<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM 10-Q
(Mark One)
____
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
____ ACT OF 1934
For the quarterly period ended December 31, 1993
------------------------------------------------
____ OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
____ EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file number 1-8526
----------------------------------
McDonald & Company Investments, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 34-1391950
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
<TABLE>
<S> <C>
800 Superior Ave., Suite 2100, Cleveland, Ohio 44114
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area
code (216) 443-2300
-----------------------------------------
Not Applicable
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Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
9,293,289 shares of Common Stock, par value $1.00 per share, were
outstanding on January 31, 1994.
(1)
<PAGE> 2
<TABLE>
McDONALD & COMPANY INVESTMENTS, INC.
INDEX
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements -
Consolidated statements of financial condition (unaudited)-
December 31, 1993 and March 26, 1993 3
Consolidated statements of income (unaudited)-
Fiscal three and nine months ended December 31,
1993 and December 31, 1992 4
Consolidated statements of cash flows (unaudited)-
Fiscal nine months ended December 31,
1993 and December 31, 1992 5
Notes to condensed consolidated financial statements (unaudited)-
December 31, 1993 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
- ---------------------------
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
</TABLE>
(2)
<PAGE> 3
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
McDONALD & COMPANY INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<CAPTION>
Dec. 31, March 26,
1993 1993
------------ -----------
(In thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,667 $ 7,482
Receivable from customers 98,646 84,235
Receivable from brokers and dealers 42,960 36,644
Securities purchased under agreements
to resell 234,012 185,149
Other receivables 14,072 11,628
Securities owned 214,148 161,921
Furniture, equipment and leasehold
improvements, at cost, less accumulated
depreciation and amortization 9,475 10,274
Other assets 34,203 31,609
-------- --------
$652,183 $528,942
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $102,457 $ 98,053
Payable to customers 35,053 18,164
Payable to brokers and dealers 6,442 6,509
Securities sold under agreements to
repurchase 204,767 206,537
Securities sold but not yet purchased 120,261 42,219
Accrued compensation 23,949 21,050
Accounts payable, accrued expenses
and other liabilities 29,688 20,428
Long-term borrowings 25,000 38,055
-------- --------
$547,617 $451,015
-------- --------
Stockholders' equity
Preferred Stock, without par value;
authorized 200,000 shares;
none issued
Common Stock, par value $1.00 per
share; 15,000,000 shares
authorized; (11,129,865 and 8,201,581
shares issued, respectively) 11,130 8,202
Additional paid-in capital 43,882 31,120
Retained earnings 62,844 47,199
Less treasury stock, at cost
(1,837,495 and 1,299,049 shares, respectively) (13,290) (8,594)
-------- --------
104,566 77,927
-------- --------
$652,183 $528,942
======== ========
<FN>
See Notes to consolidated financial statements (unaudited).
</TABLE>
(3)
<PAGE> 4
<TABLE>
MCDONALD & COMPANY INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Fiscal Three Months Ended Fiscal Nine Months Ended
----------------------------- ----------------------------
Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1993 Dec. 31, 1992
(14 weeks) (14 weeks) (40 weeks) (40 weeks)
-------------- -------------- ------------- --------------
(In thousands, except for share and per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Underwriting and
investment banking $ 23,614 $ 10,726 $ 47,373 $ 30,349
Principal transactions 14,119 13,203 44,934 43,931
Commissions 14,651 10,826 39,257 28,330
Investment management fees 3,804 3,144 10,594 8,964
Interest and dividends 4,163 3,668 11,762 9,903
Other 1,566 2,361 3,734 4,217
---------- --------- --------- ---------
$ 61,917 $ 43,928 $ 157,654 $ 125,694
---------- --------- --------- ---------
Expenses:
Employee compensation
and benefits $ 35,547 $ 25,841 $ 89,628 $ 72,830
Interest 2,342 1,976 7,197 5,764
Communications 2,867 2,550 8,042 6,988
Occupancy and equipment 3,282 2,591 8,588 7,073
Promotion and development 1,804 1,802 5,258 4,677
Floor brokerage and
clearance 768 692 2,243 2,081
Taxes, other than income
taxes 1,363 1,090 4,001 3,349
Other operating expenses 1,793 1,465 4,603 4,589
---------- --------- --------- ---------
$ 49,766 $ 38,007 $ 129,560 $ 107,351
---------- --------- --------- ---------
Income before income taxes $ 12,151 $ 5,921 $ 28,094 $ 18,343
Provision for income taxes 4,600 2,063 10,600 6,733
---------- --------- --------- ---------
Net income $ 7,551 $ 3,858 17,494 $ 11,610
========== ========= ========= =========
Net income per share
Primary $ .80 $ .46 $ 1.95 $ 1.39
========== ========= ========= =========
Fully diluted $ .80 $ .42 $ 1.84 $ 1.28
========== ========= ========= =========
Dividends per share $ .075 $ .0625 $ .2125 $ .250
========== ========= ========= =========
Average number of shares
and share equivalents
outstanding 9,498,000 8,394,000 8,950,000 8,352,000
========== ========= ========= =========
<FN>
See Notes to consolidated financial statements (unaudited).
</TABLE>
(4)
<PAGE> 5
<TABLE>
MCDONALD & COMPANY INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Fiscal Nine Months Ended
------------------------------
Dec. 31, 1993 Dec. 31, 1992
------------- -------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
- --------------------
Net Income $ 17,494 $ 11,610
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,969 2,619
Deferred compensation 185 146
Deferred income taxes (1,036) (887)
Increase in receivable from customers (14,411) (16,034)
Increase in receivable from brokers and dealers (6,316) (9,586)
(Increase) decrease in securities owned (52,227) 1,848
Increase in other receivables (2,444) (839)
Increase in payable to customers 16,889 15,423
(Decrease) increase in payable to brokers and dealers (67) 2,201
Increase (decrease) in securities sold but not yet purchased 78,042 (3,591)
Increase in accrued compensation 5,612 641
Increase in accounts payable, accrued expenses and other 9,075 1,989
--------- ---------
Net cash provided by (used for) operating activities $ 53,765 $ 5,540
========= =========
INVESTING ACTIVITIES:
- --------------------
Purchase of furniture, equipment and leaseholds $ (1,781) $ (4,007)
Increase in other assets (1,947) (2,861)
--------- ---------
Net cash provided by (used for) investing activities $ (3,728) $ (6,868)
========= =========
FINANCING ACTIVITIES:
- --------------------
Increase in securities purchased under agreement to resell $ (48,863) $ (91,157)
Increase in short-term borrowings 4,404 18,306
(Decrease) increase in securities sold under
agreements to repurchase (1,770) 80,017
Cash dividends (1,849) (2,041)
Purchase of treasury stock (5,298)
Proceeds from issuance of treasury stock 722 1,469
Redemption of convertible subordinated debentures (198)
--------- ---------
Net cash used for financing activities $ (52,852) $ 6,594
--------- ---------
(Decrease) increase in cash and cash equivalents (2,815) 5,266
Cash and cash equivalents at beginning of period 7,482 2,438
--------- ---------
Cash and cash equivalents at end of period $ 4,667 $ 7,704
========= =========
<FN>
See notes to consolidated financial statements (unaudited).
</TABLE>
(5)
<PAGE> 6
McDONALD & COMPANY INVESTMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1993
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of McDonald &
Company Investments, Inc. and its subsidiaries, collectively referred to as the
"Company". All significant intercompany accounts and transactions are
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, considered necessary for a fair presentation of the financial
condition and results of operations for the periods presented have been
included.
NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS
During the fiscal nine months ended December 31, 1993 the Company adopted
Financial Accounting Standards Board Statement No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions", (FAS No. 106). The statement
requires accrual of the expected cost of such benefits during employee service
periods. The Company is amortizing its initial transition obligation of
approximately $1,000,000 over a period of twenty years. The effect of the
adoption of FAS No. 106 did not have a material effect on the Company's
financial position or results of operations.
NOTE C - LONG-TERM BORROWINGS
McDonald & Company Securities, Inc., ("McDonald Securities") has outstanding
$25,000,000 in aggregate principal amount of 8.24% Subordinated Notes due
January 15, 2002. McDonald Securities is required to prepay principal amounts
of $5,000,000 on January 15 in each year beginning in 1998. The notes are
subordinated in right of payment to all senior indebtedness of McDonald
Securities. The principal amount of the notes have been approved by the New
York Stock Exchange, Inc. for inclusion in the regulatory capital of McDonald
Securities.
NOTE D - NET INCOME PER SHARE
Primary net income per share is based on the average number of share and share
equivalents outstanding during the periods. Share equivalents represent the
effect of shares issuable under the Company's stock option plans. Fully
diluted net income per share includes, in addition to the above, the effect of
the conversion of the Company's 8% convertible subordinated debentures.
On July 27, 1993, the Company declared a 20% stock dividend payable August 20,
1993 to stockholders of record August 10, 1993. Share and per share
information have been restated to reflect the effect of the stock dividend as
if it had occurred at the beginning of each period presented.
On October 29, 1993 the Company redeemed $197,000 aggregate principal amount of
its 8% convertible subordinated debentures due March 1, 2011 at a price of
102.4% of the principal amount plus accrued interest to October 29, 1993, for a
total cash payment of $204,310. A total of $12,008,000 principal amount of
debentures were converted into 993,694 shares of the Company's Common Stock at
a conversion price of $12.08 per share.
(6)
<PAGE> 7
McDONALD & COMPANY INVESTMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1993
The following represents share and per share information as if all of the
debentures had been converted at the beginning of each period presented:
<TABLE>
<CAPTION>
Fiscal Three Months Ended Fiscal Nine Months Ended
------------------------------ ------------------------------
Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1993 Dec. 31, 1992
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income Per Share
Primary $.80 $.42 $1.84 $1.28
Fully Diluted $.80 $.42 $1.84 $1.28
Average Number of
Shares and Share
Equivalents
Outstanding 9,498,000 9,474,000 9,624,000 9,432,000
</TABLE>
NOTE E - CONTINGENCIES
The Company is a defendant in various lawsuits incidental to its securities
business, and in the opinion of management, liability, if any, resulting from
such litigation, will not have a material adverse effect on the Company's
financial condition.
(7)
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
McDonald & Company Investments, Inc. (the "Company") operates a full-service
regional investment banking, investment advisory and brokerage business through
its principal subsidiary, McDonald & Company Securities, Inc. ("McDonald
Securities"). The Company is involved in the origination, underwriting,
distribution, trading and brokerage of fixed income and equity securities, and
provides investment advisory services.
The profitability of the Company is sensitive to many factors, including the
level of securities trading volume and the volatility and general level of
market prices. Many of its activities have high operating costs which do not
decrease with reduced levels of activity. Sustained periods of reduced volume,
or loss of clients, could have adverse effects upon profitability.
The Company faces increasing competition from commercial banks and thrift
institutions as these institutions offer certain investment banking and
corporate and individual financial services traditionally provided only by
securities firms. The Company anticipates regulation of the securities
industry to increase and that compliance with regulations may become more
difficult. At present, the Company is unable to predict the extent of changes
that may be enacted, or the effect on the Company's business.
The Company has formulated a comprehensive strategic plan which is periodically
reviewed and revised as business conditions dictate. The plan emphasizes the
Company's historical roots as a regional brokerage and investment banking firm.
The Company has focused on the Ohio, Michigan and Indiana markets by increasing
the number of sales representatives covering individual investors, as well as
increasing investment banking activities in this region. The Company's
institutional equity and fixed income sales departments cover accounts
throughout the United States and internationally.
On October 4, 1991, Gradison & Company Incorporated ("Gradison"), merged with
McDonald Securities, pursuant to a definitive agreement dated as of July 24,
1991. In connection with the merger, stockholders of Gradison received a
combination of shares of Common Stock and cash having an aggregate value of
approximately $22,723,000. Additional cash consideration of approximately
$3,200,000 will be paid three years subsequent to the merger if certain
performance criteria are met. Gradison is a full-service regional brokerage
and investment advisory firm headquartered in Cincinnati, Ohio whose primary
market is southwestern Ohio and northern Kentucky. Subsequent to the merger,
Gradison is operating as a division of McDonald Securities.
The merger allowed the Company to increase the size of its retail sales force
and its customer base and gave the Company a strong presence in southwestern
Ohio, and also added significant additional asset management capabilities.
LIQUIDITY AND CAPITAL RESOURCES
The majority of the Company's assets are highly liquid and short-term in
nature. Cash and liquid assets, principally receivables from customers,
brokers and dealers, securities purchased under agreements to resell, and
securities owned approximately 93% of the Company's assets at December 31,
1993. These assets are financed by a number of sources, including the Company's
capital and short-term borrowings. At December 31, 1993, McDonald Securities
had outstanding $25,000,000 in aggregate principal amount of 8.24% Subordinated
Notes due January 15, 2002, which provide long-term financing.
On September 17, 1993, the Company announced that it would redeem the
$12,205,000 aggregate principal amount of 8% Convertible Subordinated
Debentures due March 1, 2011 on October 29, 1993 at a price of 102.4%, plus
accrued interest. (See Note D to the Consolidated Financial Statements). In
light of the current market
(8)
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (cont.)
level of interest rates, the Company felt that it was an appropriate
opportunity to reduce its total debt and to reduce interest costs. On October
29, 1993, a total of $12,008,000 aggregate principal amount of debentures were
converted into shares of the Company's Common Stock and as a result, 993,694
shares were issued, with cash paid in lieu of fractional shares. The remaining
$197,000 aggregate principal amount of debentures were redeemed at 102.4% of
par value, plus accrued interest to October 29, 1993, for a total cash payment
of $204,310.
Changes in the levels of securities owned and in customer and broker
receivables directly affect the Company's financing arrangements. The Company
has available lines of credit of $318,000,000, of which $220,600,000 was unused
at December 31, 1993. Management believes that funds from operations and
available lines of credit provide sufficient resources to meet present and
anticipated financial needs.
The Company manages its risk related to market fluctuations affecting the value
of securities owned by entering into offsetting positions in a variety of
financial instruments, including futures and option contracts.
Certain minimum amounts of capital must be maintained by the Company's
principal broker/dealer subsidiary, McDonald Securities, to satisfy the
regulatory requirements of the Securities and Exchange Commission and the New
York Stock Exchange. The regulatory requirements represent Uniform Net Capital
Rules designed to measure the general financial integrity and liquidity of
registered broker/dealers and provide minimum acceptable net capital levels to
meet continuing commitments to customers. Net capital, as defined, changes
from day to day. At December 31, 1993, McDonald Securities was in compliance
with the Uniform Net Capital Rules and had net capital of $52,816,000, which
was $50,829,000 in excess of the minimum required.
FISCAL THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1993 AND
DECEMBER 31, 1992
Total revenues for the fiscal quarter ended December 31, 1993 were $61,917,000,
an increase of $17,989,000, or 41%, from the revenues of $43,928,000 for the
fiscal quarter ended December 31, 1992.
For the fiscal nine months ended December 31, 1993 total revenues were
$157,654,000 compared to $125,694,000 for the first nine months of fiscal 1993,
an increase of $31,960,000, or 25%.
Net income for the fiscal quarter ended December 31, 1993 was $7,551,000, or
$.80 per share, compared with net income of $3,858,000, or $.46 per share, for
the fiscal quarter ended December 31, 1992, which represents an increase in net
income of 96%.
For the fiscal nine months ended December 31, 1993 net income was $17,494,000,
or $1.95 per share, compared to $11,610,000, or $1.39 per share, for the fiscal
nine months ended December 31, 1992, an increase in net income of 51%.
The average number of shares and share equivalents outstanding were 9,498,000
and 8,950,000, respectively, for the fiscal three and nine month periods ended
December 31, 1993 compared to 8,394,000 and 8,352,000, respectively, for the
fiscal three and nine months ended December 31, 1992.
On July 27, 1993, the Company declared a 20% stock dividend payable August 20,
1993 to shareholders of record August 10, 1993. Share and per share
information have been restated to reflect the effect of the stock dividend as
if it had occurred at the beginning of each period presented.
(9)
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
FISCAL THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1993 AND
DECEMBER 31, 1992 (cont.)
Revenues from underwriting and investment banking increased $12,888,000 or 120%
for the quarter and $17,024,000, or 56% for the nine months ended December 31,
1993 when compared to the same periods in the prior fiscal year. The increase
was primarily due to an increase in corporate underwriting and investment
banking revenues of $14,380,000, or 223% for the third quarter of fiscal 1994
and $19,815,000, or 102%, for the first nine months when compared to the same
periods in the prior fiscal year. Included in these amounts were revenues from
managed and co-managed originations and private placements of equity and
taxable debt securities, which increased $12,421,000, or 492% for the third
quarter and $15,841,000, or 181% for the first nine months. Revenues from
participations in equity syndicates increased $1,419,000, or 65%, for the third
quarter and $3,054,000, or 51% for the first nine months of fiscal 1994 when
compared to the same periods in the prior fiscal year. Partially offsetting
the increase, revenues from municipal finance declined $1,492,000, or 35% for
the third quarter of fiscal 1994 and $2,791,000, or 25% for the first nine
months when compared to the same periods in the prior fiscal year. Municipal
finance revenues were very strong in the three and nine months ended December
31, 1992 due to favorable market conditions.
Revenues from underwriting and investment banking activities are highly
dependent on general market conditions for such business activities. Market
conditions for underwriting and investment banking services can be affected by
political and economic events both in the United States and abroad. To the
extent future events are unpredictable, uncertainty will be a factor in the
level of McDonald Securities' business activity. Also, competitive pressure
from other investment bankers can and will have an effect on the success of
McDonald Securities in obtaining such business and on the prices which can be
charged for investment banking and underwriting services. The management of
McDonald Securities believes it can compete effectively in this segment of its
business.
Revenues from principal transactions increased $916,000, or 7%, for the third
quarter of fiscal 1994 and increased $1,003,000, or 2%, for the first nine
months when compared to the same periods in the prior fiscal year. Revenues
from trading taxable fixed-income securities, including corporate bonds,
United States government bonds and mortgage-backed securities, decreased
$1,478,000, or 18% for the third quarter and $5,106,000, or 17%, for the first
nine months of fiscal 1994 when compared to the same periods in the prior
fiscal year. This decrease in revenues from principal transactions in taxable
fixed-income securities was due to less favorable market conditions when
compared to the same periods in the prior fiscal year. Revenues from trading
municipal bonds increased $350,000, or 16% for the third quarter and
$1,066,000, or 21% for the first nine months of the current fiscal year due
primarily to improved market conditions. Revenues from principal transactions
in equity securities increased $2,044,000, or 68% for the third quarter and
$5,043,000, or 58% for the first nine months of fiscal 1994. Substantially all
of the increase was attributable to an increase in revenues from trading
unlisted equity securities due to strong equity securities markets.
Commission revenues increased $3,825,000, or 35%, in the current quarter and
$10,927,000, or 39% for the first nine months when compared to the same periods
in fiscal 1993. The increase in commission revenues reflects higher volume due
to both improved market conditions and the increase in the size of the retail
salesforce. During the current fiscal year, low interest rates encouraged
investor participation in the equity markets. The increase was primarily due
to an increase in revenues from listed and over-the-counter agency commissions
of $2,267,000, or 31% for the quarter and $6,555,000, or 35% for the nine month
period, and increases in commissions from mutual fund sales of $1,274,000, or
50%, for the current quarter and $3,579,000, or 52% for the first nine months.
(10)
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
FISCAL THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1993 AND
DECEMBER 31, 1992 (cont.)
Revenues from investment management fees include advisory fees from the
Company's mutual funds and money market funds and investment management fees
earned related to individually managed accounts. Revenues from investment
management fees increased $660,000, or 21%, for the fiscal quarter and
$1,630,000, or 18% for the nine month period ended December 31, 1993 when
compared to the fiscal quarter and fiscal nine months ended December 31, 1992.
Interest and dividend income increased $495,000, or 13%, and $1,859,000, or
19%, for the fiscal three and nine month periods ended December 31, 1993 when
compared to the same period in the prior fiscal year. The increase was due
primarily to a higher level of customer margin loans and securities owned in
the current periods when compared to the same periods in the prior fiscal year.
Other Income decreased $795,000, or 34%, for the current quarter and $483,000,
or 11%, for the nine months ended December 31, 1993 when compared to the same
periods in fiscal 1993. Included in Other Income were net gains related to
certain venture capital investments of $560,000 and $1,235,000 for the fiscal
three and nine month periods ended December 31, 1993 compared to net gains of
$1,700,000 and $2,270,000, respectively for the fiscal three and nine month
periods of fiscal 1993. These fluctuations accounted for a decline in Other
Income of $1,140,000 and $1,035,000 for the comparable three and nine month
periods. The remaining increase in Other Income of $345,000 for the quarter
and $552,000 for the nine month period represents increases in service fees and
other fee income related to the expansion of the retail business in the current
fiscal year.
Operating expenses (total expenses before interest) increased $11,393,000, or
32%, for the third quarter of fiscal 1994, and $20,776,000, or 20%, for the
first nine months of fiscal 1994 when compared to the same periods in the prior
fiscal year. Employee compensation and benefits increased $9,706,000, or 38%,
for the current quarter and $16,798,000, or 23% for the first nine months of
fiscal 1994 when compared to the same periods in the prior fiscal year.
Commission and other sales compensation expense increased $4,202,000, or 31%,
for the quarter and $9,137,000, or 25% for the first nine months, primarily
because of increased commissions revenues and other sales credits. Other
clerical and administrative expenses increased $1,084,000, or 15%, for the
quarter and $2,861,000, or 14%, for the first nine months. The increase in
other clerical and administrative expenses represents compensation and employee
benefit costs related to an increase in the professional and support staff in
the current periods when compared to the same periods in the prior fiscal year.
The remaining increase in employee compensation and benefits of $4,420,000, or
89%, for the third quarter and $4,800,000, or 32%, for the first nine months of
fiscal 1994 represents increases in incentive compensation and profit sharing
accruals due to the significant improvement in profitability.
All other operating expenses increased $1,687,000, or 17%, for the current
quarter and $3,978,000, or 14% for the first nine months of fiscal 1994. The
increase in all other operating costs represents communications, occupancy and
equipment, promotional and other costs related to the expansion of the
Company's business.
Interest expense increased $366,000, or 19%, and $1,433,000, or 25% for the
fiscal three and nine month periods in the current fiscal year when compared to
the same periods in fiscal 1993. This increase reflects a higher level of
average short-term borrowings due to an increase in the level of securities
owned and customer margin accounts. Additionally, the average rate on
borrowings increased due to the issuance in January 1993, by McDonald
Securities, of $25,000,000 in 8.24% Subordinated Notes. The proceeds of the
notes were used to reduce short-term borrowings.
(11)
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
FISCAL THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1993 AND
DECEMBER 31, 1992 (cont.)
Income before income taxes for the fiscal quarter and fiscal nine months ended
December 31, 1993 was $12,151,000 and $28,094,000, resulting in a pre-tax
return on revenues of 20% and 18%, respectively. For the fiscal quarter and
fiscal nine months ended December 31, 1992, income before income taxes was
$5,921,000, and $18,343,000, resulting in a pre-tax return on revenues of 13%
and 15%, respectively.
(12)
<PAGE> 13
PART II. OTHER INFORMATION
Item 5. Other Information
-----------------
On July 27, 1993, the Company announced the continuation of an
open market repurchase program originally announced in July, 1987.
The current program, which expires July 31, 1996, allows the
Company to purchase up to 1,000,000 shares of its Common Stock at
an aggregate price not to exceed $20,000,000. Treasury shares may
be used to satisfy options exercised under the Company's stock
option plans and shares awarded under the Company's 1993
Restricted Stock Bonus Plan.
During the fiscal quarter ended December 31, 1993, the Company
purchased 161,338 shares of the Company's Common Stock at an
average price of $14.38 per share. During the fiscal quarter
ended December 31, 1993 the Company utilized 25,840 shares of the
Company's Common Stock held in treasury to satisfy options
exercised during the period under the Stock Option Plan for
employees.
On October 29, 1993 the Company redeemed $197,000 aggregate
principal amount of its 8% Convertible Subordinated Debentures due
March 1, 2011 (the "Debentures"). A total of $12,008,000
principal amount of Debentures were converted into 993,694 shares
of the Company's Common Stock at a Conversion Price of $12.08 per
share and $1,113 was paid in cash in lieu of fractional shares.
No Debentures were outstanding after October 29, 1993.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
<TABLE>
<CAPTION>
(a.) The following exhibits are filed as part Sequential
of this report: Page Number
-----------
<S> <C>
Exhibit 11 Statement re: Computation of
Per Share Earnings . . . . . . . . . . . . . 16
(b.) No reports on Form 8-K were filed during
the fiscal quarter ended December 31, 1993.
</TABLE>
(13)
<PAGE> 14
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.
McDonald & Company Investments, Inc
-----------------------------------
(Registrant)
<TABLE>
<S> <C>
Date: February 4, 1994 By: /s/ William B. Summers, Jr.
------------------------- ------------------------------------
William B. Summers, Jr.
President and Chief Executive Officer
(Principal Executive and Operating
Officer)
Date: February 4, 1994 By: /s/Robert T. Clutterbuck
-------------------------- -----------------------------------
Robert T. Clutterbuck
Treasurer
(Principal Financial Officer)
</TABLE>
(14)
<PAGE> 15
McDonald & Company Investments, Inc.
Report on FORM 10-Q for the Fiscal Quarter ended December 31, 1993
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page
----------- ----------- ---------------
<S> <C> <C>
11 Statement Re: Computation of
Per Share Earnings . . . . . . . . . . . . 16
</TABLE>
(15)
<PAGE> 1
<TABLE>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Fiscal Three Months Ended Fiscal Nine Months Ended
----------------------------- -----------------------------
Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1993 Dec. 31, 1992
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Average shares outstanding 9,282,000 8,242,000 8,724,000 8,196,000
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 216,000 152,000 226,000 156,000
---------- ---------- ----------- -----------
TOTAL 9,498,000 8,394,000 8,950,000 8,352,000
========== ========== =========== ===========
Net income $7,551,000 $3,858,000 $17,494,000 $11,610,000
========== ========== =========== ===========
Net income per share $ .80 $ .46 $ 1.95 $ 1.39
========== ========== =========== ===========
FULLY DILUTED
- -------------
Average shares outstanding 9,282,000 8,230,000 8,724,000 8,196,000
Net effect of dilutive stock
options - based on the treasury
stock method using greater of
average or period - end market
price 216,000 220,000 231,000 220,000
Assumed conversion of 8%
convertible subordinated
debentures 1,080,000 674,000 1,080,000
---------- ---------- ----------- ----------
TOTAL 9,498,000 9,530,000 9,629,000 9,496,000
========== ========== =========== ==========
Net income $7,551,000 $3,858,000 $17,494,000 $11,610,000
Add interest on 8% convertible
subordinated debentures, net of
federal tax effect --- 172,000 265,000 517,000
---------- ---------- ----------- -----------
TOTAL $7,551,000 $4,030,000 $17,759,000 $12,127,000
========== ========== =========== ===========
Net income per share $ .80 $ .42 $ 1.84 $ 1.28
========== ========== =========== ===========
NOTE: On July 27, 1993, the Company declared a 20% stock dividend payable
August 20, 1993 to shareholders of record August 10, 1993. The
computation of per share earnings has been restated to reflect the stock
dividend as if it had occurred at the beginning of each period
presented.
</TABLE>
(16)
