borrower's senior debt (A) if rated by
Standard & Poors and Moody's, has a rating of BBB- or better by Standard &
Poors or has a rating of Baa3 or better by Moody's, (B) if rated only by
Standard & Poors, has a rating of BBB- or better by Standard & Poors, or
(C) if rated only by Moody's, has a rating of Baa3 or better by Moody's."
"`Applicable Letter of Credit Margin': A percentage equal to (i)
ninety-four one-hundredths of one percent (.94%) at all times when the
Borrower's senior debt (A) is not rated by Standard & Poors or by Moody's,
(B) if rated by Standard & Poors and Moody's, has a rating of less
-2-
<PAGE> 3
than BBB- by Standard & Poors and has a rating of less than Baa3 by
Moody's, (C) if rated only by Standard & Poors, has a rating of less than
BBB- by Standard & Poors, or (D) if rated only by Moody's, has a rating of
less than Baa3 by Moody's, and (ii) seventy-seven one-hundredths of one
percent (.77%) at all times when the Borrower's senior debt (A) if rated by
Standard & Poors and Moody's, has a rating of BBB- or better by Standard &
Poors or has a rating of Baa3 or better by Moody's, (B) if rated only by
Standard & Poors, has a rating of BBB- or better by Standard & Poors, or
(C) if rated only by Moody's, has a rating of Baa3 or better by Moody's."
"`Borrower's Term Credit Agreement': The Credit Agreement dated as of
November 2, 1999, by and among the Agent, U. S. Bank and Wells Fargo, as
the same may be amended, modified, supplemented, restated or replaced from
time to time."
"`Commitment': In the case of each Bank, the amount set forth opposite
such Bank's signature on the signature page of the First Amendment (or in
the relevant Assignment and Assumption Agreement for such Bank), as the
same may be reduced from time to time pursuant to Section 4.3, or, as the
context may require, the agreement of each Bank to make Loans to the
Borrower and to participate in Swing Line Loans made to the Borrower and
Letters of Credit issued for the account of the Borrower up to such amount,
subject to the terms and conditions of this Agreement."
"`Compliance Certificate': A certificate in the form of Exhibit B to
the First Amendment, duly completed and signed by the treasurer or the
chief financial officer of the Borrower."
"`First Amendment': That certain First Amendment to Credit Agreement
dated as of March 16, 2000, by and among the Borrower, the Banks and the
Agent."
"`First Amendment Effective Date': The date on which the First
Amendment becomes effective under paragraph 13 of the First Amendment."
"`Percentage': As to any Bank, the percentage set forth opposite such
Bank's signature on the signature page of the First Amendment (or in the
relevant Assignment and Assumption Agreement for such Bank) (i.e., the
proportion, expressed as a percentage, that such Bank's Commitment bears to
the Aggregate Commitment)."
"`Revolving Notes': The promissory notes of the Borrower described in
Section 2.5(a), substantially in the form of Exhibit A to the First
Amendment, as such promissory notes may be amended, modified or
supplemented from time to time, and such form shall include any
substitutions for, or renewals of, such promissory notes."
"`Termination Date': The earliest of (a) March 15, 2001, or such later
date to which the Termination Date is extended pursuant to the provisions
of Section 2.9, (b) the date on which the Commitments are terminated
pursuant to Section 10.2 hereof or (c) the date on which the Commitments
are reduced to zero pursuant to Section 4.3 hereof."
-3-
<PAGE> 4
"`Wells Fargo': Wells Fargo Bank, National Association, its successors
and assigns."
2. Deletion of Defined Term "Norwest". The defined term "Norwest" is
hereby deleted from Section 1.1 of the Credit Agreement and each reference in
the Credit Agreement to "Norwest" is hereby amended to be a reference to "Wells
Fargo."
3. Amendment to Section 2.5(a) of the Credit Agreement. Section 2.5
(a) of the Credit Agreement is hereby amended to read as follows:
"(a) Revolving Notes. The Revolving Loans of each Bank shall be
evidenced by a promissory note of the Borrower (each a "Revolving Note" and
collectively for all Banks, the `Revolving Notes'), substantially in the
form of Exhibit A to the First Amendment, in the amount of such Bank's
Commitment originally in effect and dated as of the date of the First
Amendment Effective Date (or dated as of the relevant date of the
Assignment and Assumption Agreement for such Bank). Each Bank shall enter
in its respective records the amount of each Revolving Loan, the rate or
rates of interest borne by its Revolving Loans and the payments made on the
Revolving Loans, and such records shall be deemed conclusive evidence of
the subject matter thereof, absent manifest error."
4. Amendment to Section 2.8(c)(vii) of the Credit Agreement. The
words "plus $250" in the sixth line of Section 2.8(c)(vii) of the Credit
Agreement are hereby amended to read "plus $300."
5. Amendment to Section 8.1(b) of the Credit Agreement. Section 8.1
(b) of the Credit Agreement is hereby amended by deleting the words "Section
9.8, 9.9, 9.13 or 9.14" as they appear in the sixth line thereof and by
substituting therefor the words "Section 9.8, 9.9, 9.13, 9.14 or 9.16."
6. Amendment to Section 9.8(b) of the Credit Agreement. Section 9.8
(b) of the Credit Agreement is hereby amended to read as follows:
"(b) Investments by the Borrower or its Subsidiaries in other
Subsidiaries of the Borrower or other investments by the Borrower or its
Subsidiaries in the ordinary course of business."
7. Amendment to Section 9.8(c) of the Credit Agreement. Section 9.8
(c) of the Credit Agreement is hereby amended to read as follows:
"(c) Investments made after March 16, 2000 to acquire all or
substantially all of the assets or stock of other Persons, provided that
(i) the sum of all cash consideration paid, the current market value (as of
the date of such Investment) of all property given and all Indebtedness
incurred and assumed in connection with all such investments made after
March 16, 2000 shall not exceed an aggregate amount of
-4-
<PAGE> 5
$100,000,000 and (ii) any Person whose assets or stock are so acquired
shall be engaged in a business which is permitted for the Borrower or its
Subsidiaries under Section 9.4 of this Agreement."
8. Amendment to Section 9.9(e) of the Credit Agreement. Section 9.9
(e) of the Credit Agreement is hereby amended to read as follows:
"(e) Indebtedness (other than Indebtedness permitted under Section
9.9(a)) in an aggregate amount not to exceed at any time fifty-five percent
(55%) of the Borrower's Consolidated Net Worth (the Borrower's Indebtedness
under the Borrower's Term Credit Agreement, the Borrower's guarantees of
Indebtedness for borrowed money of Dain Rauscher Lending Services permitted
under Section 9.9(c) above, and the WAH Subordinated Debentures shall be
included as Indebtedness for purposes of determining the Borrower's
compliance with the fifty-five percent (55%) of Consolidated Net Worth
requirement of this Section 9.9(e)."
9. Amendment to Section 9.13 of the Credit Agreement. Section 9.13
of the Credit Agreement is hereby amended to read as follows:
"Section 9.13 Minimum Consolidated Net Worth. The Borrower will not
permit its Consolidated Net Worth at any time to be less than the sum of
(i) $325,000,000 plus (ii) thirty percent (30%) of the sum of the
Consolidated Net Income of the Borrower (with any consolidated net loss
during any fiscal quarter counting as zero) for each fiscal quarter of the
Borrower commencing with the fiscal quarter of the Borrower ending March
31, 2001."
10. Addition of Section 9.16 to the Credit Agreement. Article IX of
the Credit Agreement is hereby amended by adding the following new Section 9.16
immediately following existing Section 9.15:
"Section 9.16 Minimum Equity Investment by the Borrower in Dain
Rauscher Incorporated. The Borrower will maintain at all times the
Borrower's equity investment in Dain Rauscher Incorporated in an amount not
less than $325,000,000."
11. Amendment to Section 10.1(h) of the Credit Agreement. Section
10.1(h) of the Credit Agreement is hereby amended to read as follows:
"(h) A judgment or judgments for the payment of money in excess of the
sum of $25,000,000 in the aggregate shall be rendered against the Borrower
and/or its Subsidiaries and the Borrower or such Subsidiary shall not
discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof, prior to any execution on
such judgments by such judgment creditor, within 30 days from the date of
entry thereof, and within said period of 30 days, or such longer period
during which execution of such judgment shall be stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal;"
-5-
<PAGE> 6
12. Amendment to Section 10.1(o) of the Credit Agreement. Section
10.1(o) of the Credit Agreement is hereby amended to read as follows:
"(o) A Default, Event of Acceleration or Event of Default (each as
defined therein) shall occur under the Dain Rauscher Incorporated Credit
Agreement or a Default or Event of Default (each as defined therein) shall
occur under the Borrower's Term Credit Agreement."
13. Conditions Precedent to Effectiveness of this Amendment. This
Amendment shall become effective when the Agent shall have received each of the
following, each in substance and form acceptable to the Agent in its sole
discretion:
(a) This Amendment, duly executed on behalf of the Borrower, the
Agent, and the Banks;
(b) A Revolving Note payable to the order of each Bank in the amount
of such Bank's Commitment after giving effect to this First Amendment, duly
executed on behalf of the Borrower.
(c) A copy of the corporate resolutions of the Borrower authorizing
the execution, delivery and performance of this Amendment, certified by the
Secretary or Assistant Secretary of the Borrower.
(d) An opinion of counsel to the Borrower; and
(e) Such other items as the Agent shall reasonably require.
14. Delivery of Revolving Notes to Banks; Return of Replaced
Revolving Notes by Banks. Promptly upon the Agent's receipt of the Revolving
Notes from the Borrower as contemplated by paragraph 13(b) of this Amendment,
the Agent shall deliver to each Bank its respective Revolving Note. Promptly
upon each such Bank's receipt of its Revolving Note, such Bank shall return to
the Agent the Borrower's replaced Revolving Note payable to such Bank marked
"Replaced by Replacement Revolving Note." Upon receipt of each such replaced
Revolving Note marked "Replaced by Replacement Revolving Note" from each such
Bank, the Agent shall promptly return each such replaced Revolving Note to the
Borrower.
15. No Other Changes. Except as explicitly amended by this Amendment,
all of the terms and conditions of the Credit Agreement shall remain in full
force and effect.
16. Representations and Warranties. The Borrower hereby represents
and warrants to the Agent and the Banks as follows:
(a) The Borrower has all requisite power and authority to execute
this Amendment and to perform all of its obligations hereunder, and this
Amendment has
-6-
<PAGE> 7
been duly executed and delivered by the Borrower and constitutes the legal,
valid and binding obligation of the Borrower, enforceable in accordance
with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate action and
do not (i) require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any
law, rule or regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrower, or the articles
of incorporation or by-laws of the Borrower, or (iii) result in a breach of
or constitute a default under any indenture or loan or credit agreement or
any other agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article
VII of the Credit Agreement are correct on and as of the date hereof as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.
17. References to Credit Agreement. All references in the Credit
Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement
as amended by this Amendment and any and all references in the Loan Documents to
the Credit Agreement shall be deemed to refer to the Credit Agreement as amended
by this Amendment.
18. No Waiver. The execution of this Amendment and acceptance of any
documents related hereto shall not be deemed to be a waiver of any Default or
Event of Default under the Credit Agreement, whether or not known to the Agent
and/or the Banks and whether or not existing on the date of this Amendment.
19. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Agent and each of the Banks, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Amendment, whether
such claims, demands and causes of action are matured or unmatured or known or
unknown.
-7-
<PAGE> 8
20. Costs and Expenses. The Borrower hereby reaffirms its agreement
under the Credit Agreement to pay or reimburse the Agent on demand for all costs
and expenses incurred by the Agent in connection with the preparation of this
Amendment, including without limitation all reasonable fees and disbursements of
legal counsel to the Agent.
21. Miscellaneous. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
[Remainder of this page intentionally left blank;
signature page follows]
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above.
DAIN RAUSCHER CORPORATION
By
--------------------------------------
Title
--------------------------------
Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402-4422
Attention: David J. Parrin
Fax: (612) 371-2960
Commitment: U.S. BANK NATIONAL ASSOCIATION,
$20,000,000 as Agent and a Bank
Percentage: 25%
By
--------------------------------------
Title
---------------------------------
601 2nd Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Vice President, Financial
Services Division
Fax: (612) 973-0832
Commitment: WELLS FARGO BANK,
$20,000,000 NATIONAL ASSOCIATION
Percentage: 25%
By
--------------------------------------
Title
---------------------------------
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0105
Attention: Vice President, Financial
Institutions Division
Fax: (612) 667-7251
Signature Page to First Amendment to Credit Agreement
<PAGE> 10
Commitment: THE BANK OF NEW YORK
$20,000,000
Percentage: 25% By
--------------------------------------
Title
---------------------------------
One Wall Street
First Floor
New York, New York 10286
Attention: Joe Ciacciarelli
Fax: (212) 809-9375
Commitment: CREDIT LYONNAIS, NEW YORK BRANCH
$20,000,000
Percentage: 25% By
--------------------------------------
Title
---------------------------------
1301 Avenue of the Americas
Credit Lyonnais Building
New York, New York 10019
Attention: Ira Stein
Fax: (212) 261-3401
Signature Page to First Amendment to Credit Agreement
<PAGE> 11
EXHIBIT A TO
FIRST AMENDMENT TO
CREDIT AGREEMENT
REVOLVING NOTE
$[Commitment] Minneapolis, Minnesota
, 2000
----------------
FOR VALUE RECEIVED, the undersigned, DAIN RAUSCHER CORPORATION, a
Delaware corporation (the "Borrower"), promises to pay to the order of [BANK]
(the "Bank"), on the Termination Date, or other due date or dates determined
under the Credit Agreement hereinafter referred to, the principal sum of
AND 00/100 DOLLARS ($[Commitment]), or if less, the
then aggregate unpaid principal amount of the Revolving Loans (as such term is
defined in the Credit Agreement) as may be borrowed by the Borrower from the
Bank under the Credit Agreement. All Revolving Loans and all payments of
principal shall be recorded by the holder in its records which records shall be
conclusive evidence of the subject matter thereof, absent manifest error.
The Borrower further promises to pay to the order of the Bank interest
on the aggregate unpaid principal amount hereof from time to time outstanding
until paid in full at the rates per annum which shall be determined in
accordance with the provisions of the Credit Agreement. Accrued interest shall
be payable on the dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds at
the office of U.S. Bank National Association, at 601 2nd Ave. S., Minneapolis,
Minnesota 55402-4302, or at such other place as may be designated by the Agent
to the Borrower in writing.
This Note is a Revolving Note referred to in, and evidences Revolving
Loans incurred by the Borrower to the Bank under, a Credit Agreement dated as if
May 31, 1999, as amended by a First Amendment to Credit Agreement of even date
herewith (herein, as it may be restated, amended, modified or supplemented from
time to time, called the "Credit Agreement") among the Borrower, the Banks, as
defined therein (including the Bank) and U.S. Bank National Association, as
Agent, to which Credit Agreement reference is made for a statement of the terms
and provisions thereof, including those under which the Borrower is permitted
and required to make prepayments and repayments of principal of such
indebtedness and under which such indebtedness may be declared to be immediately
due and payable.
A-1
<PAGE> 12
This Note is issued in substitution for and replacement of, but not in
payment of, the Borrower's revolving note dated as of May 31, 1999, payable to
the order of the Bank in the original principal amount of $[replaced revolving
note amount].
All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.
This Note is made under and governed by the internal laws of the State
of Minnesota.
DAIN RAUSCHER CORPORATION
By
--------------------------------------
Title
---------------------------------
A-2
<PAGE> 13
EXHIBIT B TO
FIRST AMENDMENT TO
CREDIT AGREEMENT
FORM OF COMPLIANCE CERTIFICATE
In accordance with Section 8.1 of the Credit Agreement dated as of May
31, 1999, as amended by a First Amendment to the Credit Agreement dated as of
March 16, 2000 (the "Credit Agreement"), among Dain Rauscher Corporation (the
"Borrower"), the Banks (as defined in the Credit Agreement) and U.S. Bank
National Association, as Agent, attached are the financial statements of
as of and for the month and
year-to-date period ended , (the "Current Financials").
I certify that the Current Financials have been prepared in accordance
with GAAP applied on a basis consistent with the accounting practices applied in
the annual audit reports referred to in Section 8.1(a) of the Credit Agreement.
Defaults and Events of Default (check one):
[ ] I have no knowledge of the occurrence of any Default or Event
of Default under the Credit Agreement which has not previously
been reported to the Bank and remedied.
[ ] Attached is a detailed description of all Defaults and Events
of Default of which I have knowledge and which have not
previously been reported to the Banks and remedied.
For the date and periods covered by the Current Financials, the
Borrower is in compliance with the covenants set forth in Sections 9.8(b),
9.8(c), 9.9(c), 9.9(d), 9.13, 9.14 and 9.16 of the Credit Agreement, except as
indicated below. The calculations made to determine compliance are as follows:
Covenant Actual Requirement
- -------- ------ -----------
9.8(b)
9.8(c)
9.9(c)
9.9(d)
B-1
<PAGE> 14
9.13
9.14
9.16
DAIN RAUSCHER CORPORATION
By
--------------------------------------
Title
---------------------------------
Dated:
----------------------------------
B-2
<PAGE> 1
EXHIBIT 11
DAIN RAUSCHER CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED, IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Net income.......................................... $ 39,989 $ 22,590
---------- ------------
Weighted average common shares outstanding.......... 12,741 12,477
========== ============
Basic earnings per share............................... $ 3.14 $ 1.81
========== ============
EARNINGS PER SHARE ASSUMING DILUTION:
Net income.......................................... $ 39,989 $ 22,590
========== ============
Weighted average number of common and dilutive
potential common shares outstanding.................
Weighted average common shares outstanding.......... 12,741 12,477
Dilutive effect of stock options (net of tax benefits) 490 296
Shares credited to deferred compensation
plan participants................................ 809 499
---------- ------------
Weighted average number of common and dilutive
potential common shares outstanding.............. 14,040 13,272
========== ============
Diluted earnings per share............................. $ 2.85 $ 1.70
========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> MAR-31-2000
<CASH> 28,994
<SECURITIES> 0
<RECEIVABLES> 2,298,472
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,327,466
<PP&E> 89,014
<DEPRECIATION> 42,740
<TOTAL-ASSETS> 3,122,967
<CURRENT-LIABILITIES> 2,370,535
<BONDS> 0
0
0
<COMMON> 1,648
<OTHER-SE> 443,920
<TOTAL-LIABILITY-AND-EQUITY> 3,122,967
<SALES> 0
<TOTAL-REVENUES> 371,848
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 285,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,838
<INCOME-PRETAX> 65,023
<INCOME-TAX> 25,034
<INCOME-CONTINUING> 39,989
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,989
<EPS-BASIC> 3.14
<EPS-DILUTED> 2.85
</TABLE>
