UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994
Commission file number 1-7421
PIPER JAFFRAY COMPANIES INC.
(Exact name of Registrant as specified in its charter)
Delaware 41-1233380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Piper Jaffray Tower, 222 South 9th Street,
Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(612) 342-6000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of March 31, 1994, 17,450,629 shares of the Registrant's
common stock were issued and outstanding.
PIPER JAFFRAY COMPANIES INC.
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Index of Exhibits 12
Exhibit 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
March 31, Sept. 30,
1994 1993
(Unaudited)
ASSETS
Cash $ 32,298 $ 19,884
Receivable from other brokers
and dealers 26,097 31,425
Receivable from customers 359,956 335,830
Trading securities owned, at market 60,826 77,766
Office equipment and leasehold
improvements, at cost, less accumulated
depreciation of $40,071 and $36,863,
respectively 23,952 17,842
Deferred income tax asset 1,263 -
Other assets 38,855 52,399
$ 543,247 $ 535,146
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 71,071 $ 45,554
Checks and drafts payable 43,146 38,683
Payable to other brokers and dealers 75,101 90,393
Payable to customers 101,818 73,600
Trading securities sold but not yet
purchased, at market 14,352 18,187
Employee compensation 52,269 74,856
Federal and state income taxes 688 3,462
Deferred income taxes 911
Other accounts payable and
accrued expenses 16,914 31,588
375,359 377,234
Shareholders' equity:
Common stock, $1 par value; authorized
40,000,000 shares; 17,521,272 and
17,530,872 shares issued, respectively 17,521 17,531
Additional paid-in capital 7,242 6,829
Retained earnings 144,275 133,552
Less treasury stock, at cost;
70,643 shares (1,150) -
167,888 157,912
$ 543,247 $ 535,146
See accompanying notes to consolidated financial statements.
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
REVENUES
Commissions $42,031 $31,794 $79,784 $60,542
Profits on principal
transactions 24,807 24,197 50,719 47,457
Investment banking 14,778 34,692 35,440 57,000
Asset management fees 13,438 9,646 26,826 17,709
Interest 5,629 4,588 11,188 9,313
Other income 2,150 3,211 5,064 6,009
Total revenues 102,833 108,128 209,021 198,030
EXPENSES
Employee compensation 64,757 68,877 131,093 123,878
Floor brokerage and
clearance 1,971 1,796 3,789 3,206
Interest 1,543 1,124 2,819 2,663
Occupancy and equipment 6,876 5,752 13,312 11,617
Communications 3,870 3,011 7,168 5,344
Travel and promotional 3,910 3,251 7,588 6,087
Other operating expenses 8,874 5,948 15,593 11,985
Total expenses 91,801 89,759 181,362 164,780
Income before income taxes 11,032 18,369 27,659 33,250
Income taxes 4,136 7,182 10,787 13,134
Net income $6,896 $11,187 $16,872 $20,116
Net income per common and
common equivalent share
(primary and fully diluted) $ .38 $ .63 $ .93 $ 1.14
Weighted average number of
common and common equivalent
shares outstanding 18,139 17,666 18,196 17,688
Dividends per share $ .175 $ .125 $ .35 $ .25
See accompanying notes to consolidated financial statements.
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
March 31,
1994 1993
Operating activities:
Net income $ 16,872 $ 20,116
Adjustments to reconcile
net income to net cash used
by operating activities:
Depreciation and amortization 3,208 2,443
Deferred income taxes (2,174) 47
(Increase) decrease in:
Net receivable from customers 4,092 (30,033)
Net trading securities 13,105 34,929
Other (1,196) 1,642
Increase (decrease) in:
Net payable to other
brokers and dealers (9,964) (16,321)
Checks and drafts payable 4,463 (648)
Employee compensation (22,587) (11,957)
Federal and state income
taxes payable (2,774) (1,629)
Net cash provided by
(used in) operating activities 3,045 (1,411)
Financing activities:
Increase in short-term borrowings 25,517 21,498
Net common stock issued 789 1,343
Treasury shares repurchased (1,536)
Dividends paid (6,149) (4,280)
Net cash provided by
financing activities 18,621 18,561
Net cash used for purchase of office
equipment and leasehold improvements (9,252) (5,102)
Increase in cash 12,414 12,048
Cash at beginning of period 19,884 14,017
Cash at end of period $ 32,298 $ 26,065
Supplemental disclosure of cash flow information
Cash paid during the six months ended for:
Interest $ 2,705 $ 2,625
Income taxes $ 15,735 $ 14,456
See accompanying notes to consolidated financial statements.
PIPER JAFFRAY COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended March 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of Piper
Jaffray Companies Inc. and its subsidiaries ("the Company") have
been prepared in conformity with generally accepted accounting
principles and should be read in conjunction with the Company's
Annual Report for the year ended September 30, 1993. The results
of operations for the six months ended March 31, 1994, are not
necessarily indicative of the results to be expected for the year
ending September 30, 1994.
The consolidated statement of financial condition as of March 31,
1994 and the other consolidated financial information for the
periods ended March 31, 1994 and 1993, is unaudited, but
management of the Company believes that all adjustments
(consisting only of normal recurring accruals) necessary for a
fair statement of the results of operations for the periods have
been included.
Net income per common and common equivalent share is calculated
by dividing net income by the weighted average number of common
shares and common share equivalents outstanding, which includes
the dilutive effect of all outstanding stock options. Prior to
the quarter ended March 31, 1993, the dilutive effect of common
share equivalents was not material.
All share and per share amounts have been restated to reflect the
two-for-one stock split declared November 9, 1993.
2. NET CAPITAL REQUIREMENTS
(In thousands)
At March 31, 1994, the Company's broker-dealer subsidiary's net
capital under applicable regulations was $77,844 or 21% of
aggregate debit balances and $70,436 in excess of the minimum
required net capital.
3. CONTINGENCIES
See Part II, Item 1. "Legal Proceedings".
4. TREASURY STOCK
During the quarter ended March 31, 1994, 93,500 shares of the
Company's common stock were repurchased by the Company pursuant
to the Board of Directors' 1992 authorization to repurchase up to
400,000 shares to satisfy employee benefit plan obligations.
Common shares authorized for repurchase in 1992 400,000
Common shares repurchased - fiscal years:
1992 201,000
1993 0
1994 93,500
294,500
Common shares available at March 31, 1994, for
repurchase pursuant to 1992 authorization 105,500
Total common shares repurchased 294,500
Treasury shares reissued - fiscal years:
1992 6,262
1993 194,738
1994 22,857
223,857
Treasury shares outstanding at March 31, 1994 70,643
On April 20, 1994, the Board of Directors authorized the repurchase of
an additional 500,000 shares of the Company's common stock.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This discussion should be read in conjunction with Management's
Financial Discussion contained in the Company's Annual Report for
the year ended September 30, 1993.
OPERATIONS
The Company's revenues for the six months ended March 31, 1994
increased 6% over the first half of fiscal year 1993 to $209.0
million. Net income for the first six months was $16.9 million,
a decrease of 16% compared to the same period of the prior fiscal
year. Net income per share for the first six months was $0.93
compared to $1.14 a year earlier. Revenues for the quarter ended
March 31, 1994 were $102.8 million, a 5% decrease from the same
period a year ago. Net income was $6.9 million for the quarter
ended March 31, 1994, down 38% from the same period of the prior
fiscal year. Net income per share for the quarter ended March
31, 1994 was $0.38, a decrease of 40% from the same period of the
prior fiscal year.
Second quarter and six month comparisons were affected by fewer
and smaller proprietary fund offerings by the Company's asset
management subsidiary, Piper Capital Management Incorporated,
than for the comparable periods a year ago and by lower fixed
income capital markets revenues and earnings because of the
volatile bond market during the last half of the quarter and
completion of the refunding cycle for public issuers. In
addition, earnings were impacted by certain additional reserves
as well as losses from the Hercules joint venture.
Increases in commission revenues and asset management fees during
the quarter ended and six months ended March 31, 1994 offset the
decrease in underwriting revenues during the same periods.
Mutual fund commissions for the six months ended March 31, 1994
were up $8.7 million, or 46%, as compared to the same period of
the prior fiscal year. Asset management fees for the three
months ended March 31, 1994 were up $3.8 million, or 39% from the
first quarter of fiscal year 1993. Assets under management by
Piper Capital Management as of March 31, 1994 increased by 24% to
$12.9 billion as compared to March 31, 1993.
Employee compensation, including broker compensation and employee
incentives, decreased by $4.1 million, or 6% as compared to the
second quarter of fiscal 1993, in line with revenues. Expenses
for the three months ended March 31, 1994 and for the six months
ended March 31, 1994 increased by 2% and 10%, respectively, over
the same periods last year. These expenses include investments
the Company has made in future growth opportunities, primarily
through the addition of new employees, which have not yet been
matched by a proportionate increase in productivity.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a liquid balance sheet. Most of the Company's
assets consist of cash and assets readily convertible into cash.
Management believes that existing capital, funds from operations
and current credit lines will be sufficient to finance the
Company's business. The fluctuations in cash flows from
financing activities are directly related to operating activities
due to the liquid nature of the Company's balance sheet.
In the normal course of business, the Company's customer, trading
and correspondent clearance activities involve the execution,
settlement and financing of various securities transactions.
These activities may expose the Company to off-balance sheet risk
in the event the other party to the transaction is unable to
fulfill its contractual obligations. The Company utilizes
financial futures contracts to a limited extent to hedge fixed
income inventories against market interest rate fluctuations.
Such transactions are subject to the same controls as all trading
for the Company's own account. The Company currently does not
enter into repurchase agreements, but may do so in the future to
facilitate hedging in a volatile interest rate environment. The
Company does not, and has no plans to, enter into interest rate
swaps or foreign currency contracts for hedging or speculative
purposes.
The Company's financing and customer securities activities involve the
Company using securities as collateral. In the event the counterparty
does not meet its contractual obligation to return securities used as
collateral or customers do not deposit additional securities or cash
for margin when required, the Company may be exposed to the risk of
reacquiring the securities or selling the securities at unfavorable
market prices in order to satisfy its obligations to its customers or
counterparties. The Company controls this risk, consistent with
general securities industry practices, by monitoring the market value
of securities pledged or used as collateral on a daily basis and
requiring adjustments in the event of excess market exposure.
The Company sells securities not yet purchased (short sales) for
its own account. The establishment of short positions exposes
the Company to off-balance sheet risk in the event prices
increase, as the Company may be obligated to acquire the
securities at unfavorable market prices.
The Company intends to continue to repurchase shares of its common
stock periodically, as market conditions warrant, to satisfy
obligations to present and future employee benefit plans. See
Note 4 to the consolidated financial statements.
There are no additional known trends or uncertainties which would
cause a material change in the Company's capital structure.
There were no material commitments for capital expenditures as of
March 31, 1994.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various lawsuits or threatened
lawsuits incidental to the securities business. Some of these
actions are described in more detail below.
Piper Jaffray has been named as one of many defendants in two
lawsuits separately filed in the United States District Court for
the District of Utah resulting from Piper Jaffray's dealings with
Bonneville Pacific Corporation ("BPCO"). Other defendants
include BPCO's attorneys, accountants, lenders and other
investment bankers. BPCO is currently in Chapter 11
reorganization proceedings in Utah.
The plaintiffs in the first-filed lawsuit originally brought
their complaint as a purported class action relating to the
$63.25 million offering of convertible subordinated debentures of
BPCO in August 1989, for which Piper Jaffray was a co-managing
underwriter in a syndicate led by Kidder, Peabody & Co., and
secondary trading in BPCO's Common Stock from August 1989 through
the inception of BPCO's bankruptcy proceeding in January 1992.
The plaintiffs in their complaint alleged violations of federal
and state securities laws, common law fraud and negligent
misrepresentation. On March 14, 1994, the plaintiffs filed a
motion to amend their complaint seeking leave to add additional
parties and claims. The proposed amended complaint seeks to add
claims under the Racketeer Influenced and Corrupt Organizations
Act ("RICO") and to expand the class period, under a common law
fraud theory, to include the $22.5 million initial public
offering of BPCO's Common Stock in August 1986, for which Piper
Jaffray acted as the sole underwriter, and the $31 million
secondary offering of BPCO's Common Stock in August 1987, for
which Piper Jaffray acted as co-managing underwriter. In
addition to actual damages, the proposed amended complaint also
seeks treble damages under RICO, punitive damages, interest,
costs and attorneys' fees. On April 29, 1994, motions to
dismiss brought by Piper Jaffray and the other underwriter
defendants with respect to the plaintiffs' claims of violations
of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder, conspiracy, aiding and abetting,
common-law fraud and negligent misrepresentation were granted.
The judge in the case certified to the Utah Supreme Court issues
related to the plaintiffs' claims under the Utah Uniform
Securities Act and further denied plaintiffs' March 14, 1994
motion for leave to file an amended complaint as premature. The
plaintiffs were given leave to amend all dismissed claims except
the conspiracy and aiding and abetting claims under Section
10(b), which were dismissed with prejudice. Plaintiffs have not
yet served a proposed new complaint. At present, the only claims
pending against Piper Jaffray in this action are brought under
Section 11 of the Securities Act of 1933.
The second lawsuit was brought by the BPCO bankruptcy trustee.
The most recent amendment to the complaint filed on January 13,
1994 asserts conspiracy, RICO, common law fraud, breach of
fiduciary duty and similar theories arising out of the activities
of BPCO from approximately 1984 through the inception of its
bankruptcy proceeding. While creditor claims in the BPCO
bankruptcy aggregate in excess of $100 million, the amended
complaint does not specify or articulate theories of damage that
would enable a quantification of the plaintiff's damage claims at
this time. The plaintiff seeks actual damages, treble damages
under RICO, punitive damages, interest, costs and attorneys'
fees. Piper Jaffray and other defendants have made a motion to
dismiss the complaint which is currently pending.
Management of the Company intends to defend both actions
vigorously and believes that it has meritorious defenses to the
claims being asserted.
Although it is impossible to predict the outcome of the
outstanding litigation, in the opinion of management of the
Company, after consultation with counsel, the resolution of all
the various lawsuits and claims will have no material adverse
effect on the consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Statement Regarding Computation of Per Share Earnings.
(b) Reports on Form 8-K
The Company was not required to file any reports on Form 8-K to
the Securities and Exchange Commission during the quarter ended
March 31, 1994.
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.
PIPER JAFFRAY COMPANIES INC.
(Registrant)
Dated May 9, 1994 /s/ Charles N. Hayssen
CHARLES N. HAYSSEN
Chief Financial Officer
and Managing Director
Dated May 9, 1994 /s/ William H. Ellis
WILLIAM H. ELLIS
President and Chief Operating Officer
PIPER JAFFRAY COMPANIES INC.
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10Q
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
Exhibit 11
PIPER JAFFRAY COMPANIES INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
March 31 March 31
1994 1993 1994 1993
PRIMARY NET INCOME PER SHARE:
Net income $ 6,896 $ 11,187 $16,872 $ 20,116
Average number of common
and common equivalent
shares outstanding:
Average common shares
outstanding 17,544 17,104 17,549 17,102
Dilutive effect of CSE's:
Book value plan options 338 330 354 332
Executive incentive
stock options 257 222 292 220
18,139 17,656 18,195 17,654
Primary net income
per share $ .38 $ .63 $ .93 $ 1.14
NET INCOME PER SHARE
ASSUMING FULL DILUTION:
Net income $ 6,896 $ 11,187 $16,872 $20,116
Average number of common
and common equivalent
shares outstanding:
Average common shares
outstanding 17,544 17,104 17,549 17,102
Dilutive effect of CSE's:
Book value plan options 338 336 355 348
Executive incentive
stock options 257 226 292 238
18,139 17,666 18,196 17,688
Fully diluted net income
per share $ .38 $ .63 $ .93 $ 1.14
