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, 1995 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, MN 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, 1995, 17,407,893 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 Operations 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 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Index of Exhibits
Exhibit
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
March 31, Sept. 30,
1995 1994
(Unaudited)
ASSETS
Cash (including $0 and $448, respectively,
required to be segregated under federal
and other regulations) $ 20,033 $ 12,070
Receivable from other brokers and dealers 25,353 52,821
Receivable from customers 348,947 371,163
Trading securities owned, at market 92,180 49,132
Investments pursuant to mortgage-backed bonds 53,463 1,605
Office equipment and leasehold improvements,
at cost, less accumulated depreciation
of $47,632 and $44,033, respectively 26,239 25,979
Deferred income tax asset 25,851 4,190
Other assets 74,087 67,487
---------- ----------
$ 666,153 $ 584,447
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 101,989 $ 108,132
Checks and drafts payable 39,826 43,935
Payable to other brokers and dealers 104,824 76,976
Payable to customers 76,793 72,478
Trading securities sold but not yet
purchased, at market 12,354 14,689
Mortgage-backed bonds payable 54,400 1,602
Employee compensation 38,730 59,087
Accrued litigation settlement 70,000 -
Federal and state income taxes 1,100 1,281
Other accounts payable and accrued expenses 27,629 38,464
---------- ----------
527,645 416,644
---------- ----------
Shareholders' equity:
Preferred stock, $1 par value; authorized,
300,000 shares; none issued and outstanding - -
Common stock, $1 par value; authorized
40,000,000 shares; 17,599,590 and
17,461,521 shares issued, respectively 17,600 17,462
Additional paid-in capital 12,070 7,163
Retained earnings 111,418 146,601
Treasury stock, at cost; 191,697 and
273,360 shares, respectively (2,580) (3,423)
---------- ----------
138,508 167,803
---------- ----------
$ 666,153 $ 584,447
========== ==========
See accompanying notes to consolidated financial statements.
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
REVENUES
Commissions $ 34,127 $ 42,031 $ 66,285 $ 79,784
Profits on principal
transactions 29,578 24,807 55,513 50,719
Investment banking 10,672 14,778 22,080 35,440
Asset management fees 10,848 13,438 22,651 26,826
Interest 8,363 5,629 16,299 11,188
Other income 4,269 2,150 7,528 5,064
--------- --------- --------- ---------
Total revenues 97,857 102,833 190,356 209,021
--------- --------- --------- ---------
EXPENSES
Employee compensation 58,545 64,757 114,519 131,093
Floor brokerage and clearance 2,129 1,971 3,834 3,789
Interest 3,148 1,543 5,995 2,819
Occupancy and equipment 7,278 6,876 13,987 13,312
Communications 4,016 3,870 7,896 7,168
Travel and promotional 4,107 3,910 7,859 7,588
Charge for litigation
settlement 70,000 - 70,000 -
Other operating expenses 9,247 8,874 19,257 15,593
--------- --------- --------- ---------
Total expenses 158,470 91,801 243,347 181,362
--------- --------- --------- ---------
Income (loss) before
income taxes (60,613) 11,032 (52,991) 27,659
Income taxes (benefit) (23,339) 4,136 (20,367) 10,787
--------- --------- --------- ---------
Net income (loss) $(37,274) $ 6,896 $(32,624) $ 16,872
========= ========= ========= =========
Net income (loss) per common
and common equivalent share
(primary and fully diluted) $ (2.17) $ .38 $ (1.90) $ .93
Weighted average number of
common and common equivalent
shares outstanding 17,208 18,139 17,145 18,196
Dividends per share $ .075 $ .175 $ .15 $ .35
See accompanying notes to consolidated financial statements.
PIPER JAFFRAY COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
March 31,
1995 1994
Operating activities:
Net income (loss) $ (32,624) $ 16,872
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 3,599 3,208
Accrual for litigation settlement 70,000 -
Deferred income taxes (21,661) (2,174)
(Increase) decrease in:
Net receivable from customers 26,531 4,092
Net trading securities (45,383) 13,105
Other (17,435) (1,182)
Increase (decrease) in:
Net payable to other brokers
and dealers 55,316 (9,964)
Checks and drafts payable (4,109) 4,463
Employee compensation (20,357) (22,587)
Federal and state income taxes
payable (181) (2,774)
Net cash provided by ---------- ----------
operating activities 13,696 3,059
---------- ----------
Financing activities:
Net change in:
Short-term borrowings (6,143) 25,517
Mortgage-backed bonds payable 52,798 (967)
Investments and funds pursuant to
mortgage-backed bonds (51,858) 953
Net common stock issued 6,248 789
Treasury shares repurchased (360) (1,536)
Dividends paid (2,559) (6,149)
---------- ----------
Net cash provided (used) by
financing activities (1,874) 18,607
---------- ----------
Net cash used for purchase of office
equipment and leasehold improvements (3,859) (9,252)
---------- ----------
Increase in cash 7,963 12,414
Cash at beginning of period 12,070 19,884
---------- ----------
Cash at end of period $ 20,033 $ 32,298
========== ==========
Supplemental disclosure of cash flow information
Cash paid during the six months ended for:
Interest $ 5,410 $ 2,705
Income taxes $ 1,476 $ 15,735
See accompanying notes to consolidated financial statements.
PIPER JAFFRAY COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended March 31, 1995
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,
1994. The results of operations for the six months ended March 31, 1995, are
not necessarily indicative of the results to be expected for the year ending
September 30, 1995.
The consolidated statement of financial condition as of March 31, 1995 and the
other consolidated financial information for the periods ended March 31, 1995
and 1994, is unaudited, but management of the Company believes that all
adjustments (consisting of normal recurring accruals and the accrual for the
litigation settlement discussed in Note 3) necessary for a fair statement of
the results of operations for the periods have been included.
Net income (loss) per common and common equivalent share is calculated by
dividing net income (loss) by the weighted average number of common shares and
common share equivalents outstanding, which includes the dilutive effect of
all outstanding stock options. For periods in which a net loss is reported,
the effect of common stock equivalents is excluded from the calculation of per
share amounts as they are anti-dilutive.
2. NET CAPITAL REQUIREMENTS
At March 31, 1995, the Company's broker-dealer subsidiary's net capital under
applicable regulations was $75.2 million or 20.5% of aggregate debit balances
and $67.9 in excess of the minimum required net capital.
3. LITIGATION ACCRUAL AND CONTINGENCIES
On February 14, 1995, the Company reached an agreement-in-principle on a
proposed settlement of litigation relating to the Institutional Government
Income Portfolio (PJIGX) mutual fund. The Company recorded a pre-tax charge
of $70 million to accrue for this proposed settlement in the second quarter of
fiscal 1995.
The $70 million charge does not reflect any potential reimbursement from the
Company's insurance carriers. Any such reimbursement would be recorded as
income in the period in which an agreement on the amount of the reimbursement
is reached.
The Company is currently a defendant in several other lawsuits related to
various funds or assets managed by Piper Capital Management Incorporated. The
Company intends to defend these actions vigorously. It is impossible to
predict the outcome of these lawsuits and, at the present time, the effect of
the outstanding lawsuits on the consolidated financial statements cannot be
determined. Accordingly, no provision for liability, if any, that may result
has been recorded in the consolidated financial statements.
4. SHAREHOLDERS' EQUITY
During the six months ended March 31, 1995, 35,900 shares of the Company's
common stock were repurchased by the Company pursuant to the Board of
Directors' authorizations to repurchase common stock to satisfy employee
benefit plan obligations.
Common shares authorized for
repurchase - fiscal years:
1993 400,000
1994 500,000
---------
900,000
Common shares repurchased - fiscal years:
1992 201,000
1993 -
1994 378,100
1995 35,900
---------
615,000
---------
Common shares available at
March 31, 1995 for repurchase
pursuant to authorizations 285,000
=========
Total common shares repurchased 615,000
Treasury shares reissued - fiscal years:
1992 6,262
1993 194,738
1994 104,740
1995 117,563
---------
423,303
---------
Treasury shares outstanding at
March 31, 1995 191,697
=========
On March 2, 1995, pursuant to the Board of Directors' prior authorization, the
Company issued 645,787 shares of common stock to its Employee Stock Ownership
Plan, representing one-half of the fiscal year 1994 contribution to the plan.
The issuance of new shares added approximately $7.6 million to shareholders'
equity.
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, 1994.
OPERATIONS
The Company reported a net loss of $37.2 million for the quarter ended March
31, 1995. The loss was due to a $70 million pre-tax charge to accrue for the
proposed settlement of litigation relating to the Institutional Government
Income Portfolio (PJIGX) mutual fund. The after-tax effect of this charge to
earnings was $43 million or $2.51 per share. The accrual does not reflect any
potential reimbursement from the Company's insurance carriers.
The Company's revenues for the six months ended March 31, 1995 decreased 9%
over the first half of fiscal year 1994 to $190.4 million. The net loss for
the first six months was $32.6 million, versus net income of $16.9 million for
the same period of the prior fiscal year. The net loss per share for the
first six months was $1.90 versus net income per share of $.93 a year earlier.
Revenues for the quarter ended March 31, 1995 were $97.9 million, a 5%
decrease from the same period a year ago. The Company had a net loss of $37.3
million for the quarter ended March 31, 1995 versus net income of $6.9 million
for the same period of the prior fiscal year. The net loss per share for the
quarter ended March 31, 1995 was $2.17. Net income per share was $.38 for the
same period of the prior fiscal year. Excluding the settlement accrual, net
income would have been $.59 per share for the six months ended March 31, 1995,
and $.33 for the second quarter of fiscal 1995.
Increases in profits on principal transactions during the quarter and six
months ended March 31, 1995 were offset by decreases in commissions and
underwriting revenues during the same periods. Asset management revenue
decreased 19.2% for the quarter ended and 15.6% for the six months ended March
31, 1995 compared to the same periods in fiscal 1994. The decrease in
revenues was caused by a drop in assets under management by Piper Capital
Management Incorporated, which declined by 22% to $10.1 billion at March 31,
1995 as compared to $12.9 billion at March 31, 1994. The decrease in assets
under management was due equally to both declines in asset market value and to
net liquidations.
Employee compensation, including broker compensation and employee incentives,
decreased by $6.2 million, or 10% as compared to the second quarter of fiscal
1994, and was down $16.6 million, or 13%, for the year to date, in line with
revenues. Excluding the settlement accrual, expenses for the three months
ended March 31, 1995 and for the six months ended March 31, 1995 each
decreased by 4%, compared to the same periods last year.
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. 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.
Management believes that existing capital, funds from operations and current
credit lines will be sufficient to finance the Company's business. As part of
the proposed settlement of the PJIGX litigation, it is expected that the
Company will deposit $20 million in cash into an escrow fund within ten days
of signing a definitive settlement agreement. This amount will be partially
funded by the proceeds of the sale of the Company's $10 million investment in
the PJIGX fund, which was completed on April 17, 1995. The remaining $10
million of escrow funds will be financed through the credit facilities of the
Company's broker/dealer subsidiary. The funding of the balance of the
proposed settlement, up to $50 million, is payable over a three-year period
with interest at 8 percent. This amount is expected to be financed by tax
refunds arising from the resulting net operating loss, cash from operations,
and available credit facilities.
During the second quarter ended March 31, 1995, the Company's Premier
Acceptance Corporation subsidiary issued one new series of mortgage-backed
bonds with a principal amount of $14 million, bringing the total issuances for
the fiscal year to date to approximately $54 million in three series.
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 also enters into government reverse repurchase agreements to
facilitate hedging. The Company does not, and has no plans to enter into, for
either hedging or speculative purposes, the following types of transactions:
interest rate swaps, foreign currency contracts or significant amounts of
futures, options, forwards, mortgage-backed derivatives, or other securities
whose value is derived from other investment products (derivatives).
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.
During the second half of fiscal 1995, the Company's broker/dealer subsidiary
plans to commit to approximately $12 million of capital expenditures for
personal computer hardware and software for a new workstation system for
investment executives. Approximately $8 million of that amount is expected to
be accounted for as an operating lease. There were no other material
commitments for capital expenditures as of March 31, 1995.
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:
Institutional Government Income Portfolio
A. In Re: Piper Funds, Inc. Institutional Government Income Portfolio
Litigation (United States District Court, District of Minnesota).
This is a consolidated putative class action in which claims brought by 13
persons or entities have been consolidated under the title In Re: Piper
Funds Inc. Institutional Government Income Portfolio Litigation (United
States District Court, District of Minnesota) ("PJIGX action"), pursuant
to an Amended Consolidated Class Action Complaint filed on October 5,
1994. The named plaintiffs in that Amended Consolidated Class Action
Complaint purport to represent a class of individuals and groups who
purchased shares of the Piper Jaffray Institutional Government Income
Portfolio, an open-ended fund managed by Piper Capital Management
Incorporated, during the putative class period of July 1, 1991, through
May 9, 1994.
The Amended Consolidated Class Action Complaint alleges violation of
Sections 11 and 12(2) of the Securities Act of 1933, as amended (the
"Securities Act"); violation of Section 10(b) of the Securities Exchange
Act of 1934, as amended (the "Securities Exchange Act"), and Rule 10b-5
promulgated thereunder; violation of Sections 13(a)(3), 18(f), 34(b) and
36(b) of the Investment Company Act of 1940, as amended (the "Investment
Company Act"); violation of Section 80A.01 of the Minnesota Statutes;
negligent misrepresentation; and breach of fiduciary duty. Plaintiffs
seek rescission or damages, plus prejudgment interest, and attorneys' fees
and costs. The Amended Consolidated Complaint claims that the
Institutional Government Income Portfolio lost 24.6% of its value during
the period from January 1, 1994 to May 6, 1994. The Amended Consolidated
Complaint does not specify an amount of damages sought. The defendants
filed an Answer to the Consolidated Class Action Complaint on October 21,
1994, in which the defendants deny liability.
The named plaintiffs and defendants have reached an agreement-in-principle
on a proposed settlement. The broad terms of the proposed settlement are
set forth in a February 14, 1995 Memorandum of Understanding. The
plaintiffs and defendants are negotiating the terms of a definitive
settlement agreement. In the interim, a settlement class has been
conditionally certified, and related arbitration actions stayed. If
approved by the Court and a sufficiently large percentage of the class, a
definitive settlement agreement consistent with the terms of the
agreement-in-principle would provide up to $70 million to class members in
payments scheduled during the next three years.
B. Other Lawsuits Brought by Investors in Institutional Government Income
Portfolio.
The Company is party to the following actions which are based on claims
similar to those asserted In Re: Piper Funds, Inc. Institutional
Government Income Portfolio Litigation. These actions are at various
stages of development.
Idaho Association of Realtors(R), Inc., a non-Profit Idaho corporation v.
Piper Funds, Inc. Institutional Government Income Portfolio; Piper Capital
Management Incorporated; Piper Jaffray, Inc.; Piper Jaffray Companies
Inc.; William H. Ellis and Edward J. Kohler (United States District
Court, District of Minnesota).
This lawsuit has been consolidated with the PJIGX action and transferred
to the District of Minnesota for pretrial proceedings pursuant to an order
of the Panel on Multidistrict Litigation.
Gary Pashel and Gregg S. Hayutin, Trustees of the Mae Pashel Trust; Mae
Pashel, individually; Gary Pashel and Michael H. Feinstein, Trustees of
the Robert Hayutin Insurance Trust; Dennis E. Hayutin, Gregg S. Hayutin
and Gary Pashel, Trustees of the Marie Ellen Hayutin Trust v. Piper Funds,
Inc., Piper Capital Management Incorporated, Piper Jaffray Inc. and Piper
Jaffray Companies, Inc. (United States District Court, District of
Colorado).
This lawsuit has been consolidated with the PJIGX action and transferred
to the District of Minnesota for pretrial proceedings pursuant to an order
of the Panel on Multidistrict Litigation.
Eltrax Systems, Inc. v. Piper Funds Inc. Institutional Government Income
Portfolio, Piper Capital Management Incorporated, Piper Jaffray Inc.,
Piper Jaffray Companies Inc., William H. Ellis and Edward J. Kohler
(United States District Court for the District of Minnesota).
Discovery in this matter is stayed pending final approval of the
Settlement Agreement in the consolidated class action.
Frank R. Berman, Trustee of Frank R. Berman Professional CP Pension Plan
Trust v. Piper Jaffray Inc., Piper Fund, Inc., Morton Silverman and Worth
Bruntjen (Minnesota State District Court, Hennepin County).
Action commenced on April 11, 1995. Plaintiff appears to fall within the
definition of the proposed class in the PJIGX action.
C. Arbitrations Brought By Investors in Institutional Government Income
Portfolio.
The following actions were commenced in arbitration by individual
investors in the Institutional Government Income Portfolio; these
arbitrations appear to be subject to the Court's stay order issued in In
Re: Piper Funds, Inc. Institutional Government Income Portfolio
Litigation.
Fredrikson & Byron, P.A., Bertin A. Bisbee, William J. Brody, John P.
Byron, and Richard R. Hansen, as Trustees of the Fredrikson & Byron, P.A.
Money Purchase Pension Plan, Fredrikson & Byron, P.A. Money Purchase
Pension Trust, Fredrikson & Byron, P.A. Profit Sharing Plan and Fredrikson
& Byron, P.A. Profit Sharing Trust v. Piper Jaffray Incorporated, Piper
Capital Management Incorporated, Worth Bruntjen, and John Gibas (National
Association of Securities Dealers Arbitration).
Public Water Supply District No. 5 v. Piper Jaffray, Inc., Robert
Williams, Branch Manager, and Charles Greenway, Assistant Vice President
Investments (National Association of Security Dealers Arbitration).
Edward Sterbenz, Stephany K. Sterbenz, Janice M. Spiegel and Linda Spiegel
Zielinski v. Piper Jaffray Inc. and Rick Kneiser, Account Executive
(National Association of Securities Dealers Arbitration).
Roger W. Arvold and Maxine E. Arvold v. Piper Jaffray, Inc. (National
Association of Securities Dealers Arbitration).
William T. Egan v. Piper Jaffray Inc., Piper Capital Management
Incorporated, and Piper Funds Inc. (National Association of Securities
Dealers Arbitration).
Park Nicollet Medical Foundation v. Piper Jaffray Inc. and Piper Capital
Management Incorporated (National Association of Securities Dealers
Arbitration).
Linda A. Ramirez cust. fbo Christina M. Ramirez and Daniel L. Ramirez,
Joree I. Ramirez and Linda A. Ramirez, JT Ten v. Daniel H. Ball and Piper
Jaffray Inc. (National Association of Securities Dealers Arbitration).
Family Housing Fund of Minneapolis and St. Paul v. Piper Jaffray Inc.,
Piper Capital Management Incorporated, Piper Jaffray Investment Trust
Inc., Worth Bruntjen, Kathleen Callahan, and Eric L. Siedband (National
Association of Securities Dealers Arbitration).
David S. Bradford, M.D. v. Piper Capital Management, Inc., Piper Jaffray
Inc., and Piper Jaffray Companies, Inc. (National Association of
Securities Dealers Arbitration).
Judith B. Arterburn v. Piper Jaffray Inc. and Kirk A. Abrahamson (National
Association of Securities Dealers Arbitration).
Herb Pilhofer v. Piper Jaffray Inc. (National Association of Securities
Dealers Arbitration).
South Dakota School of Mines and Technology Foundation, Inc. v. Piper
Jaffray Inc., Piper Jaffray Companies, Inc., Piper Capital Management
Incorporated, Addison L. Piper, William H. Ellis, Dan L. Lastavich, Delos
V. Steenson, Worth Bruntjen, Jaye F. Dyer, Edward J. Kohler, John T.
Golle, and David T. Bennett (New York Stock Exchange Arbitration).
Joseph H. Reynebeau v. Piper Jaffray Inc. and Gerard Johnson (National
Association of Securities Dealers Arbitration).
Adjustable Rate Term Trusts
A. Herman D. Gordon, on Behalf of Himself and All Others Similarly Situated
v. American Adjustable Rate Term Trust 1998; American Adjustable Rate
Trust 1999; Piper Capital Management Incorporated; Piper Jaffray Inc.;
Piper Jaffray Companies Inc.; Benjamin Rinkey; Jeffrey Griffin; Charles N.
Hayssen and Edward J. Kohler (United States District Court, District of
Minnesota).
Plaintiff, an investor in the American Adjustable Rate Term Trusts Inc.
1998 and 1999 ("1998 and 1999 Trusts"), filed this putative class action
lawsuit on October 20, 1994. Plaintiff purports to represent a class of
persons who purchased shares in the 1998 and 1999 Trusts during the period
from January 23, 1992, through June 30, 1994.
Plaintiff alleges violation of Sections 11, 12(2) and 15 of the Securities
Act; violation of Sections 10(b) and 20(a) of the Securities Exchange Act,
and Rule 10b-5 promulgated thereunder. Plaintiff seeks rescission or
damages, plus interest, and attorneys' fees and costs. The Complaint does
not specify an amount of damages sought.
Although the plaintiff in this action alleges that it has been brought as
a class action, the Court has not yet determined whether a class will be
certified. Although the defendants have not yet filed a formal answer,
the defendants deny liability. Defendants intend to defend the litigation
vigorously. It is impossible to predict the outcome of the litigation,
and, at the present time, the effect of the litigation on the consolidated
financial statements cannot be determined.
B. Frank Donio, I.R.A., Jane Mazzagatte, I.R.A., Myra Smith, John M. Gobble,
I.R.A., and Morgan Properties, Inc., on Behalf of Themselves and All
Others Similarly Situated v. American Adjustable Rate Term Trust Inc.
1996; American Adjustable Rate Term Trust Inc. 1997; American Adjustable
Rate Term Trust Inc. 1998; American Adjustable Rate Term Trust Inc. 1999;
Piper Jaffray Companies, Inc.; Piper Capital Management Inc.; Piper
Jaffray & Hopwood Inc.; Benjamin Rinkey; Jeffrey Griffin; Charles N.
Hayssen, Edward J. Kohler and William H. Ellis (United States District
Court, District of Minnesota).
Plaintiffs, investors in the American Adjustable Rate Term Trusts Inc.
1996, 1997, 1998 and 1999 ("Trusts"), filed this putative class action
lawsuit on April 14, 1995. Plaintiffs purport to represent a class of
persons who own shares of the Trusts or who purchased shares in the Trusts
during the period from April 15, 1992, through April 15, 1995.
Plaintiffs allege violation of Sections 10(b) and 20(a) of the Securities
Exchange Act, and Rule 10b-5 promulgated thereunder; violation of Sections
17(j), 36(a) and 36(b) of the Investment Company Act of 1940; violation of
Section 80A of the Minnesota Securities Act; and breach of fiduciary duty
under state law. Plaintiffs seek rescission or damages, plus interest,
and attorneys' fees and costs. The Complaint does not specify an amount
of damages sought.
Although the plaintiffs in this action allege that it has been brought as
a class action, the Court has not yet determined whether a class will be
certified. Although the defendants have not yet filed a formal answer,
the defendants deny liability. Defendants intend to defend the litigation
vigorously. It is impossible to predict the outcome of the litigation,
and, at the present time, the effect of the litigation on the consolidated
financial statements cannot be determined.
C. Other Arbitration Claims Brought by Investors in Adjustable Rate Term
Trusts
The Company is a party to the following arbitrations which are based on
claims similar to those asserted in Gordon v. American Adjustable Rate
Term Trust 1998, et al. are:
Charles P. Belgarde and May E. Belgarde v. American Adjustable Rate Term
Trust, Inc. - 1998; Piper Capital Management Incorporated; Piper Jaffray,
Inc.; and Piper Jaffray Companies, Inc. (National Association of
Securities Dealers Arbitration).
William J. Kenney v. John P. Murphy, Piper Capital Management Inc., and
Kemper Securities, Inc. (National Association of Securities Dealers
Arbitration).
The Company denies liability and intends to defend the arbitrations
vigorously. It is impossible to predict the outcome of the arbitrations,
and, at the present time, the effect of the arbitrations on the
consolidated financial statements cannot be determined.
Managers Intermediate Mortgage Fund
Florence R. Hosea, Bobby W. Hosea, Getrud B. Dale and Peter M. Dale,
Andrew Poffel and Diane Poffel as tenants by the Entireties, Myrone
Barone, Donna M. DiPalo, Bernard B. Geltner as IRA custodian, IRA and
Bernard B. Geltner and Gail Geltner and Paul Delman v. The Managers Funds,
The Managers Funds, L.P., Robert P. Watson, Piper Capital Management
Incorporated, Piper Jaffray Inc., Worth Bruntjen and Managers Intermediate
Mortgage Fund (United States District Court, District of Connecticut).
Karen E. Kopelman v. The Managers Fund, The Managers Funds, L.P., Robert
P. Watson, Piper Capital Management Incorporated, Piper Jaffray Inc.,
Worth Bruntjen and Managers Intermediate Mortgage Fund (United States
District Court, District of Connecticut).
By court order dated December 13, 1994, these two putative class action
lawsuits were consolidated. The plaintiffs purport to represent a class of
persons who purchased shares in the Managers Intermediate Mortgage Fund
("Managers Intermediate") during the period from May 1, 1992, through June
14, 1994. Managers Intermediate is a no-load, open-end mutual fund that
was generally managed by The Managers Funds, L.P. During the class
period, Piper Capital Management Incorporated was the portfolio asset
manager.
Plaintiffs allege that defendants Piper Capital Management Incorporated,
Piper Jaffray Inc. and Worth Bruntjen (the "Piper Defendants") violated
Sections 11, 12(2) and 15 of the Securities Act; Section 10(b) of the
Securities Exchange Act, and Rule 10b-5 promulgated thereunder; Sections
13(a)(3), 34(b) and 36(b) of the Investment Company Act; and engaged in
negligent misrepresentation; breach of fiduciary duty; and common law
fraud. Plaintiffs seek rescission or monetary damages, plus prejudgment
interest, punitive damages "where appropriate," and attorneys' fees and
costs. The Complaints do not specify an amount of damages sought.
Although the plaintiffs in this consolidated action allege that they have
been brought as class actions, the Court has not yet determined whether a
class will be certified. The Piper Defendants deny liability, and intend
to defend the litigation vigorously. The defendants have filed a motion
to dismiss the consolidated action in its entirety. It is impossible to
predict the outcome of the litigation, and, at the present time, the
effect of the litigation on the consolidated financial statements cannot
be determined.
Managers Short Government Income Fund
Robert Fleck, on behalf of himself and all others similarly situated v.
The Managers Funds, The Managers Funds, L.P., Piper Jaffray Inc., Piper
Capital Management Incorporated, Worth Bruntjen, Evaluation Associates,
Inc., Robert P. Watson, John E. Rosati, William M. Graulty, Madeline H.
McWhinney, Steven J. Paggioli, Thomas R. Schneeweis and Managers Short
Government Fund, F/K/A Managers Short Government Income Fund.
Plaintiff, a shareholder of the Managers Short Government Income Fund
("Managers Short"), filed this putative class action lawsuit on November
18, 1994. Plaintiff purports to represent a class of persons who
purchased shares of Managers Short during the period from May 1, 1993,
through September 12, 1994. Managers Short is a no-load, open-end mutual
fund that was generally managed by The Managers Funds, L.P. Piper Capital
Management Incorporated was the portfolio asset manager until August 12,
1994.
Plaintiff alleges that defendants Piper Jaffray Inc., Piper Capital
Management Incorporated and Worth Bruntjen (the "Piper Defendants")
violated Section 10(b) of the Securities Exchange Act, and Rule 10b-5
promulgated thereunder; Section 13(a)(3) of the Investment Company Act;
and engaged in negligent misrepresentation. Plaintiff seeks rescission
and monetary damages, plus prejudgment interest, punitive damages if
appropriate, and attorneys' fees and costs. The Complaint does not
specify an amount of damages sought.
Although the plaintiff in this action alleges that it has been brought as
a class action, the Court has not yet determined whether a class will be
certified. On January 24, 1995, the Piper Defendants filed a motion to
dismiss the claims against them, which motion is scheduled to be heard on
June 30, 1995. The Piper Defendants deny liability and intend to defend
the litigation vigorously. It is impossible to predict the outcome of the
outstanding litigation, and, at the present time, the effect of the
litigation on the consolidated financial statements cannot be determined.
Minnesota Orchestral Association
Minnesota Orchestral Association v. Piper Capital Management Incorporated,
Piper Jaffray Inc. and Piper Jaffray Companies Inc. (National Association
of Securities Dealers Arbitration).
The claimant, a nonprofit organization, alleges that (i) Piper Capital
breached a September 14, 1993 investment management agreement with
claimant by virtue of investments in derivative securities; (ii) Piper
Capital breached its fiduciary duties to claimant by virtue of investment
in "unsuitable derivative securities, without [claimant's] knowledge or
consent and contrary to [claimant's] directions and expectations, and by
failing to disclose such investment strategy until after the portfolio had
sustained huge losses . . ."; (iii) Piper Capital misrepresented material
facts to claimant and failed to disclose to claimant that, in order to
achieve higher returns than other investment advisors on claimant's bond
portfolio, Piper Capital had to invest heavily in derivative securities;
(iv) Piper Capital violated the Minnesota Securities Act; (v) Piper
Jaffray and Piper Jaffray Companies are liable under the Minnesota
securities laws as controlling persons of Piper Capital; (vi) Piper
Capital violated the Minnesota Consumer Fraud Act; and (vii) Piper Capital
violated The Investment Advisers Act. Claimant alleges that it has
incurred damages in the principal amount of at least $5,513,077, and
requests "an award of substantial damages . . . along with an award of
reasonable attorneys' fees, forum fees, costs and disbursement . . ."
The claimant filed its Statement of Claim on September 26, 1994. The
defendants filed an answer, on December 30, 1994, denying liability.
Defendants intend to defend the arbitration vigorously. Although it is
impossible to predict the outcome of this arbitration, in the opinion of
management of the Company, after consultation with counsel, the resolution
of the claims related to this arbitration will have no material adverse
effect on the consolidated financial statements.
Shareholder Litigation
Edward B. McDaid and Ronald Goldstein v. Piper Jaffray Companies Inc.,
Addison L. Piper, William H. Ellis and Charles N. Hayssen
This putative class action lawsuit consolidates separate lawsuits
previously filed by Edward McDaid and Ronald Goldstein. Plaintiffs
purport to represent a class of persons who purchased Piper Jaffray
Companies Inc. ("PJCI") common stock during the period from May 12, 1993,
through August 24, 1994.
In their consolidated complaint filed January 9, 1995, plaintiffs allege
that PJCI and the individual defendants made misleading statements and
omissions which artificially inflated the market price of PJCI common
stock throughout the class period. Plaintiffs allege that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act, and Rule
10b-5 promulgated thereunder.
Although the plaintiffs in this action allege that it has been brought as
a class action, the Court has not yet determined whether a class will be
certified. Discovery in the consolidated action is proceeding.
The defendants deny liability and intend to defend the litigation
vigorously. It is impossible to predict the outcome of the outstanding
litigation, and, at the present time, the effect of the litigation on the
consolidated financial statements cannot be determined.
Bonneville Pacific Corporation
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 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. By date of
June 14, 1994, plaintiffs served a second amended complaint, realleging claims
under Sections 11 and 15 of the Securities Act and Section 10 of the
Securities Exchange Act and Rule 10b-5 promulgated thereunder. Plaintiffs
also asserted RICO claims and claims under the Utah Uniform Securities Act,
among others. On August 2, 1994, Piper Jaffray and the other defendants moved
to dismiss the RICO, Securities Exchange Act and Utah Uniform Securities Act
claims and that motion is pending.
The second lawsuit was brought by the BPCO bankruptcy trustee. The most
recent amendment to the complaint filed on February 3, 1995 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. The plaintiff seeks actual
damages, treble damages under RICO, punitive damages, interest, costs and
attorneys' fees. On October 7, 1994, the plaintiff served its preliminary
damage calculations indicating that it sought $647,346,549 in damages (before
trebling under RICO) from the Company. The plaintiff seeks a similar amount
from the other defendant underwriters and BPCO's accountants, attorneys,
lenders and others. Piper Jaffray and other defendants have made motions to
dismiss the complaint or for a judgment on the pleadings which are currently
pending and the case is in the discovery stage.
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 the lawsuits and claims related to BPCO, as
well as other various lawsuits and claims not detailed herein, 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
On February 17, 1995, the Company filed a report on Form 8-K
announcing the proposed settlement of the PJIGX litigation.
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 15, 1995 /s/ Charles N. Hayssen
CHARLES N. HAYSSEN
Chief Financial Officer and
Managing Director
Dated May 15, 1995 /s/ William H. Ellis
WILLIAM H. ELLIS
President and Chief Operating Officer
PIPER JAFFRAY COMPANIES INC.
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
Exhibit Description of Exhibit Form of Filing
11 Statement Regarding Computation of Electronic transmission
Per Share Earnings
27 Financial Data Schedule Electronic transmission
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
1995 1994 1995 1994
PRIMARY NET INCOME (LOSS)
PER SHARE:
Net income (loss) $(37,274) $ 6,896 $(32,624) $ 16,872
--------- --------- --------- ---------
Average number of common
and common equivalent
shares outstanding:
Average common shares
outstanding 17,208 17,544 17,145 17,549
Dilutive effect of CSE's:
Book value plan options - 338 - 354
Executive incentive
stock options - 257 - 292
--------- --------- --------- ---------
17,208 18,139 17,145 18,195
--------- --------- --------- ---------
Primary net income (loss)
per share $ (2.17) $ .38 $ (1.90) $ .93
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE
ASSUMING FULL DILUTION:
Net income (loss) $(37,274) $ 6,896 $(32,624) $ 16,872
--------- --------- --------- ---------
Average number of common
and common equivalent
shares outstanding:
Average common shares
outstanding 17,208 17,544 17,145 17,549
Dilutive effect of CSE's:
Book value plan options - 338 - 355
Executive incentive
stock options - 257 - 292
--------- --------- --------- ---------
17,208 18,139 17,145 18,196
--------- --------- --------- ---------
Fully diluted net income
(loss) per share $ (2.17) $ .38 $ (1.90) $ .93
========= ========= ========= =========
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PIER JAFFRAY COMPANIES INC. AS OF
AND FOR THE PERIODS ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 20,033
<RECEIVABLES> 374,300
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 145,643
<PP&E> 26,239
<TOTAL-ASSETS> 666,153
<SHORT-TERM> 101,989
<PAYABLES> 357,802
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 12,354
<LONG-TERM> 54,400
<COMMON> 17,600
0
0
<OTHER-SE> 120,908
<TOTAL-LIABILITY-AND-EQUITY> 666,153
<TRADING-REVENUE> 55,513
<INTEREST-DIVIDENDS> 16,299
<COMMISSIONS> 66,285
<INVESTMENT-BANKING-REVENUES> 22,080
<FEE-REVENUE> 30,169
<INTEREST-EXPENSE> 5,995
<COMPENSATION> 114,519
<INCOME-PRETAX> (52,991)
<INCOME-PRE-EXTRAORDINARY> (52,991)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,624)
<EPS-PRIMARY> (1.90)
<EPS-DILUTED> (1.90)
</TABLE>
