<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 September 29, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8526
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McDonald & Company Investments, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 34-1391950
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114-2603
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(Address of principal executive offices) (Zip Code)
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:
8,893,738 shares of Common Stock, par value $1.00 per share, were
outstanding on October 31, 1995.
(1)
<PAGE> 2
McDONALD & COMPANY INVESTMENTS, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
PART I - FINANCIAL INFORMATION
- ------------------------------
<S> <C>
Item 1. Financial Statements -
Consolidated statements of financial condition (unaudited)-
September 29, 1995 and March 31, 1995 ............................. 3
Consolidated statements of income (unaudited)-
Fiscal three and six months ended September 29, 1995
and September 30, 1994 ........................................ 4
Consolidated statements of cash flows (unaudited)-
Fiscal six months ended September 29, 1995 and
September 30, 1994 ............................................ 5
Notes to consolidated financial statements (unaudited)-
September 29, 1995 ............................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 8
PART II - OTHER INFORMATION
- ---------------------------
Item 5. Other Information ........................................ 12
Item 6. Exhibits and Reports on Form 8-K ......................... 12
SIGNATURES .............................................................. 13
EXHIBIT INDEX ........................................................... 14
</TABLE>
(2)
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCDONALD & COMPANY INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
Sept. 29, March 31,
1995 1995
------------ -----------
(In thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,032 $ 2,850
Receivable from customers 123,028 136,180
Receivable from brokers and dealers 22,089 18,281
Securities purchased under agreements
to resell 62,244 88,869
Securities owned 121,157 95,184
Other receivables 20,908 16,368
Furniture, equipment and leasehold
improvements, at cost, less accumulated
depreciation and amortization 10,685 11,286
Other assets 36,608 32,314
------------ -----------
$ 404,751 $ 401,332
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 68,999 $ 64,924
Payable to customers 39,023 35,380
Payable to brokers and dealers 16,440 20,786
Securities sold under agreements to
repurchase 44,675 52,029
Securities sold but not yet purchased 42,708 47,701
Accrued compensation 22,276 20,282
Accounts payable, accrued expenses
and other liabilities 24,078 20,868
Long-term borrowings 25,000 25,000
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$ 283,199 $ 286,970
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Stockholders' equity
Preferred Stock, without par value;
200,000 shares authorized;
none issued
Common Stock, par value $1.00 per
share; 15,000,000 shares
authorized; (11,541,133 and 11,434,788
shares issued, respectively) 11,541 11,435
Additional paid-in capital 50,136 48,342
Retained earnings 84,431 77,034
Less treasury stock, at cost
(2,597,395 and 2,481,535 shares,
respectively) (24,556) (22,449)
------------ ----------
121,552 114,362
------------ ----------
$ 404,751 $ 401,332
============ ===========
</TABLE>
See Notes to consolidated financial statements (unaudited).
(3)
<PAGE> 4
MCDONALD & COMPANY INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Three Months Ended Fiscal Six Months Ended
--------------------------------- ----------------------------------
Sept. 29, 1995 Sept. 30, 1994 Sept. 29, 1995 Sept. 30, 1994
(13 weeks) (14 weeks) (26 weeks) (27 weeks)
--------------------------------- -------------------------------
<S> <C> <C> <C> <C>
(In thousands, except for share and per share amounts)
Revenues:
Underwriting and investment banking $ 16,193 $ 7,423 $ 26,463 $ 16,729
Principal transactions 12,701 12,326 27,623 23,198
Commissions 15,950 12,167 30,724 24,675
Investment management fees 4,718 3,975 9,267 7,960
Interest and dividends 3,950 3,407 7,985 6,535
Other 1,962 983 3,400 1,999
----------- ---------- ------------ ------------
$ 55,474 $ 40,281 $ 105,462 $ 81,096
---------- ---------- ------------ ------------
Expenses:
Employee compensation and benefits $ 32,101 $ 23,626 $ 61,547 $ 48,178
Interest 1,759 1,372 3,587 2,887
Communications 3,293 3,089 6,553 6,151
Occupancy and equipment 3,457 3,164 6,782 6,210
Promotion and development 1,961 2,089 3,855 3,761
Floor brokerage and clearance 632 622 1,278 1,270
Taxes, other than income taxes 1,731 1,373 3,472 2,996
Other operating expenses 2,424 1,537 4,308 3,042
----------- --------- ------------ ------------
$ 47,358 $ 36,872 $ 91,382 $ 74,495
----------- --------- ------------ ------------
Income before income taxes $ 8,116 $ 3,409 $ 14,080 $ 6,601
Provision for income taxes 3,000 1,380 5,200 2,630
----------- --------- ------------ ------------
Net income $ 5,116 $ 2,029 $ 8,880 $ 3,971
========== ========= ============ ============
Net income per share $ .56 $ .22 $ .97 $ .42
========== ========= ============ ============
Dividends per share $ .085 $ .080 $ .165 $ .155
========== ========= ============ ============
Average number of shares and share equivalents
outstanding 9,105,000 9,479,000 9,110,000 9,470,000
========== ========= ============ ============
</TABLE>
See Notes to consolidated financial statements (unaudited).
(4)
<PAGE> 5
MCDONALD & COMPANY INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Six Months Ended
-------------------------------------------------
Sept. 29, 1995 Sept. 30, 1994
--------------- --------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
- --------------------
Net Income $ 8,880 $ 3,971
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,426 2,264
Deferred compensation 220 376
Deferred income taxes 71 289
Decrease in receivable from customers 13,152 9,835
(Increase) decrease in receivable from brokers and dealers (3,808) 10,732
(Increase) decrease in securities owned (25,973) 49,508
(Increase) decrease in other receivables (4,540) 1,880
Increase in payable to customers 3,643 2,016
Decrease in payable to brokers and dealers (4,346) (5,724)
Decrease in securities sold but not yet purchased (4,993) (12,167)
Increase (decrease) in accrued compensation 3,937 (8,069)
Increase (decrease) in accounts payable, accrued expenses and other 2,990 (5,489)
------------- ------------
Net cash provided by operating activities $ 8,341 $ 49,422
============= ============
INVESTING ACTIVITIES:
- --------------------
Purchase of furniture, equipment and leaseholds $ (1,528) $ (1,477)
(Increase) decrease in other assets (4,662) 6,015
------------ ------------
Net cash provided by (used for) investing activities $ (6,190) $ 4,538
============ ============
FINANCING ACTIVITIES:
- --------------------
Decrease (increase) in securities purchased under agreement to resell $ 26,625 $ (72,170)
Increase (decrease) in short-term borrowings 4,075 (30,843)
(Decrease) increase in securities sold under agreements to repurchase (7,354) 51,718
Cash dividends (1,483) (1,442)
Purchase of treasury stock (2,368) (2,755)
Proceeds from issuance of treasury stock 218 366
------------ ------------
Net cash used for financing activities $ 19,713 $ (55,126)
------------ ------------
Increase (decrease) in cash and cash equivalents 5,182 (1,166)
Cash and cash equivalents at beginning of period 2,850 6,765
------------ ------------
Cash and cash equivalents at end of period $ 8,032 $ 5,599
============ ============
</TABLE>
See Notes to consolidated financial statements (unaudited).
(5)
<PAGE> 6
McDONALD & COMPANY INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 29, 1995
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 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 - 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 has been approved by the New
York Stock Exchange, Inc. for inclusion in the regulatory capital of McDonald
Securities.
NOTE C - NET INCOME PER SHARE
- ------ --------------------
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.
NOTE D - CONTINGENCIES
- ------ -------------
The Company's principal subsidiary, McDonald & Company Securities, Inc.
("McDonald Securities"), is a defendant in JONES ET.AL. V. MCDONALD & CO.
SECURITIES, INC., ET. AL., ("the Jones litigation") a lawsuit currently pending
in the Cuyahoga County Court of Common Pleas. The action arose out of losses
allegedly incurred by Cuyahoga County's Secured Assets Fund Earnings Program
("SAFE"). McDonald Securities and six other defendants have been named in the
lawsuit. The complaint alleges that, in breach of various legal duties
allegedly owed to the plaintiff, McDonald Securities and/or the other
defendants enabled, facilitated and/or assisted the County's investment staff
to engage in unsuitable and inappropriate investment and trading activities and
practices. In addition, the complaint contains allegations of fraud and
negligent misrepresentation against McDonald Securities and another defendant
arising out of their respective roles as underwriters of two issuances of tax
and current revenue anticipation notes ("TANS/CRANS") during 1993 and 1994.
The plaintiff seeks to hold each of the defendants liable for an unspecified
amount of compensatory and consequential damages. In addition, the plaintiff
seeks to hold McDonald Securities and the other defendant that participated as
an underwriter of the TANS and CRANS offerings liable for an unspecified amount
of compensatory, consequential and punitive damages. The action has only
recently commenced, and no discovery has taken place. However, based on the
facts known to date, the Company believes that the plaintiff's claims against
McDonald Securities are without merit, and intends to contest vigorously the
allegations in the complaint.
(6)
<PAGE> 7
McDONALD & COMPANY INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 29, 1995
The Company is a defendant in various other lawsuits incidental to its
securities business. In view of the number and diversity of claims against the
Company and the inherent difficulty of predicting the outcome of litigation and
other claims, the Company cannot state with certainty what the eventual outcome
of pending litigation or other claims will be. The Company provides for costs
relating to these matters when a loss is probable and the amount is reasonably
estimable. The effect of the outcome of these matters on the Company's future
results of operations cannot be predicted because any such effect depends on
future results of operations and the amount and timing of the resolution of
such matters. While it is not possible to predict with certainty, management
believes that the ultimate resolution of such matters, including the Jones
litigation, will not have a material adverse effect on the consolidated
financial position or liquidity of the Company.
NOTE E - SUBSEQUENT EVENT
- ------ ----------------
On November 1, 1995, the Company adopted a Stockholder Rights Plan. Under the
terms of the Plan, on November 15, 1995, one Preferred Stock Purchase Right
will be issued as a dividend on each outstanding share of the Company's Common
Stock. Each right will entitle its holder to purchase one-one hundredth of a
share of participating preferred stock at an exercise price of $60.00 per
share, under certain circumstances. The rights will be represented by, and
trade with, the certificates for Common Stock until exercisable, and will not
entitle holders to any additional voting or other rights prior to exercise.
Generally, the rights will not be exercisable until ten business days following
a public announcement that a person or group has acquired 20% of the Company's
Common Stock or until ten business days after a person or group begins or
announces an intention to begin a tender offer which would result in the
ownership of 20% of the Company's Common Stock. Each rights holder (other than
the 20% stockholder) will then be entitled to purchase a number of shares of
the Company's Common Stock having a market value equal to twice the right's
exercise price. If the Company is acquired, or if 50% or more of its assets or
earning power are sold or transferred, the rights will entitle the holder to
purchase a number of shares. Of the acquiror's common stock having a market
value at that time of twice the right's exercise price.
(7)
<PAGE> 8
ITEM 2.5 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.
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 approximate 88% of the Company's assets at September 29,
1995. These assets are financed by a number of sources, including the
Company's capital and short-term borrowings.
At September 29, 1995, McDonald Securities had outstanding $25,000,000 in
aggregate principal amount of 8.24% Subordinated Notes due January 15, 2002.
McDonald Securities is required to pay 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 and general creditors of McDonald
Securities. In addition to providing long-term financing, the notes have been
approved by the New York Stock Exchange, Inc. for inclusion in McDonald
Securities' regulatory capital.
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 $290,000,000, of which $225,000,000 was unused
at September 29, 1995. Management believes that funds from operations,
available lines of credit, and long-term borrowings provide sufficient
resources to meet present and anticipated financial needs.
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 September 29, 1995, McDonald Securities was in compliance
with the Uniform Net Capital Rules and had net capital of $69,449,000, which
was $66,765,000 in excess of the minimum required.
(8)
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------------------
FISCAL THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 29, 1995 AND
- ------------------------------------------------------------------
SEPTEMBER 30, 1994
- ------------------
Total revenues for the fiscal quarter ended September 29, 1995 were
$55,474,000, an increase of $15,193,000, or 38%, from revenues of $40,281,000
for the fiscal quarter ended September 30, 1994.
For the fiscal six months ended September 29, 1995, total revenues were
$105,462,000 compared to $81,096,000 for the first six months of fiscal 1995,
an increase of $24,366,000, or 30%.
Net income for the fiscal quarter ended September 29, 1995 was $5,116,000, or
$.56 per share, compared with net income of $2,029,000, or $.22, per share, for
the fiscal quarter ended September 30, 1994, which represents an increase in
net income of 152%.
For the fiscal six months ended September 29, 1995, net income was $8,880,000
or $.97 per share, compared to $3,971,000, or $.42 per share, for the fiscal
six months ended September 30, 1994, an increase in net income of 131%.
The average number of shares and share equivalents outstanding were 9,105,000
and 9,110,000, respectively, for the fiscal three and six month periods ended
September 29, 1995 compared to 9,479,000 and 9,470,000, respectively, for the
fiscal three and six months ended September 30, 1994.
Revenues from underwriting and investment banking increased $8,770,000, or
118%, for the quarter and $9,734,000, or 58%, for the six months ended
September 29, 1995 when compared to the same periods in the prior fiscal year.
Revenues from corporate underwriting and investment banking increased
$8,695,000, or 151%, for the second quarter and $9,986,000, or 73%, for the six
month period due primarily to increased revenues from private placements,
mergers and other fee income of $3,277,000, or 121%, for the second quarter and
$5,826,000, or 154%, for the six month period and increased revenues from
equity and debt public offerings of $4,676,000, or 456%, for the second quarter
and $3,607,000, or 68%, for the six months ended September 19, 1995. These
increases reflect improved market conditions for both the private and public
offering of securities. Revenues from municipal finance increased $75,000, or
5%, for the quarter and decreased $252,000, or 8%, for the six months ended
September 29, 1995 when compared to the same periods in the prior fiscal year,
due to a lower level of public finance offerings.
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 banking firms 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 activities.
Revenues from principal transactions increased $375,000, or 3%, for the second
quarter of fiscal 1996 and $4,425,000, or 19%, for the first six 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 $265,000, or 5%, for
the second quarter and increased $1,937,000, or 18%, for the first six months
of fiscal 1996. The increase in revenues from principal transactions in
taxable fixed-income securities for the six month period is primarily due to a
more stable interest rate environment. Revenues from trading municipal bonds
decreased $482,000, or 20%, for the second quarter and $497,000, or 11%, for
the first six months due primarily to individual investor uncertainty
concerning potential tax law changes. Revenues from principal transactions in
equity securities increased $1,122,000, or 26%, for the second quarter and
$2,985,000, or 38%, for the first six months primarily due to a strong NASDAQ
market and continued expansion of the Company's sales force.
(9)
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------------------
FISCAL THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 29, 1995 AND
- ---------------------------------------------------------------
SEPTEMBER 30, 1994 (cont.)
- --------------------------
Commissions revenue increased $3,783,000, or 31%, in the current quarter and
$6,049,000, or 25% in the first six months when compared to the same periods in
fiscal 1995. Of these amounts, commissions revenues from agency transactions
in listed and over-the-counter stocks increased $2,828,000, or 37%, for the
quarter and $4,731,000, or 30%, for the six month period. The remainder of the
increase in both periods was due primarily to an increase in revenues from the
sale of non-proprietary mutual funds.
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 $743,000, or 19%, and $1,307,000, or 16%, for the
fiscal quarter and six month periods ended September 29, 1995 when compared to
the comparable fiscal 1995 periods. Of these amounts, increased revenues from
advisory fees related to individually managed accounts represented $696,000, or
94%, and $1,195,000, or 91%, respectively, of the total increase for the fiscal
three and six month periods.
Interest and dividend income increased $543,000, or 16%, and $1,450,000, or
22%, for the fiscal three and six month periods ended September 29, 1995 when
compared to the same periods in the prior fiscal year. The increase was due
primarily to a higher return on interest earning assets due to higher interest
rates.
Other income increased $979,000, or 100%, for the current quarter and
$1,401,000, or 70%, for the six month period ended September 29, 1995. Of
these amounts, increased income from certain venture capital investments
represented $692,000, or 71%, and $832,000, or 59%, respectively, of the total
increase for the fiscal three and six month periods. The remaining increases
represent increased revenue from service fees and other miscellaneous retail
revenues related to the continued expansion of the retail sales force.
Operating expenses (total expenses before interest) increased $10,099,000, or
28%, for the second quarter and $16,187,000, or 23%, for the first six months
of fiscal 1996, when compared to the same periods in the prior fiscal year.
Employee compensation and benefits increased $8,475,000, or 36%, for the second
quarter and $13,369,000, or 28%, for the first six months. Commission and
other sales compensation expense increased $3,700,000, or 30%, for the quarter
and $6,010,000, or 23%, for the first six months, primarily because of
increased revenues from commissions and principal sales credits. Other
clerical and administrative expenses increased $505,000, or 6%, for the quarter
and $1,009,000, or 6%, for the six month period. 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 $4,270,000 for
the second quarter and $6,350,000 for the six months represents increases in
incentive compensation and profit sharing accruals which are directly related
to the increase in profitability.
All other operating expenses increased $1,624,000, or 14%, for the current
quarter and $2,818,000, or 12%, for the first six months of fiscal 1996. The
increase in all other operating costs includes increases in communications
occupancy and equipment, payroll and other taxes, and other expenses of
$737,000 for the quarter and $1,552,000 for the first six months.
Additionally, the category of other operating expenses increased $887,000 for
the current quarter and $1,266,000 for the first six months of the current
fiscal year, due primarily to an increase of $398,000 for the current quarter
and $571,000 for the six month period in legal costs related to pending
litigation. Other professional fees increased $235,000 for the quarter and
$213,000 for the six month period due to expenses associated with consulting
services related to the retail and investment banking areas. Errors, writeoffs
and other settlements increased $116,000 for the quarter and $315,000 for the
six months due to the substantial increase in revenues and volume. These cost
increases related to the expansion of the Company's business.
(10)
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
--------------------------------
FISCAL THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 29, 1995 AND
- ---------------------------------------------------------------
SEPTEMBER 30, 1994 (cont.)
- --------------------------
Interest expense increased $387,000, or 28%, and $700,000, or 24%, for the
fiscal three month and six month periods in the current fiscal year when
compared to the same period in fiscal 1995 due to an increase in the interest
rate on short-term borrowings.
Income before income taxes for the fiscal quarter and fiscal six months ended
September 29, 1995 was $8,116,000 and $14,080,000, resulting in a pre-tax
return on revenues of 15% and 13%, respectively. For the fiscal quarter and
fiscal six months ended September 30, 1994, income before income taxes was
$3,409,000 and $6,601,000, resulting in a pre-tax return on revenues of 8% in
both periods.
(11)
<PAGE> 12
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 1,200,000 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 1995 Stock Bonus Plan.
During the fiscal quarter ended September 29, 1995, the Company
purchased 114,800 shares of the Company's Common Stock at an
average price of $16.76 per share. During the fiscal quarter
ended September 29, 1995 the Company utilized 21,166 shares of the
Company's Common Stock held in treasury to satisfy options
exercised under the Stock Option Plan for employees.
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
<S> <C>
Sequential
Page Number
-----------
(a.) The following exhibit is filed as part of this report:
Exhibit 11 Statement re: Computation of Per Share Earnings ........ 15
Exhibit 27 Financial Data Schedule BD ............................ 16
(b.) Reports on Form 8-K:
On August 15, 1995, the Company filed a Current Report on Form 8-K
regarding the status of certain pending litigation ("Stephanie
Tubb Jones ex. rel. the State of Ohio and the County of Cuyahoga
vs. McDonald & Co. Securities, Inc., et al.).
</TABLE>
* Exhibit 27 is Furnished for Securities and Exchange Commission Purposes Only.
(12)
<PAGE> 13
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)
Date: November 1, 1995 By: /s/ William B. Summers, Jr.
----------------------------------------
William B. Summers, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 1, 1995 By: /s/ Robert T. Clutterbuck
----------------------------------------
Robert T. Clutterbuck
Treasurer
(Principal Financial Officer)
(13)
<PAGE> 14
McDonald & Company Investments, Inc.
Report on FORM 10-Q for the Fiscal Quarter ended September 29, 1995
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page
- ----------- ----------- ---------------
<S> <C> <C> <C>
11 Statement Re: Computation of
Per Share Earnings . . . . . . . . . . . . . . 15
27 Financial Data Schedule BD . . . . . . . . . . 16
</TABLE>
* Exhibit 27 is Furnished for Securities and Exchange Commission Purposes
Only.
(14)
<PAGE> 1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
- -----------------------------------------------
<TABLE>
<CAPTION>
Fiscal Three Months Ended Fiscal Six Months Ended
----------------------------------- ----------------------------------
Sept. 29, 1995 Sept. 30, 1994 Sept. 29, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
PRIMARY
- -------
<S> <C> <C> <C> <C>
Average shares outstanding 8,963,000 9,319,000 8,971,000 9,300,000
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 142,000 160,000 139,000 170,000
---------- ----------- --------- ----------
TOTAL 9,105,000 9,479,000 9,110,000 9,470,000
========== =========== ========= ==========
Net income $5,116,000 $ 2,029,000 $8,880,000 $3,971,000
========== =========== ========== ==========
Net income per share $ .56 $ .22 $ .97 $ .42
========== =========== ========== ==========
FULLY DILUTED
- -------------
Average shares outstanding 8,963,000 9,319,000 8,963,000 9,300,000
Net effect of dilutive stock
options - based on the treasury
stock method using greater of
average or period - end market
price 153,000 160,000 153,000 170,000
---------- ---------- ----------- -----------
TOTAL 9,116,000 9,479,000 9,116,000 9,470,000
========== ============ =========== ===========
Net income $5,116,000 $2,029,000 $8,880,000 $3,971,000
========== ========== ========== ==========
Net income per share $ .56 $ .22 $ .97 $ .42
========== ========== ========== ==========
</TABLE>
(15)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from
consolidated statement of financial condition - Jun-29-1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-29-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-29-1995
<CASH> 8,032
<RECEIVABLES> 145,117
<SECURITIES-RESALE> 62,244
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 121,157
<PP&E> 10,685
<TOTAL-ASSETS> 404,751
<SHORT-TERM> 68,999
<PAYABLES> 55,463
<REPOS-SOLD> 44,675
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 42,708
<LONG-TERM> 25,000
<COMMON> 11,541
0
0
<OTHER-SE> 110,011
<TOTAL-LIABILITY-AND-EQUITY> 404,751
<TRADING-REVENUE> 27,623
<INTEREST-DIVIDENDS> 7,985
<COMMISSIONS> 30,724
<INVESTMENT-BANKING-REVENUES> 26,463
<FEE-REVENUE> 9,267
<INTEREST-EXPENSE> 3,587
<COMPENSATION> 61,547
<INCOME-PRETAX> 14,080
<INCOME-PRE-EXTRAORDINARY> 14,080
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,880
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.97
</TABLE>
