<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 June 26, 1998
--------------------------------------------------
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)
Delaware 34-1391950
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114-2603
- --------------------------------------------------------------------------------
(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. [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 18,662,635 of Common Stock, par
value $1.00 per share, were outstanding on July 27, 1998.
(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) -
June 26, 1998 and March 27, 1998..................................................... 3
Consolidated statements of income (unaudited) Fiscal three months
ended June 26, 1998 and June 27, 1997................................................ 4
Consolidated statements of cash flows (unaudited) Fiscal three months
ended June 26, 1998 and June 27, 1997................................................ 5
Notes to consolidated financial statements (unaudited) -
June 26, 1998........................................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation ...................................................................... 7
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings..................................................................... 10
Item 5. Other Information..................................................................... 11
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)
(In thousands, except for share amount)
<TABLE>
<CAPTION>
June 26, 1998 March 27, 1998
---------------------- -------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,759 $ 13,844
Receivable from customers 254,616 238,476
Receivable from brokers and dealers 40,705 51,695
Securities purchased under agreements
to resell 185,693 61,874
Securities owned 389,124 223,436
Other receivables 23,714 36,150
Furniture, equipment and leasehold
improvements, at cost, less accumulated
depreciation and amortization 20,279 20,192
Other investments 31,206 28,028
Other assets 30,918 28,825
---------------------- -------------------
$ 987,014 $ 702,520
====================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 75,661 $ 41,807
Payable to customers 64,699 74,536
Payable to brokers and dealers 12,207 13,643
Securities loaned 75,892 68,207
Securities sold under agreements to repurchase 277,365 135,232
Securities sold but not yet purchased 192,153 70,584
Accrued compensation 22,558 55,126
Accounts payable, accrued expenses and
other liabilities 43,390 32,207
Long-term borrowings 20,000 20,000
---------------------- -------------------
$ 783,925 $ 511,342
---------------------- -------------------
Stockholders' equity
Preferred Stock, without par value;
200,000 shares authorized; none issued
Common Stock, par value $1.00 per share;
50,000,000 shares authorized
(24,053,330 and 23,831,527 shares
issued respectively) $ 24,053 $ 23,832
Additional paid-in capital 54,897 48,499
Retained earnings 152,905 147,727
Less treasury stock, at cost (5,391,895 and
5,413,353 shares, respectively) (28,766) (28,880)
---------------------- -------------------
203,089 191,178
====================== ===================
$ 987,014 $ 702,520
====================== ===================
</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
-----------------------------------------------------
June 26, 1998 June 27, 1997
(13 weeks) (13 weeks)
----------------------- -----------------------
(In thousands, except for share and per share amounts)
<S> <C> <C>
Revenues:
Underwriting and investment banking $ 17,744 $ 10,472
Principal transactions 12,537 16,943
Commissions 27,168 22,139
Investment management fees 10,780 7,464
Interest and dividends 8,828 5,681
Other 1,935 1,863
----------------------- -----------------------
$ 78,992 $ 64,562
----------------------- -----------------------
Expenses:
Employee compensation and benefits $ 45,696 $ 37,130
Interest 4,327 2,422
Communications 4,462 3,602
Occupancy and equipment 6,007 5,021
Promotion and development 3,058 2,528
Floor brokerage and clearance 788 678
Taxes, other than income taxes 2,352 2,134
Other operating expenses 2,562 2,126
----------------------- -----------------------
$ 69,252 $ 55,641
----------------------- -----------------------
Income before income taxes $ 9,740 $ 8,921
Provision for income taxes 3,410 3,300
----------------------- -----------------------
Net income $ 6,330 $ 5,621
======================= =======================
Basic net income per share $ 0.34 $ 0.31
======================= =======================
Diluted net income per share $ 0.34 $ 0.31
======================= =======================
Dividends per share $ 0.0625 $ 0.0469
======================= =======================
Average number of shares
outstanding 18,510,000 18,080,000
======================= =======================
</TABLE>
See Notes to consolidated financial statements (unaudited).
(4)
<PAGE> 5
MCDONALD & COMPANY INVESTMENTS, INC.
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Fiscal Three Months Ended
-------------------------
June 26, 1998 June 27, 1997
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
- ---------------------
Net Income $ 6,330 $ 5,621
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,330 1,920
Deferred compensation 5,282 73
Deferred income taxes (2,450) (409)
Increase in receivable from customers (16,140) (3,604)
(Increase) decrease in receivable from brokers and dealers 10,990 (14,057)
Increase in securities owned (165,688) (42,205)
Decrease in other receivables 12,436 7,793
Increase (decrease) in payable to customers (9,837) 14,665
Decrease in payable to brokers and dealers (1,436) (4,715)
Increase in securities loaned 7,685 9,472
Increase in securities sold but not yet purchased 121,569 48,969
Decrease in accrued compensation (26,083) (12,903)
Increase in accounts payable, accrued expenses and other 6,085 1,621
----------------- -----------------
Net cash provided by (used for) operating activities $ (48,927) $ 12,241
================= =================
INVESTING ACTIVITIES:
- ---------------------
Purchase of furniture, equipment and leaseholds $ (2,256) $ (1,416)
Increase in other investments (3,178) (2,529)
Decrease in other assets 196 1,248
----------------- -----------------
Net cash used for investing activities $ (5,238) $ (2,697)
================= =================
FINANCING ACTIVITIES:
- ---------------------
Decrease in securities purchased under agreement to resell $ (123,819) $ (43,290)
Increase (decrease) in short-term borrowings 33,855 (3,100)
Decrease in securities sold under agreements to repurchase 142,133 40,907
Cash dividends (1,152) (846)
Proceeds from issuance of treasury stock 63 14
----------------- -----------------
Net cash provided by (used for) financing activities $ 51,080 $ (6,315)
----------------- -----------------
Increase (decrease) in cash and cash equivalents (3,085) 3,229
Cash and cash equivalents at beginning of period 13,844 8,907
----------------- -----------------
Cash and cash equivalents at end of period $ 10,759 $ 12,136
================= =================
</TABLE>
See Notes to consolidated financial statements (unaudited).
(5)
<PAGE> 6
McDONALD & COMPANY INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 26, 1998
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
$20,000,000 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
- -----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share "Statement 128", which was required to be adopted on
December 15, 1997. Under Statement 128, the Company is required to change the
method used to compute earnings per share and to restate all prior periods
presented. The impact of Statement 128 on the calculation of earnings per share
was not material.
Net income per share is based on the average number of shares outstanding during
the periods. On July 30, 1997, the Company declared a 100% stock dividend, which
was distributed on September 15, 1997, to stockholders of record on August 25,
1997. 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 the fiscal
quarter ended June 27, 1997.
NOTE D - CONTINGENCIES
- ----------------------
As is the case with many firms in the securities industry, McDonald Securities
is a defendant or co-defendant in a number of lawsuits alleging damages, which
are ordinary and routine litigation, incidental to the securities and investment
banking business. The Company is contesting the allegations of the complaints in
these cases and believes that there are meritorious defenses in each of these
lawsuits. Some of the proceedings relate to public underwritings of securities
in which McDonald Securities participated as a member of the underwriting
syndicate. The Company is also aware of litigation against certain underwriters
of offerings in which McDonald Securities was a participant, but where McDonald
Securities is not now a defendant. In these latter cases, it is possible that
McDonald Securities may be called upon to contribute to settlements or
judgments.
(6)
<PAGE> 7
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 that do not
decrease with reduced levels of activity. Sustained periods of reduced volume,
or loss of clients, could have adverse effects upon profitability.
On June 15, 1998, the Company entered into an agreement and plan of merger with
KeyCorp pursuant to which the Company will be acquired by KeyCorp. Under the
terms of the merger, stockholders of the Company will receive, in a tax-free
exchange, approximately $35 in value of KeyCorp common shares for each share of
the Company's common stock, subject to possible adjustments if KeyCorp's common
share price is below $33 or above $44.50 per share at the time of closing. In
addition, KeyCorp has established a $68 million employee retention program to be
paid in cash and options over a three-year period to certain employees of the
Company. The merger is expected to close during the fourth quarter of calendar
1998, subject to approval of the Company's stockholders, certain regulatory
approvals and certain other conditions to closing. Additional information
regarding the proposed merger can be found in the press release filed as exhibit
99.1 to the Company's Form 8-K dated June 15, 1998 and the amendment filed in
the Company's Form 8-K/A dated June 16, 1998.
On June 26, 1998, the Company announced plans to acquire Essex Capital Markets,
Inc., ("Essex") a privately held, regional investment firm with five offices.
Upon completion of the merger, which is expected to close September 4, 1998,
Essex will operate as a division of the Company.
The Company has formulated a comprehensive strategic plan that is periodically
reviewed and revised. 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
institutional fixed income divisions cover accounts throughout the United States
and internationally.
The Company is evaluating Year 2000 compliance issues, including exposure
related to vendors, software, and other systems to determine whether internal
and external concerns are addressed. The Committee established to oversee this
evaluation and implementation is led by the Senior Managing Director -
Information Technologies and Operations. Since the Company does not have a
significant amount of internal programming, the majority of the exposure and
costs related to the Year 2000 problem is through vendors. Most of the costs
will be in the form of higher prices for goods and services from vendors. The
Company is not able to determine the extent of these costs presently. Management
believes that the Company has taken all reasonable precautions to ensure a
smooth transition. However, the Company's brokerage business is highly dependent
on outside service providers and there can be no guarantee that year 2000
problems will not be encountered, some of which could potentially have a
material adverse effect on the Company's business activities and, accordingly,
its results of operations, financial condition and cash flows.
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, receivables from
brokers and dealers, securities purchased under agreements to resell, and
securities owned represented approximately 92% of the Company's assets at June
26, 1998. These assets are financed by a number of sources, including payables
to customers and brokers, short-term borrowings, securities loaned, securities
sold under agreements to repurchase, long-term borrowings, and equity capital.
(7)
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------------------
LIQUIDITY AND CAPITAL RESOURCES (cont.)
- ---------------------------------------
At June 26, 1998, McDonald Securities had outstanding $20,000,000 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 additional 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 $330,000,000, of which $264,531,000 was unused at June 26,
1998. 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 McDonald Securities to
satisfy the regulatory requirements of the Securities and Exchange Commission
and the New York Stock Exchange, Inc. The regulatory requirements represent
Uniform Net Capital Rules designed to measure the general financial integrity
and liquidity of registered broker/dealers and to provide minimum acceptable net
capital levels to meet continuing commitments to customers. Net capital, as
defined, changes from day to day. At June 26, 1998, McDonald Securities was in
compliance with the Uniform Net Capital Rules and had net capital of
$75,557,000, which was $69,988,000 in excess of the minimum required.
FISCAL THREE MONTH PERIODS ENDED JUNE 26, 1998 AND JUNE 27, 1997
- ----------------------------------------------------------------
Total revenues for the fiscal quarter ended June 26, 1998 were $78,992,000, an
increase of $14,430,000, or 22%, from revenues of $64,562,000 for the fiscal
quarter ended June 27, 1997.
Net income for the fiscal quarter ended June 26, 1998 was $6,330,000, or $0.34
per share, compared with net income of $5,621,000, or $0.31 per share, for the
fiscal quarter ended June 27, 1997, which represents an increase in net income
of 13%.
The average number of basic shares outstanding was 18,510,000 for the fiscal
three months ended June 26, 1998 compared to 18,080,000 for the fiscal three
months ended June 27, 1997.
On July 30, 1997, the Company declared a 100% stock dividend, which was
distributed on September 15, 1997, to stockholders of record on August 25, 1997.
For the fiscal quarter ended June 27, 1997, 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 the period.
Revenues from underwriting and investment banking increased $7,272,000, or 69%,
for the quarter ended June 26, 1998 when compared to the same period in the
prior fiscal year. The increase for the quarter is primarily due to increased
revenues from merger fees of $5,348,000, or 210% for the current quarter.
Additionally, revenues from participations in equity and debt syndications
increased $1,058,000, or 154%, and $605,000, or 96%, respectively, when compared
to the fiscal quarter ended June 27, 1997. Revenues from private placements
increased $1,049,000. Revenues from managed and co-managed equity and debt
underwritings decreased $788,000, or 13%.
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 that 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.
(8)
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------------------
FISCAL THREE MONTH PERIODS ENDED JUNE 26, 1998 AND JUNE 27, 1997 (cont.)
- ------------------------------------------------------------------------
Revenues from principal transactions decreased $4,406,000, or 26%, for the first
quarter of fiscal 1999 when compared to the same period in the prior fiscal
year. Revenues from principal transactions in equity securities decreased
$2,928,000, or 38%, for the first quarter. The decrease in revenues from
principal transactions in equity securities in the current quarter reflects the
impact of trading losses of $825,000, compared to gains of $2,212,000 in the
prior year's first quarter. The trading losses in the current fiscal quarter
reflect the volatility of the equity markets. Revenues from trading taxable
fixed-income securities, including corporate bonds, United States government
bonds and mortgage-backed securities, decreased $1,272,000, or 20%, for the
first quarter of fiscal 1999 when compared to the first quarter of fiscal 1998.
Revenues from trading high yield bonds decreased $1,010,000, or 240%, for the
first quarter, primarily due to trading losses in certain bond positions where
the Company is a market maker. Revenues from trading government bonds decreased
$738,000, or 43%, reflecting decreased institutional demand for the product due
to unattractive interest rate spreads. Revenues from corporate bonds,
mortgage-backed securities, and other taxable fixed income products increased
$476,000, or 11%.
Commissions revenue increased $5,029,000, or 23%, in the current quarter when
compared to the same period in fiscal 1998. The significant increases in
commissions revenues reflects the continued strong equity markets and continued
improvement of the Company's Private Client Group and Institutional Equity
capabilities. Commissions revenues from agency transactions in listed and NASDAQ
stocks increased $2,881,000, or 21%, for the quarter. Commissions revenue from
non-proprietary mutual funds increased $1,655,000, or 33%, for the current
quarter. Commissions revenue from proprietary mutual funds increased $453,000,
or 24%, for the quarter. The increase in commissions revenue for both
non-proprietary and proprietary mutual funds is due to the continued popularity
of mutual fund investments with individual investors. Commissions revenue from
annuity and life insurance products increased $40,000, or 3%, for the quarter.
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 $3,316,000, or 44%, for the fiscal quarter ended June
26, 1998 when compared to the same period in fiscal 1998. Of these amounts,
revenues from advisory fees related to individually managed accounts represented
$2,712,000, or 82%, of the total increase for the fiscal three month period.
Interest and dividend income increased $3,147,000, or 55%, for the fiscal three
month period ended June 26, 1998 when compared to the quarter ended June 27,
1997. The increase was due primarily to a higher level of customer margin loans
and an increase in net inventory levels in the current period.
Operating expenses (total expenses before interest) increased $11,706,000, or
22%, for the first quarter of fiscal 1999 when compared to the same period in
the prior fiscal year.
Employee compensation and benefits increased $8,566,000, or 23%, for the first
quarter. Commission and other sales compensation expense increased $4,772,000,
or 23%, for the quarter, primarily because of increased revenues from
commissions, and changes in the business mix and product mix that affect sales
compensation. Other clerical and administrative expenses increased $2,493,000,
or 22%, for the quarter. The increase in other clerical and administrative
expenses represents compensation and employee benefit costs related to an
increase in the professional and support staff and related recruitment and
training costs. The remaining increase in employee compensation and benefits of
$1,301,000, or 21%, for the first quarter is due primarily to a higher level of
incentive bonus expense, resulting from the significant increase in investment
banking revenues with corresponding higher incentive compensation.
(9)
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------------------
FISCAL THREE MONTH PERIODS ENDED JUNE 26, 1998 AND JUNE 27, 1997 (cont.)
- ------------------------------------------------------------------------
All other operating expenses increased $3,140,000, or 20%, for the first quarter
of fiscal 1999 when compared to fiscal 1998. Communications expense increased
$860,000, or 24%, for the current quarter. Occupancy and equipment costs
increased $986,000, or 20%, for the current quarter. These increases reflect
costs related to the continued expansion of the Company's business, and
technology improvements. Promotional and business development expenses increased
$530,000, or 21%, for the current quarter, due to increased promotional, travel
and business entertainment expenses related to the higher volume of business.
The category of other operating expenses increased $436,000, or 21%, for the
current quarter, primarily due to an increase in legal and audit fees of
$158,000, or 33%.
Interest expense increased $1,905,000, or 79%, for the fiscal three month period
in the current fiscal year when compared to the same period in fiscal 1998. The
increase in interest expense is due to higher levels of short-term borrowings
and securities loaned, which increased primarily as a result of higher customer
margin loans and inventories.
Income before income taxes for the fiscal quarter ended June 26, 1998 was
$9,740,000, resulting in pre-tax return on revenues of 12.33%. For the fiscal
quarter ended June 27, 1997, income before income taxes was $8,921,000 resulting
in pre-tax return on revenues of 13.82%.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
As is the case with many firms in the securities industry, McDonald Securities
is a defendant or co-defendant in a number of lawsuits alleging damages, which
are ordinary and routine litigation, incidental to the securities and investment
banking business. The Company is contesting the allegations of the complaints in
these cases and believes that there are meritorious defenses in each of these
lawsuits. Some of the proceedings relate to public underwritings of securities
in which McDonald Securities participated as a member of the underwriting
syndicate. The Company is also aware of litigation against certain underwriters
of offerings in which McDonald Securities was a participant, but where McDonald
Securities is not now a defendant. In these latter cases, it is possible that
McDonald Securities may be called upon to contribute to settlements or
judgments.
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 can be reasonably
estimated. 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 will not have a material adverse
effect on the consolidated financial position, liquidity, or results of
operations of the Company.
(10)
<PAGE> 11
PART II. OTHER INFORMATION (continued)
Item 5. Other Information
-----------------
On August 7, 1996, the Company announced the continuation of an open market
repurchase program originally instituted in July, 1987. The current program
allows the Company to purchase up to 1,000,000 shares of its Common Stock at an
aggregate price not to exceed $25,000,000. Treasury shares may be used to
satisfy options exercised under the Company's stock option plans and shares
awarded under the Company's 1995 Stock Bonus Plan.
During the fiscal quarter ended June 26, 1998, the Company utilized 21,368 of
the Company's common stock held in treasury to satisfy options exercised under
the Stock Option Plan for employees.
(11)
<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a.) The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description Page Number
- ----------- ----------- -----------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of June 15, 1998, between
McDonald & Company Investments, Inc. and KeyCorp. (Incorporated
by reference to the Company's Amendment No. 1 to Form 8-K filed
on June 17, 1998.)
10.1 Stock Option Agreement, dated as of June 15, 1998, between
McDonald & Company Investments, Inc. and KeyCorp. (Incorporated
by reference to the Company's Amendment No. 1 to Form 8-K filed on
June 17, 1998.)
11.1 Statement re: Computation of Per Share Earnings 15
27.1 Financial Data Schedule BD
</TABLE>
(b.) Reports on Form 8-K:
On June 16, 1998, the Company filed a report on Form 8-K
related to an agreement under which KeyCorp will acquire the
Company.
(See Item 2 - Business Environment)
On June 17, 1998, the Company filed a report on Form 8-K/A
amending the Form 8-K filed on June 16, 1998 related to an
agreement under which KeyCorp will acquire the Company.
(See Item 2 - Business Environment)
* Exhibit 27.1 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: July 30, 1998 By: /s/ William B. Summers, Jr.
------------- -------------------------------------
William B. Summers, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: July 30, 1998 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 June 26, 1998
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page
- ----------- ----------- ---------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of June 15, 1998,
between McDonald & Company Investments, Inc. and
KeyCorp. (Incorporated by reference to the Company's
Amendment No. 1 to Form 8-K filed on June 17, 1998.)
10.1 Stock Option Agreement, dated as of June 15, 1998, between
McDonald & Company Investments, Inc. and KeyCorp.
(Incorporated by reference to the Company's Amendment
No. 1 to Form 8-K filed on June 17, 1998.)
11.1 Statement re: Computation of Per Share Earnings 15
27.1 Financial Data Schedule 16
</TABLE>
*Exhibit 27 is Furnished for Securities and Exchange Commission Purposes Only
(14)
<PAGE> 1
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
- -----------------------------------------------
<TABLE>
<CAPTION>
Fiscal Three Months Ended
-------------------------------------------------------
June 26, 1998 June 27, 1997
(13 weeks) (13 weeks)
----------------------- -------------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE
- ------------------------
Average shares outstanding 18,510,000 18,080,000
======================= =========================
Net income $ 6,330,000 $ 5,621,000
======================= =========================
Basic net income per share $ 0.34 $ 0.31
======================= =========================
DILUTED EARNINGS PER SHARE
- --------------------------
Average shares outstanding 18,510,000 18,080,000
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 192,000 296,000
----------------------- -------------------------
TOTAL 18,702,000 18,376,000
======================= =========================
Net income $ 6,330,000 $ 5,621,000
======================= =========================
Diluted net income per share $ 0.34 $ 0.31
======================= =========================
</TABLE>
(15)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION - JUNE-26-1998 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-27-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> JUN-26-1998
<CASH> 10,759
<RECEIVABLES> 319,035
<SECURITIES-RESALE> 185,693
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 389,124
<PP&E> 20,279
<TOTAL-ASSETS> 987,014
<SHORT-TERM> 75,662
<PAYABLES> 76,906
<REPOS-SOLD> 277,365
<SECURITIES-LOANED> 75,892
<INSTRUMENTS-SOLD> 192,153
<LONG-TERM> 20,000
0
0
<COMMON> 24,053
<OTHER-SE> 179,036
<TOTAL-LIABILITY-AND-EQUITY> 987,014
<TRADING-REVENUE> 12,537
<INTEREST-DIVIDENDS> 8,828
<COMMISSIONS> 27,168
<INVESTMENT-BANKING-REVENUES> 17,744
<FEE-REVENUE> 10,780
<INTEREST-EXPENSE> 4,327
<COMPENSATION> 45,696
<INCOME-PRETAX> 9,740
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,330
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
