<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 29, 1995
--------------------------------------
OR
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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.
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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
- -----------------------------------------------------------------------------
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:
8,867,263 shares of Common Stock, par value $1.00 per share, were
outstanding on January 26, 1996.
(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)-
December 29, 1995 and March 31, 1995 . . . . . . . . . . . 3
Consolidated statements of income (unaudited)-
Fiscal three and nine months ended December 29, 1995
and December 30, 1994 . . . . . . . . . . . . . . . . . . . 4
Consolidated statements of cash flows (unaudited)-
Fiscal nine months ended December 29, 1995 and
December 30, 1994 . . . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements (unaudited)-
December 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>
Dec. 29, March 31,
1995 1995
------------ -----------
(In thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,745 $ 2,850
Receivable from customers 150,746 136,180
Receivable from brokers and dealers 37,461 18,281
Securities purchased under agreements
to resell 55,630 88,869
Securities owned 104,734 95,184
Other receivables 18,158 16,368
Furniture, equipment and leasehold
improvements, at cost, less accumulated
depreciation and amortization 11,520 11,286
Other assets 37,983 32,314
---------- ----------
$ 426,977 $ 401,332
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 74,131 $ 64,924
Payable to customers 59,427 35,380
Payable to brokers and dealers 6,321 20,786
Securities sold under agreements to
repurchase 53,251 52,029
Securities sold but not yet purchased 36,008 47,701
Accrued compensation 23,184 20,282
Accounts payable, accrued expenses
and other liabilities 25,344 20,868
Long-term borrowings 25,000 25,000
---------- ----------
$ 302,666 $ 286,970
---------- ----------
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; (11,563,858 and 11,434,788
shares issued, respectively) 11,564 11,435
Additional paid-in capital 50,495 48,342
Retained earnings 88,571 77,034
Less treasury stock, at cost
(2,696,595 and 2,481,535 shares, (26,319) (22,449)
respectively) ---------- ----------
124,311 114,362
---------- ----------
$ 426,977 $ 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 Nine Months Ended
--------------------------------- ---------------------------------
Dec. 29, 1995 Dec. 30, 1994 Dec. 29, 1995 Dec. 30, 1994
(13 weeks) (13 weeks) (39 weeks) (40 weeks)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
(In thousands, except for share and per share amounts)
Revenues:
Underwriting and investment banking $ 13,283 $ 13,710 $ 39,746 $ 30,439
Principal transactions 12,503 11,881 40,126 35,079
Commissions 16,193 12,547 46,917 37,222
Investment management fees 4,936 3,984 14,203 11,959
Interest and dividends 4,791 3,799 12,776 10,334
Other 1,715 1,395 5,115 3,379
--------------- --------------- --------------- ---------------
$ 53,421 $ 47,316 $ 158,883 $ 128,412
--------------- --------------- --------------- ---------------
Expenses:
Employee compensation and benefits $ 30,646 $ 27,167 $ 92,193 $ 75,345
Interest 1,947 1,729 5,534 4,616
Communications 3,345 2,941 9,898 9,092
Occupancy and equipment 4,178 3,231 10,960 9,441
Promotion and development 1,966 1,993 5,821 5,754
Floor brokerage and clearance 607 668 1,885 1,938
Taxes, other than income taxes 1,684 1,397 5,156 4,393
Other operating expenses 1,812 1,803 6,120 4,845
--------------- --------------- --------------- ---------------
$ 46,185 $ 40,929 $ 137,567 $ 115,424
--------------- --------------- --------------- ---------------
Income before income taxes $ 7,236 $ 6,387 $ 21,316 $ 12,988
Provision for income taxes 2,340 2,320 7,540 4,950
--------------- --------------- --------------- ---------------
Net income $ 4,896 $ 4,067 $ 13,776 $ 8,038
=============== =============== =============== ===============
Net income per share $ .55 $ .44 $ 1.52 $ .86
=============== =============== =============== ===============
Dividends per share $ .085 $ .080 $ .25 $ .235
=============== =============== =============== ===============
Average number of shares and share equivalents
outstanding 9,034,000 9,230,000 9,085,000 9,390,000
=============== =============== =============== ===============
</TABLE>
See Notes to consolidated financial statements (unaudited).
(4)
<PAGE> 5
MCDONALD & COMPANY INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Nine Months Ended
---------------------------------------------
Dec. 29, 1995 Dec. 30, 1994
------------------- ---------------------
(In thousands)
OPERATING ACTIVITIES:
- --------------------
<S> <C> <C>
Net Income $ 13,776 $ 8,038
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,672 3,468
Loss on disposal of property 541 0
Deferred compensation 318 501
Deferred income taxes (217) (52)
(Increase) decrease in receivable from customers (14,566) 13,484
(Increase) decrease in receivable from brokers and dealers (19,180) 7,572
(Increase) decrease in securities owned (9,550) 31,818
Increase in other receivables (1,790) (785)
Increase in payable to customers 24,047 10,536
Decrease in payable to brokers and dealers (14,465) (15,845)
Decrease in securities sold but not yet purchased (11,693) (35,426)
Increase (decrease) in accrued compensation 5,247 (3,180)
Increase (decrease) in accounts payable, accrued expenses and other 4,158 (3,925)
------------ ------------
Net cash (used for) provided by operating activities $ (19,702) $ 16,204
============ ============
INVESTING ACTIVITIES:
- --------------------
Purchase of furniture, equipment and leaseholds $ (4,000) $ (2,569)
(Increase) decrease in other assets (5,899) 4,570
------------ ------------
Net cash used for investing activities $ (9,899) $ 2,001
============ ============
FINANCING ACTIVITIES:
- --------------------
Decrease in securities purchased under agreement to resell $ 33,239 $ 56,382
Increase (decrease) in short-term borrowings 9,207 (19,452)
(Increase) decrease in securities sold under agreements to repurchase 1,222 (47,291)
Cash dividends (2,239) (2,178)
Purchase of treasury stock (4,196) (7,059)
Proceeds from issuance of treasury stock 263 359
------------ ------------
Net cash provided by (used for) financing activities $ 37,496 $ (19,239)
------------ ------------
Increase (decrease) in cash and cash equivalents 7,895 (1,034)
Cash and cash equivalents at beginning of period 2,850 6,765
------------ ------------
Cash and cash equivalents at end of period $ 10,745 $ 5,731
============ ============
</TABLE>
See Notes to consolidated financial statements (unaudited).
(5)
<PAGE> 6
McDONALD & COMPANY INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 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
- -----------------------------
The Company's principal subsidiary, 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
- ----------------------
McDonald Securities is a defendant in Stephanie Tubbs Jones et.al. v. McDonald
& Co. Securities, Inc., et. al., ("the Jones litigation") a lawsuit currently
pending in Cuyahoga County Common Pleas Court. 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. 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)
December 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.
(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 December 29, 1995.
These assets are financed by a number of sources, including the Company's
capital and short-term borrowings.
At December 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 $300,000,000, of which $236,714,000 was unused
at December 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 December 29, 1995, McDonald Securities was in compliance
with the Uniform Net Capital Rules and had net capital of $77,839,000, which
was $74,392,000 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 NINE MONTH PERIODS ENDED DECEMBER 29, 1995 AND DECEMBER 30,1994
- --------------------------------------------------------------------------------
Total revenues for the fiscal quarter ended December 29, 1995 were $53,421,000,
an increase of $6,105,000, or 13%, from revenues of $47,316,000 for the fiscal
quarter ended December 30, 1994.
For the fiscal nine months ended December 29, 1995, total revenues were
$158,883,000 compared to $128,412,000 for the first nine months of fiscal 1995,
an increase of $30,471,000, or 24%.
Net income for the fiscal quarter ended December 29, 1995 was $4,896,000, or
$.55 per share, compared with net income of $4,067,000, or $.44, per share, for
the fiscal quarter ended December 30, 1994, which represents an increase in net
income of 20%.
For the fiscal nine months ended December 29, 1995, net income was $13,776,000,
or $1.52 per share, compared to $8,038,000, or $.86 per share, for the fiscal
nine months ended December 30, 1994, an increase in net income of 71%.
The average number of shares and share equivalents outstanding were 9,034,000
and 9,085,000, respectively, for the fiscal three and nine month periods ended
December 29, 1995 compared to 9,230,000 and 9,390,000, respectively, for the
fiscal three and nine months ended December 30, 1994.
Revenues from underwriting and investment banking decreased $427,000, or 3%,
for the quarter and increased $9,307,000, or 31%, for the nine months ended
December 29, 1995 when compared to the same periods in the prior fiscal year.
Revenues from corporate underwriting and investment banking increased $434,000,
or 4%, for the third quarter and $10,420,000, or 43%, for the nine month
period. The increase in revenues from corporate underwriting and investment
banking for the nine month period is due primarily to increased revenues from
public offerings and private placements of debt and equity securities of
$7,919,000, or 64% and increased revenues from mergers and other fee income of
$1,214,000, or 22%. These increases reflect improved market conditions for
both the public and private offering of securities. Revenues from municipal
finance decreased $861,000, or 26%, for the quarter and decreased $1,113,000,
or 17%, for the nine months ended December 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 $622,000, or 5%, for the third
quarter of fiscal 1996 and $5,047,000, or 14%, for the first nine months when
compared to the same periods in the prior fiscal year. Revenues from principal
transactions in equity securities increased $1,024,000, or 28%, for the third
quarter and $4,009,000, or 35%, for the first nine months primarily due to a
strong NASDAQ market and continued expansion of the Company's sales force.
Revenues from trading taxable fixed-income securities, including corporate
bonds, United States government bonds and mortgage-backed securities, decreased
$425,000, or 8%, for the third quarter but increased $1,512,000, or 9%, for the
first nine months of fiscal 1996. For the first six months of the current
fiscal year, taxable fixed income revenues were favorably impacted by a
positive interest rate environment. However, the revenues for the third
quarter of the current fiscal year were adversely affected by uncertainties in
the market created by the Federal budget debate. Revenues from trading
municipal bonds increased $23,000, or 1%, for the third quarter but decreased
$474,000, or 6%, for the first nine months. The decrease in revenues from
trading municipal bonds for the first nine months of fiscal 1996 was due
primarily to individual investor uncertainty concerning potential tax law
changes.
(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 29, 1995 AND DECEMBER 30,
- ----------------------------------------------------------------------------
1994 (cont.)
- ------------
Commissions revenue increased $3,646,000, or 29%, in the current quarter and
$9,695,000, or 26% in the first nine 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 $2,598,000, or
33%, for the quarter and $7,329,000, or 31%, for the nine 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 which increased
$982,000, or 46%, for the third quarter and $2,443,000, or 36%, for the first
nine months of fiscal 1996.
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 $952,000, or 24%, and $2,244,000, or 19%, for the
fiscal quarter and nine month periods ended December 29, 1995 when compared to
the comparable fiscal 1995 periods. Of these amounts, increased revenues from
advisory fees related to individually managed accounts represented $812,000, or
85%, and $1,992,000, or 89%, respectively, of the total increase for the fiscal
three and nine month periods.
Interest and dividend income increased $992,000, or 26%, and $2,442,000, or
19%, for the fiscal three and nine month periods ended December 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 $320,000, or 23%, for the current quarter and
$1,736,000, or 51%, for the nine month period ended December 29, 1995.
Increased income from certain venture capital and other investments represented
$60,000, or 19%, and $879,000, or 59%, respectively, of the total increase for
the fiscal three and nine month periods. The remaining increases of $260,000
for the quarter and $857,000 for the fiscal nine months represent increased
revenue from service fees and other retail revenues related to the continued
expansion of the retail sales force.
Operating expenses (total expenses before interest) increased $5,038,000, or
13%, for the third quarter and $21,225,000, or 19%, for the first nine months
of fiscal 1996, when compared to the same periods in the prior fiscal year.
Employee compensation and benefits increased $3,479,000, or 13%, for the third
quarter and $16,848,000, or 22%, for the first nine months. Commission and
other sales compensation expense increased $3,143,000, or 24%, for the quarter
and $9,153,000, or 24%, for the first nine months, primarily because of
increased revenues from commissions and principal sales credits. Other
clerical and administrative expenses increased $386,000, or 4%, for the quarter
and $1,395,000, or 5%, for the nine month period. The remaining increase in
employee compensation and benefits of $6,300,000 for the nine month period
represents increases in incentive compensation and profit sharing accruals
which are directly related to the increase in profitability. For the fiscal
quarter ended December 29, 1995, incentive compensation and profit sharing
accruals remained relatively flat despite a 13% increase in pretax expenses due
to a change in the business mix.
All other operating expenses increased $1,559,000, or 13%, for the current
quarter and $4,377,000, or 12%, for the first nine months of fiscal 1996.
Communications expenses increased $404,000, or 14%, for the quarter and
$806,000, or 9%, for the fiscal nine month period reflecting higher
telecommunications, quotation and information services costs due to both higher
volume and higher employee headcount. Occupancy and equipment costs increased
$947,000, or 29%, for the current quarter and $1,519,000, or 16%, for the
current nine month period. Of this increase, approximately $550,000
represented nonrecurring expenses related to the Company's current technology
renovation which were incurred in the third quarter. Without regard to these
items, occupancy and equipment costs increased 12% and 10% respectively,
reflecting recurring costs related to the technology renovation and headcount
increases. Taxes, other than income taxes increased $287,000, or 21%, for the
quarter and $763,000, or 17%, for the fiscal nine months ended December 1995,
reflecting primarily increased payroll taxes due to increases in compensation
expenses.
The category of other operating expenses increased $1,275,000, or 26%, for the
first nine months of the current fiscal year. The increase is due primarily to
an increase of $540,000 in legal costs related to pending litigation and an
increase in other professional fees of $320,000 due to expenses associated with
consulting services related to the retail and investment banking areas. 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 NINE MONTH PERIODS ENDED DECEMBER 29, 1995 AND DECEMBER 30,
- ----------------------------------------------------------------------------
1994 (cont.)
- ------------
Interest expense increased $218,000, or 13%, and $918,000, or 20%, for the
fiscal three month and nine 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, and higher levels of average short-term
borrowings.
Income before income taxes for the fiscal quarter and fiscal nine months ended
December 29, 1995 was $7,236,000 and $21,316,000, resulting in a pre-tax
return on revenues of 14% and 13%, respectively. For the fiscal quarter and
fiscal nine months ended December 30, 1994, income before income taxes was
$6,387,000 and $12,988,000, resulting in a pre-tax return on revenues of 13%
and 10%, respectively.
(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 December 29, 1995, the Company
purchased 106,000 shares of the Company's Common Stock at an
average price of $17.25 per share. During the fiscal quarter
ended December 29, 1995 the Company utilized 6,800 shares of the
Company's Common Stock held in treasury to satisfy options
exercised under the Stock Option Plan for employees.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
<TABLE>
Sequential
Page Number
-----------
<S> <C>
(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:
The Company did not file a Report on Form 8-K during the fiscal quarter ended December 29, 1995.
</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: February 1, 1996 By: /s/ William B. Summers, Jr.
----------------------- ------------------------------
William B. Summers, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 1, 1996 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 December 29, 1995
EXHIBIT INDEX
-------------
Exhibit No. Description Sequential Page
11 Statement Re: Computation of
Per Share Earnings . . . . . . . . . . . . . 15
27 Financial Data Schedule BD . . . . . . . . . . 16
* 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 Nine Months Ended
---------------------------------- ---------------------------------
Dec. 29, 1995 Dec. 30, 1994 Dec. 29, 1995 Dec. 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Average shares outstanding 8,887,000 9,119,000 8,943,000 9,227,000
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 147,000 111,000 142,000 163,000
------------- ------------- ------------- -------------
TOTAL 9,034,000 9,230,000 9,085,000 9,390,000
============= ============= ============= =============
Net income $4,896,000 $4,067,000 $13,776,000 $ 8,038,000
============= ============= ============= =============
Net income per share $ .55 $ .44 $ 1.52 $ .86
============= ============= ============= =============
FULLY DILUTED
- -------------
Average shares outstanding 8,887,000 9,119,000 8,943,000 9,227,000
Net effect of dilutive stock
options - based on the treasury
stock method using greater of
average or period - end market
price 162,000 111,000 162,000 163,000
------------- ------------- ------------- -------------
TOTAL 9,049,000 9,230,000 9,105,000 9,390,000
=========== ========== ============= ===========
Net income $4,896,000 $4,067,000 $13,776,000 $8,038,000
========== ========== =========== ==========
Net income per share $ .54 $ .44 $ 1.51 $ .86
========== ========== =========== ==========
</TABLE>
(15)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary Financial information extracted from Consilodated
Statement of Financial Condition Dec-29-1995 and is qualified in its entirety by
reference to such Financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1995
<PERIOD-END> DEC-29-1995
<CASH> 10,745
<RECEIVABLES> 188,207
<SECURITIES-RESALE> 55,630
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 104,734
<PP&E> 11,520
<TOTAL-ASSETS> 426,977
<SHORT-TERM> 74,131
<PAYABLES> 65,748
<REPOS-SOLD> 53,251
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 36,008
<LONG-TERM> 25,000
<COMMON> 11,564
0
0
<OTHER-SE> 112,747
<TOTAL-LIABILITY-AND-EQUITY> 426,977
<TRADING-REVENUE> 40,126
<INTEREST-DIVIDENDS> 12,776
<COMMISSIONS> 46,917
<INVESTMENT-BANKING-REVENUES> 39,746
<FEE-REVENUE> 14,203
<INTEREST-EXPENSE> 5,534
<COMPENSATION> 92,193
<INCOME-PRETAX> 21,316
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,776
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
</TABLE>
