UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the fiscal year ended September 30, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File No. 1-7421
PIPER JAFFRAY COMPANIES INC.
(Exact name of Registrant as specified in its charter)
Delaware 41-1233380
(State of incorporation) (IRS Employer Identification No.)
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 342-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $1.00 per share New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of November 28, 1997, 19,130,009 shares of common stock were issued and
outstanding, and the aggregate market value of the shares of common stock held
by non-affiliates was approximately $304,249,000 (based upon the closing price
on the New York Stock Exchange).
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Item Document of Reference
PART II
Item 5. Market for Registrant's Common "Market Prices and Dividends Per
Equity and Related Shareholder Share" from the Annual Report to
Matters Shareholders for the fiscal year
ended September 30, 1997 (the
"1997 Annual Report")included as
Exhibit 13 filed herein
Item 6. Selected Financial Data "Financial Summary" from the 1997
Annual Report
Item 7. Management's Discussion and "Management's Financial
Analysis of Financial Condition Discussion" from the 1997
and Results of Operation Annual Report
Item 8. Financial Statements and "Consolidated Financial
Supplementary Data Statements" and "Summary of
Quarterly Results" from the 1997
Annual Report
PART IV
Item 14.(a):
1. Consolidated Financial Statements "Consolidated Financial
Statements" from the 1997 Annual
Report
2. Financial Statement Schedules "Summary of Quarterly Results"
Selected Quarterly Financial Data from the 1997 Annual Report
<PAGE>
PART I
Item 1. Business
Piper Jaffray Companies Inc. (the "Company"), a Delaware corporation, is a
holding company which offers individual investor, investment banking, investment
management and trust services through its wholly owned subsidiaries. The Company
is not engaged in any business activities other than certain investing and
administrative functions.
The Company's primary wholly owned subsidiaries include Piper Jaffray Inc.
(Piper Jaffray), its broker/dealer subsidiary; Piper Capital Management
Incorporated (Piper Capital), an asset management firm; Piper Trust Company
(Piper Trust) which provides trust services to individuals and institutions;
Piper Jaffray Ventures Inc. (Piper Jaffray Ventures), a private equity venture
capital firm; Premier Acceptance Corporation (Premier), an issuer of
mortgage-backed bonds, and other immaterial subsidiaries.
On Dec. 15, 1997, the Company and U.S. Bancorp announced that they had entered
into an Agreement and Plan of Merger, dated as of December 14, 1997. The $730
million cash transaction, $37.25 per share, is expected to close in the second
calendar quarter of 1998, subject to regulatory and shareholder approval.
Piper Jaffray Inc.
Piper Jaffray is a Delaware corporation organized in 1969 as the successor to a
business established in 1895. Piper Jaffray is a securities broker/dealer and
investment banking firm. As such, it effects transactions in listed and unlisted
securities and options contracts, underwrites corporate and municipal
securities, and sells mutual fund shares, U.S. government securities and other
financial products and services.
Piper Jaffray is a member of the New York Stock Exchange, American Stock
Exchange, Chicago Stock Exchange, National Association of Securities Dealers,
National Futures Association, Cincinnati Stock Exchange, and the New York
Futures Exchange.
As of September 30, 1997 Piper Jaffray had 89 retail sales offices in 17 states.
Piper Jaffray is licensed as a broker/dealer in all states and Washington D.C.
Piper Capital Management Incorporated
Piper Capital, a Delaware corporation, was incorporated in 1983 and is an
investment adviser registered under the Investment Advisers Act of 1940. Piper
Capital furnishes investment advice to various clients, including pension and
profit sharing funds, corporations and individuals. Piper Capital is also the
investment adviser to 16 closed-end funds, and the Piper Funds Inc. series of 16
open-end funds. As of September 30, 1997, Piper Capital's total assets under
management were approximately $12.8 billion.
Piper Trust Company
Piper Trust, chartered in Minnesota in 1989, provides trust services to
individuals and institutions, focusing primarily on employee benefit and
personal trust services. Personal trust administrators assist individual clients
in planning their estates, setting investment goals, and monitoring investment
activities. Piper Trust administrators also work with institutions to provide
401(k) and other employee-directed, company-sponsored retirement plans. Piper
Trust operates 12 common and collective funds and had $1.3 billion in client
assets under trust as of September 30, 1997.
Premier Acceptance Corporation
Premier was incorporated in Delaware in 1988 and is an issuer of bonds which are
collateralized by GNMA and FNMA certificates. As of September 30, 1997, the
company had $40.2 million of mortgage-backed bonds outstanding. The issuance of
six series of mortgage-backed bonds with an aggregate original principal amount
of $176.1 million and the related purchase of collateral have been accounted for
financial reporting purposes as a sale. Accordingly, the assets, liabilities,
interest income, and interest expense relating to these series do not appear on
the financial statements.
Piper Jaffray Ventures Inc.
Piper Jaffray Ventures, a Delaware corporation, was incorporated in 1983 and
organizes and manages funds for investing in promising, privately held
emerging-growth companies. The company currently has health care and technology
venture funds with $110 million in committed capital.
Sources of Revenues
Commissions
Piper Jaffray charges a brokerage commission when acting as agent for the
purchaser or seller of a security. If the security is listed on an exchange and
Piper Jaffray does not act as a principal in the security, the transaction is
generally effected through an automatic execution and clearing system or Piper
Jaffray's own floor brokers. If the security is traded on the over-the-counter
market, Piper Jaffray generally effects the transaction directly with one of the
firms making a market in that security. Piper Jaffray also acts as agent with
respect to the purchase and sale of option contracts. Piper Jaffray purchases
mutual fund shares at a specified discount from the price at which the shares
are resold to customers. Piper Jaffray is also a distributor of Piper Capital's
open-end funds.
Principal Transactions
Profits on principal trading transactions represent the difference between the
cost of securities purchased by Piper Jaffray for its own account and the
proceeds received upon the sale of such securities. Such transactions occur with
respect to corporate equity and fixed income securities, municipal securities
(generally issued by states, their agencies and political subdivisions), and
U.S. government securities.
Piper Jaffray acts as a market maker for unlisted common stocks and convertible
debt securities of approximately 424 companies. As a market maker, Piper
Jaffray, for its own account, generally maintains a long or short inventory
position with respect to such securities and stands ready to effect purchase or
sale transactions with customers and other dealers. Piper Jaffray also acts as a
principal in the trading of approximately 143 listed stocks.
Piper Jaffray maintains inventories of non-convertible corporate debt
securities, preferred stocks, municipal securities, and government securities,
as well as equity and convertible securities in which Piper Jaffray does not
make a market. These inventories usually result from underwriting and other
positions that have not yet been sold to customers, but are maintained to
facilitate customers' transactions and trading.
Piper Jaffray is exposed to the possibility of a loss and has the opportunity to
profit as market prices of the securities in its inventory positions change. The
value of the common stock and convertible debt inventory positions is primarily
affected by changes in the general market for equity securities and the
financial prospects of the issuers of such securities. The value of corporate
fixed income, municipal and government securities inventory positions is
primarily affected by changes in market interest rates. In general, Piper
Jaffray's securities inventories are maintained to meet customers' trading
demands. Accordingly, it is the policy of Piper Jaffray to carry as low a level
of securities inventories as is necessary to conduct customer business.
Investment Banking
Piper Jaffray underwrites both municipal and corporate securities. In an
underwriting, Piper Jaffray generally joins with other securities firms in a
group which commits to purchase securities from an issuer at a fixed price and
to re-offer those securities to the public. While most of Piper Jaffray's
underwriting revenues are derived from acting as manager or co-manager, Piper
Jaffray also acts as a member of underwriting groups managed by other firms.
Participation in an underwriting exposes Piper Jaffray to certain risks. If all
of the securities that Piper Jaffray has committed to underwrite cannot be
resold at the agreed upon price, Piper Jaffray might incur losses. In addition,
federal and state securities laws and regulations affect the activities of
underwriters and impose potential liabilities in connection with sales of
securities by underwriters to the public.
It is generally more profitable to be manager or co-manager of an underwriting
than to be solely a member of the underwriting group. However, managers usually
must commit to underwrite a larger portion of the offering than other members of
the underwriting group.
In addition to the underwriting of securities, Piper Jaffray engages in other
investment banking activities. These include raising capital through the private
placement of securities, appraising corporate securities for tax or other
purposes, arranging and evaluating the terms of mergers and acquisitions, and
advising companies with respect to financing plans and related matters.
Compensation for such services is in the form of negotiated fees.
Asset Management
Piper Capital, as investment adviser to open-end and closed-end funds, provides
each fund with advice and assistance in the selection and disposition of that
fund's investments. In return, each fund pays Piper Capital monthly advisory
fees generally equal to a certain percentage of the fund's average net assets.
Piper Capital also serves as investment adviser for individual, institutional
and fiduciary accounts.
Piper Capital effects a wide range of securities transactions in managed
accounts as well as within managed open-end and closed-end funds. Certain
managed accounts and funds invest in derivative and/or mortgage-backed
derivative securities. The use of these and other securities in managed accounts
and funds is monitored for both eligibility of type of security and limitations
on amount of security in accordance with policies applicable to the particular
accounts and funds, including investment management agreements and fund
prospectus guidelines.
Piper Trust also generates substantially all of its revenues through a
percentage fee based on the market value of total assets under management for
each client's account and through fees for estate planning and custodial and
fiduciary services.
Interest Income
Customers' purchases of listed and certain over-the-counter securities may be
effected on either a cash or margin basis. If the purchase is made on a cash
basis, full payment is due by a designated settlement date, generally three
business days following the purchase date. In a margin transaction, however,
Piper Jaffray lends the customer a portion of the purchase price up to limits
set by the Federal Reserve Board. Such loans are collateralized by the
securities purchased. These receivable amounts are funded by equity capital,
bank lines of credit, and proceeds from securities lending and repurchase
agreements, as well as non-interest bearing liabilities. As collateral for
short-term bank borrowings, Piper Jaffray is generally permitted to use
securities in a customer's margin account with a total market value of up to
140% of the amount owed to Piper Jaffray by the customer.
Other Revenues
Piper Jaffray provides other financial services and products, including
custodial services for IRA's and defined contribution plans, managed account
services, wrap accounts, and various insurance investment products through the
Piper Jaffray sales force. Piper Jaffray also derives revenue for services
provided in connection with tender and exchange offers, from dividend and
interest payments on securities owned, and other miscellaneous items.
Piper Jaffray Ventures provides venture capital expertise and management
specifically targeted toward emerging growth companies in specific industry
sectors. Piper Jaffray Ventures earns management fees equal to a percentage of
partners' committed capital.
Employees
As of September 30, 1997, the Company, Piper Jaffray, Piper Capital, Piper Trust
and Piper Jaffray Ventures had 347, 2,663, 128, 36 and 6 full-time employees,
respectively. Premier has no employees. As of September 30, 1997 there were
1,258 employees of Piper Jaffray, including some officers, registered with the
New York Stock Exchange as investment executives involved in Piper Jaffray's
retail and institutional sales activities. Of these, 167 were located in the
Company's corporate headquarters sales offices in Minneapolis.
Effective October 1, 1995, the core administrative and support services formerly
housed within the Company's subsidiaries were transferred to the Company. The
Company charges a management fee to its affiliates for these services based upon
their respective utilization.
Competition
The Company's subsidiaries are subject to intense competition in all aspects of
their businesses, not only from other companies in the securities industry, but
also from banks, savings and loan associations, retailers, and other firms
offering financial services. Many of these companies are larger and have greater
financial resources than the Company. In addition to competition from such
companies, there is competition within the securities industry in obtaining and
retaining the services of investment executives.
Regulation
The rules and regulations of the Securities and Exchange Commission, the
exchanges of which Piper Jaffray is a member, and the other regulatory bodies
under the jurisdiction of which Piper Jaffray conducts its business, are complex
and extensive. Regulated areas include the effecting of securities transactions,
the financial condition of Piper Jaffray, its record keeping and reporting
procedures, relationships with customers, including the handling of cash and
margin accounts, the experience and training requirements for certain employees,
and business procedures with non-member firms.
The exchanges, the National Association of Securities Dealers, and the National
Futures Association are voluntary, self-regulatory bodies composed of members
which have agreed to abide by the respective bodies' rules and regulations. Each
of these organizations may expel, fine and otherwise discipline member firms and
their employees.
Piper Jaffray is registered as a securities broker/dealer and as an investment
adviser with the Securities and Exchange Commission. Piper Jaffray is also
registered with the Commodity Futures Trading Commission as a futures commission
merchant under the Commodity Exchange Act. In addition to being subject to
various federal laws, rules and regulations, Piper Jaffray must be licensed as a
broker/dealer in, and comply with the regulations of, the states in which it
does business.
Piper Jaffray is subject to the Uniform Net Capital Rule (the "Rule") of the
Securities and Exchange Commission and the net capital rule of the New York
Stock Exchange (the "Exchange"). Piper Jaffray has elected to use the
alternative method permitted by the Rule which requires that it maintain minimum
net capital of 2% of aggregate debit balances arising from customer
transactions. The Exchange may prohibit a member firm from expanding its
business or paying cash dividends if resulting net capital would be less than 5%
of aggregate debit balances. In addition, Piper Jaffray is subject to certain
notification requirements related to withdrawals of excess net capital. At
September 30, 1997, Piper Jaffray's net capital under the Rule was $115.6
million or 17% of aggregate debit balances.
Piper Capital is registered under the Investment Advisers Act of 1940 and is the
investment adviser for investment companies regulated under the Investment
Company Act of 1940. As such, Piper Capital and each of its funds are subject to
annual independent audits and periodic examinations by the Securities and
Exchange Commission.
As a Minnesota trust company, Piper Trust is subject to the rules and
regulations of the State of Minnesota and the Minnesota Department of Commerce.
Regulatory examiners conduct periodic examinations of Piper Trust.
The laws, rules and regulations of the various federal, state and other
regulatory bodies to which the businesses of Piper Jaffray, Piper Capital and
Piper Trust are subject are constantly changing. While management of the Company
and its subsidiaries believes that they are currently in compliance in all
material respects with all laws, rules and regulations applicable to its
business, the effect of any such changes cannot be predicted.
Certain Piper Jaffray Ventures funds are Small Business Investment Companies
(SBIC) and are governed in accordance with the Small Business Investment Act of
1958, as amended. In addition the SBIC funds are subject to Rule 13 CFR, Parts
107 and 121, Small Business Investment Companies and Small Business Size
Regulations, respectively.
Item 2. Properties
The Company currently conducts its operations through 89 retail and 17 capital
markets offices in 19 states and London, U.K. All of its offices are leased with
various expiration dates through 2008. See Note 8 of the Notes to Consolidated
Financial Statements filed herein for information concerning leases.
The Company's current headquarters lease expires in the year 2000 and the
Company has signed a letter of intent to enter into a fourteen year commitment
on a new headquarters location.
Item 3. Legal Proceedings
The Company's fiscal 1997 operations included a $6.6 million pretax charge to
earnings for proposed settlement of the Managers Intermediate Mortgage Fund and
a related claim, an additional $24.0 million accrual for the estimated remaining
costs of litigation and regulatory inquiries relating to funds or assets managed
by Piper Capital and certain other litigation matters, and various other
litigation-related costs. Based on these accruals along with the Company's
other reserves, Management of the Company, after consultation with counsel,
believes the legal procedings listed below will not have a material adverse
effect on the Company's consolidated financial statements.
The Company is involved in various other lawsuits or arbitrations or threatened
lawsuits or arbitrations and regulatory inquiries incidental to its securities
business. Management of the Company, after consultation with counsel, believes
that the resolution of these various lawsuits, arbitrations, and claims and
regulatory inquiries will not have a material adverse effect on the Company's
consolidated financial statements.
A. Lawsuits and Arbitrations Related to Various Funds or Assets Managed by
Piper Capital Management Incorporated
I. Institutional Government Income Portfolio
Leon J. Savoie; Savoie Wealthbuilder Account; Earl Hovey; Hovey
Wealthbuilder Account; Ronald G. Ferris; Ronald G. Ferris Wealthbuilder
Account; Donna L. Ferris; Donna L. Ferris Wealthbuilder Account; Herman H.
Holmes; Lucille Holmes; Holmes Wealthbuilder Account; on behalf of
themselves and all others similarly situated, Appellants, v. Richard J.
Rodney, Jr., Plaintiff Appellee, and Piper Funds, Inc. Institutional
Government Income Portfolio; Piper Capital Management Incorporated; Piper
Jaffray Inc.; Piper Jaffray Companies Inc.; William H. Ellis, Edward J.
Kohler, Defendant Appellees. (United States Court of Appeals, Eighth
Circuit).
On February 18, 1997, a United States District Court presiding over a
previously settled consolidated class action, In re Piper Funds Inc.
Institutional Government Income Portfolio (United States District Court,
District of Minnesota) (the "PJIGX Action") entered an order for final
judgment concerning a dispute previously severed from the remainder of the
PJIGX Action. The dispute involves Merchants Trust Company and certain of
its customers whose funds were used to purchase shares of the Institutional
Government Income Portfolio. The February 18, 1997 order for final judgment
has been appealed to the United States Court of Appeals for the Eighth
Circuit. This appeal does not affect the settlement reached with other
class members.
II. American Strategic Income Portfolio Inc. I, II, and III (ASP, BSP, and CSP,
respectively), American Opportunity Income Fund (OIF), American Select
Portfolio Inc. (SLA) and the Americas Income Trust Inc. (XUS).
a) The following actions have been brought by investors in one or more of
the afore-mentioned funds:
Gary E. Nelson, et al v. American Strategic Income Portfolio Inc. - II, et
al. (United States District Court, Western District of Washington) (the
"Nelson Class Action"). The effective date of the settlement in the Nelson
Class Action was September 20, 1997. The claims alleged in the following
actions are similar to the claims which had been alleged in the Nelson
Class Action.
John Darlington and Ann Darlington v. Piper Jaffray Inc. and Dick Tallent
(Montana Second Judicial District Court, Silver Bow County).
Plaintiff filed this action on November 1, 1995 based on his investment in
CSP and XUS. Plaintiff alleged claims of breach of contract, breach of the
covenant of good faith and fair dealing, fraud and misrepresentation. The
Court ordered the plaintiffs to arbitrate this dispute and stayed the
lawsuit pending arbitration. Plaintiffs have petitioned to the Montana
Supreme Court for a writ of supervisory control seeking to vacate the
district court's order compelling arbitration.
Kenneth Schneider v. Piper Jaffray Inc. and Richard Tallent (Montana Second
Judicial District Court, Silver Bow County).
Plaintiff filed this action on April 11, 1996 based on his investment in
SLA. Plaintiff alleges claims of misrepresentation and negligent
misrepresentation. The Complaint seeks compensatory damages in an
unspecified amount, punitive damages, and costs and attorneys' fees.
Margaret Nagel v. Piper Jaffray Inc. and Richard Tallent (Montana Second
Judicial District Court, Silver Bow County).
Plaintiff filed this action on April 11, 1996 based on her investment in
SLA. Plaintiff alleges claims of misrepresentation and negligent
misrepresentation. The Complaint seeks compensatory damages in an
unspecified amount, punitive damages, and costs and attorneys' fees.
Kenneth Gennerman as Trustee of The Nicole Bowlin Trust v. Piper Jaffray
Inc. (Wisconsin Circuit Court, Waukesah County).
Plaintiff filed this action on August 7, 1996 based on his investment in
OIF. Plaintiff alleges claims of negligent misrepresentation, intentional
misrepresentation and strict responsibility. The Complaint seeks rescission
or compensatory damages for investment of $10,000, interest, punitive
damages and attorneys' fees and costs.
b) The following arbitration claims seek recovery by investors in one or
more of the afore-mentioned closed-end funds:
Curtis G. Weakly and Jean Weakly v. Piper Capital Management Incorporated
and Piper Jaffray Companies Inc. (National Association of Securities
Dealers Arbitration).
Claim filed February 3, 1997. Claimants seek to recover $26,625.
Theodore F. Foster, D.O., P.C. Profit Sharing Plan, Theodore F. Foster,
Trustee and Theodore F. Foster, D.O., P.C., v. Piper Jaffray Companies
Inc., Piper Jaffray Inc., American Strategic Income Portfolio Inc.-III and
Thomas P. O'Sullivan. (National Association of Securities Dealers
Arbitration).
Claim filed May 9, 1997. Claimants seek to recover in excess of $129,000.
Mary Hughes v. Prudential Securities, Inc. and Piper Jaffray Inc. (National
Association of Securities Dealers Arbitration).
Claim filed July 17, 1997. Claimant seeks to recover approximately $9,800.
Barbara Robertson v. Piper Jaffray Inc., Piper Capital Management
Incorporated, Robert Roddy and Larry Law. (New York Stock Exchange
Arbitration).
Claim filed November 3, 1997. Claimant seeks to recover in excess of
$381,197.
III. 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).
Plaintiff Hosea filed a putative class action lawsuit on September 26,
1994. Plaintiff Kopelman filed a putative class action lawsuit on November
4, 1994. By court order dated December 13, 1994, these two putative class
action lawsuits were consolidated (the "Hosea/Kopelman Consolidated
Action"). 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
was the portfolio asset manager.
In their Amended and Restated Complaint, filed on July 19, 1995, plaintiffs
alleged that defendants Piper Capital, Piper Jaffray 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 34(b) and 36(b) of the Investment Company
Act, and that they engaged in negligent misrepresentation. Plaintiffs
sought rescission or monetary damages, plus prejudgment interest, punitive
damages "where appropriate," and attorneys' fees and costs.
On October 10, 1997, the named plaintiffs and defendants entered into a
settlement agreement which is subject to approval by the court and a
sufficiently large percentage of class members. Pursuant to the terms of
the settlement agreement, defendants collectively have agreed to pay a
total amount of up to $6,942,733.66. The Piper Defendants have agreed to
pay up to $4,592,220.59, consisting of up to $923,930.23 in cash and three
notes, each bearing interest of six percent per annum, to be paid as
follows: $1,199,908.06 six months from the settlement effective date;
$1,097,058.80 to be paid twelve months from the effective date; and
$1,371,323.50 to be paid eighteen months from the effective date. The
settlement of this putative class action is contingent on the settlement of
related actions involving claims by First Commercial Trust Company, an
investor in Managers Intermediate and other funds.
First Commercial Trust Company, N.A. v. The Managers Funds, a Massachusetts
Business Trust, Managers Short Government Fund, Managers Intermediate
Mortgage Fund, Managers Short and Intermediate Bond Fund, The Managers
Funds, L.P., EAIMC Holdings Corporation, Evaluation Associates Holding
Corporation, EAI Partners, L.P., Evaluation Associates, Inc., Robert P.
Watson, William W. Graulty, Madeline H. McWhinney, Steven J. Paggioli,
Thomas R. Schneeweis, William J. Crerend, Piper Capital Management Inc.,
Piper Jaffray Companies Inc., Worth Bruntjen, Standish, Ayer & Wood, Inc.,
TCW Funds Management, Inc. and TCW Management Company (Connecticut Superior
Court, Stamford/Norwalk District).
According to the Complaint filed on October 26, 1995, plaintiff First
Commercial Trust Company ("FCTC") is an investor in the Managers Short
Government Fund, the Managers Intermediate Mortgage Fund, and the Managers
Short and Intermediate Bond Fund. Piper Capital was the portfolio asset
manager of the Managers Short Government Fund and the Managers Intermediate
Bond Fund, which are generally managed by The Managers Funds, L.P.
Plaintiff alleged that Piper Jaffray Companies Inc., Piper Capital and
Bruntjen (the "Piper Defendants") engaged in fraud, fraudulent concealment,
breach of contract, breach of fiduciary duty, breach of implied covenant of
good faith and fair dealing, negligent misrepresentation, civil conspiracy,
negligent interference with contractual relations, violation of the
Connecticut Unfair and Deceptive Trade Practices Act, and violation of the
Connecticut Securities Act. Plaintiff seeks compensatory damages in an
unspecified amount, punitive damages, attorneys' fees, interest and costs.
The Piper Defendants joined a motion brought by other defendants to dismiss
the Complaint or, alternatively, to stay the action.
In a declaratory action filed on October 26, 1995 in the United States
District Court, District of Connecticut, the Piper Defendants, along with
The Managers Funds, L.P., The Managers Funds and related persons and
entities sought a declaration that they bear no liability to FCTC. FCTC
brought a motion to dismiss the declaratory action.
The parties have entered into a settlement agreement to resolve these
matters. Pursuant to the settlement agreement, the share of the settlement
to be paid by the Piper Defendants is a total of $1,995,968.75 consisting
of $314,259.10 in cash and three notes, bearing simple interest of six
percent per annum, to be paid as follows: $550,091.95 to be paid six months
from the effective date; $502,941.20 to be paid 12 months from the
effective date; $628,676.50 to be paid 18 months from the effective date.
The settlement of this matter is contingent on the settlement of the
related Hosea/Kopelman Consolidated Action and the settlement will not be
effective until the effective date of the settlement in the Hosea/Kopelman
Consolidated Action.
B. NASDAQ Market-Maker Anti-Trust Securities Litigation Piper Jaffray has been
named as a defendant in several purported class action proceedings that
allege anti-trust violations. Piper Jaffray was joined as defendant in such
actions during July 1994. All actions have been consolidated under the
title In re NASDAQ Market-Maker Anti-Trust and Securities Litigation
(United States District Court, Southern District of New York ).
The plaintiffs allege that thirty-eight defendants, including Piper
Jaffray, that act as dealers on the NASDAQ computerized quotations system,
conspired to raise and fix the spreads between the bid and ask prices of
securities traded on NASDAQ. Plaintiffs further allege that as a result of
such conspiracy, NASDAQ spreads were larger than spreads for stocks traded
on the New York Stock Exchange and the American Stock Exchange. The
purported class consists of all persons in the United States who are
current customers and who bought or sold securities through NASDAQ within
four years prior to the filing of the complaints. Plaintiffs seek treble
damages of an unspecified amount.On December 23, 1997, Piper Jaffray, along
with thirty-six of the remaining firms named in the suit, entered into a
preliminary settlement agreement with the plaintiffs. The settlement
agreement is contingent upon court approval and certain other conditions.
C. Department of Justice NASDAQ Investigation On July 17, 1996, while denying
any wrongdoing, the Company joined in a settlement agreement with
twenty-three other NASDAQ dealers, resolving the U.S. Department of Justice
Investigation of the NASDAQ stock market. Piper Jaffray cooperated fully
with the Justice Department's investigation. Terms of the settlement call
for the defendants to implement certain policies and procedures intended to
address the concerns raised by the U.S. Department of Justice. The
settlement was approved by the United States District Court for the
Southern District of New York on April 22, 1997. On May 21, 1997, the
plaintiffs in the NASDAQ Market-Maker Anti-Trust Securities Litigation
filed a Notice of Appeal with respect to the Justice Department settlement.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1997.
<PAGE>
PART II
All information required in Part II, Items 5 - 8 is contained in the 1997 Annual
Report to Shareholders, incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Age Position Director Since
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Addison L. Piper (3) 51 Chairman of the Board, Chief 1977
Executive Officer and President of
Piper Jaffray Companies Inc.
Andrew S. Duff 40 President of Piper Jaffray, Director 1996
Ralph W. Burnet (1),(2),(3) 52 Director 1988
Christopher E. Clouser (1),(2),(3) 45 Director 1997
Susan E. Engel (1),(2),(3) 51 Director 1997
Kathy Halbreich (1),(2),(3) 48 Director 1994
Robert S. Slifka (1),(2),(3) 56 Director 1988
David Stanley (1),(3) 62 Director 1974
Charles N. Hayssen 46 Chief Information Officer
Bruce C. Huber 50 Director of Equity Capital Markets
Deborah K. Roesler 43 Chief Financial Officer
Ross E. Rogers 49 Director of Individual Investor
Services
Thomas E. Stanberry 43 Director of Fixed Income Capital
Markets
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Executive Compensation Committee
(3) Member of the Governance Committee
Mr. Piper has been Chairman of the Board and Chief Executive Officer of the
Company and of Piper Jaffray for more than five years, and President of the
Company since Oct. 1997.
Mr. Duff has been the President of Piper Jaffray since January 1996. From
October 1994 to January 1996, Mr. Duff served as the Director of Fixed Income
Capital Markets of Piper Jaffray; from February 1993 to October 1994, Manager of
Fixed Income Institutional Sales and Trading of Piper Jaffray; from January 1991
to February 1993, Manager of Institutional Fixed Income Sales of Piper Jaffray;
and from August 1980 to January 1991, Investment Executive, Institutional Fixed
Income Sales of Piper Jaffray.
Mr. Burnet has been Chairman and Chief Executive Officer of Burnet Financial
Group (mortgage banking, insurance, title insurance and real estate brokerage)
since January 1990. From May 1988 to January 1990, Mr. Burnet served as Chairman
and Chief Executive Officer of Fairway International Corporation (real estate
development); and from November 1983 to May 1988, as President of Merrill Lynch
Realty -- Central and East Region (residential and real estate brokerage, title
insurance and mortgage banking).
Mr. Clouser has been Senior Vice President of Northwest Airlines, Inc. (airline
transportation) for more than five years.
Ms. Engel has been Chairman and Chief Executive Officer of Department 56, Inc.
(collectibles and specialty giftware) since Sept. 1997. From Sept. 1994 to Sept.
1997, Ms. Engel was the Chief Executive Officer and President of Department 56,
Inc. From Sept. 1993 to Sept. 1994, Ms. Engel served as owner of Susan Engel
Consulting. From Sept. 1991 to Sept. 1993, Ms. Engel served as Chief Executive
Officer and President of Champion Products, Inc., a division of Sara Lee
(marketer and manufacturer of athletic apparel).
Ms. Halbreich has been Director of the Walker Art Center, Minneapolis, Minn.,
since March 1991. From 1988 to 1990, Ms. Halbreich served as Curator of
Contemporary Art for the Museum of Fine Arts, Boston, Mass.
Mr. Slifka has been an Independent financial consultant since January 1996. From
October 1992 to January 1996, Mr. Slifka served as Chief Executive Officer and
President of Loan Guarantee Investment Corporation (lessor of commercial
equipment under leases originated through commercial banks); from December 1986
to March 1992, as Senior Vice President of ITT Corporation (diversified
manufacturer and supplier of telecommunications equipment and services,
financial and insurance services and industrial and consumer products); and from
March 1989 to October 1991, as Executive Vice President and Group General
Manager of Commercial Financing Activities of ITT Financial Corporation.
Mr. Stanley has been Chairman and Chief Executive Officer of Payless Cashways,
Inc. (building materials specialty retailer) for more than five years. Mr.
Stanley is also a director of Digi International Inc. (computer hardware and
software manufacturer) and Best Buy Co., Inc. (consumer electronics retailer).
Mr. Hayssen has been Chief Information Officer of the Company since January
1996. Mr. Hayssen was Chief Financial Officer from 1987 to August 1995. In
addition, during 1995, he acted as Chief Operation Officer of Piper Capital
Management through December 1995. Mr. Hayssen joined the Company in 1980.
Mr. Huber has been Director of Equity Capital Markets for Piper Jaffray Inc. for
more than five years. Mr. Huber has held several positions since joining the
Company in 1972.
Ms. Roesler has been Chief Financial Officer for the Company since August 1995.
Ms. Roesler joined the Company in 1989 and served as the Company's Controller
through July 1995.
Mr. Rogers has been Director of Individual Investor Services for Piper Jaffray
Inc. since October 1996. From August 1995 to October 1996, Mr. Rogers was a
Regional Director for Individual Investor Services. Prior to joining the Company
in 1995, Mr. Rogers was Executive Vice President and Divisional Director for
Smith Barney from August 1994 to July 1995. From June 1991 to July 1994, Mr.
Rogers was Regional Manager at Shearson American Express.
Mr. Stanberry has been Director of Fixed Income Capital Markets of Piper Jaffray
Inc. since January 1996. Prior to 1996, Mr. Stanberry was an Investment Banker
for Piper Jaffray Inc. since joining the Company in 1989.
Director Compensation
For the fiscal year ended Sept. 30, 1997, each non-employee director of the
Company received a fee of $23,350 for services as a director of the Company and
of Piper Jaffray. All non-employee directors elected to defer all or a portion
of their cash compensation until January of 1998. At that time they will receive
restricted shares of the Company's common stock in lieu of cash compensation at
120% of the cash value for the portion they elected to defer.
The 1993 Piper Jaffray Companies Inc. Omnibus Stock Plan (the "Omnibus Stock
Plan") provides for the nondiscretionary grant of a nonstatutory stock option to
purchase 2,500 shares of common stock of the Company to each non-employee
director on the date of each annual meeting of the Company's shareholders as
compensation for services for the ensuing year. Non-employee directors joining
the board between annual meetings are granted an option to purchase a pro-rata
portion of such number of shares. All non-employee director options have an
exercise price equal to the fair market value of a share of common stock on the
date of grant and become fully exercisable one year after the date of grant.
Compliance With Reporting Requirements
As required by Securities and Exchange Commission rules under Section 16(a) of
the Securities Exchange Act of 1934, and based solely upon review of copies of
forms submitted to the Company during and with respect to the 1997 fiscal year,
all reports required under Section 16(a) were filed on a timely basis.
Item 11. Executive Compensation
Summary of Cash and Certain Other Compensation
The following table sets forth certain information concerning the compensation
of the Company's chief executive officer and each of its four other most highly
compensated executive officers for each of the last three fiscal years.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation ------------
------------------------------------------- Awards
Other ------------ All
Annual Options Other
Fiscal Bonus Compensation (Number of Compensation
Name and Principal Position Year Salary (1) (2) Shares) (3)(4)
- - ------------------------------- ------ -------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Addison L. Piper 1997 $240,000 $ 720,000 $49,452 22,000 9,908
Chairman, President and 1996 235,000 1,045,000 87,461 22,000 12,360
Chief Executive Officer 1995 200,000 500,000 45,842 22,000 13,252
of the Company and Chairman
and Chief Executive Officer
of Piper Jaffray
Andrew S. Duff 1997 185,000 715,000 45,789 17,000 9,158
Managing Director of the 1996 175,000 775,000 61,630 17,000 11,610
Company and President of 1995 135,000 358,000 28,311 27,000 13,252
Piper Jaffray
Bruce C. Huber 1997 165,000 739,500 46,063 14,000 9,908
Managing Director of the 1996 160,000 1,005,000 78,942 14,000 37,721
Company and Director of 1995 135,000 611,000 47,660 14,000 13,252
Equity Capital Markets
of Piper Jaffray
Ross E. Rogers 1997 165,000 710,000 49,574 27,000 9,908
Managing Director of the 1996 140,000 406,000 31,166 - 12,360
Company and Director of
Individual Investor
Services of Piper Jaffray (5)
Thomas E. Stanberry 1997 165,000 535,000 33,578 14,000 9,908
Managing Director of the 1996 160,000 388,000 29,450 27,000 12,360
Company and Director of 1995 135,000 320,000 21,600 - 13,252
Fixed Income Capital
Markets of Piper Jaffray
</TABLE>
- - ------------------
(1) Includes for the years indicated performance bonuses earned pursuant to the
Company's executive compensation program.
(2) Includes for fiscal 1997 payments in lieu of contributions to the ESOP when
the executive's recognized compensation or the executive's share of the
Company's calculated contribution to the ESOP is in excess of IRS limitations.
(3) Includes for fiscal 1997 $9,158 to be contributed by the Company to the ESOP
for each of the named individuals.
(4) Includes for fiscal 1997 matching contributions of $750 made by the Company
to the Piper Jaffray Companies 401(k) Plan for each of the named individuals
except Mr. Duff who did not receive a matching contribution
(5) Mr. Rogers was appointed to the Company's Management Committee effective
Oct. 1996.
Stock Options
The following table summarizes option grants made during the fiscal year ended
Sept. 30, 1997, to the executive officers named in the Summary Compensation
Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at
Percent of Assumed Annual Rates of
Total Stock Appreciation for
Options Options Option Term (3)
Granted Granted Exercise Expiration ------------------------
Name (1) (2) Price Date 5% 10%
- - ------------------- ------- ----------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Addison L. Piper 22,000 13.4% $19.250 1/21/2007 $266,337 $674,950
Andrew S. Duff 17,000 10.4% $19.250 1/21/2007 205,806 521,552
Bruce C. Huber 14,000 8.5% $19.250 1/21/2007 169,487 429,514
Ross E. Rogers 27,000 16.5% $19.250 1/21/2007 326,868 828,348
Thomas E. Stanberry 14,000 8.5% $19.250 1/21/2007 169,487 429,514
</TABLE>
- - ------------------
(1) Options granted pursuant to the Omnibus Stock Plan. Options vest over the
first year of the ten-year option term. The options were granted with an
exercise price equal to the fair market value of the shares on the date of
grant.
(2) Reflects the percent of options granted to employees during the fiscal year
ended Sept. 30, 1997 under the Omnibus Stock Plan.
(3) Potential realized values shown above represent the potential gains based
upon annual compound price appreciation of 5% and 10% from the date of grant
through the full option term. The actual value realized, if any, on stock option
exercises will be dependent upon overall market conditions and the future
performance of the Company and its common stock. There is no assurance that the
actual value realized will approximate the amounts reflected in this table.
The following table summarizes option exercises during the fiscal year ended
Sept. 30, 1997, by the executive officers named in the Summary Compensation
Table, and the value of their unexercised options at Sept. 30, 1997.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Number of Unexercised In-the-Money
Shares Options at Fiscal Year End Option at Fiscal Year End(2)
Acquired on Value -------------------------- ----------------------------
Exercise Realized Unexercisable Exercisable
Name (1) (2) (Shares) (Shares)(3) Unexercisable Exercisable
- - ------------------- ----------- -------- ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Addison L. Piper 3,400 $35,306 22,000 152,920 $248,875 $2,924,762
Andrew S. Duff 0 0 17,000 45,700 192,313 843,419
Bruce C. Huber 0 0 14,000 81,200 158,375 1,422,382
Ross E. Rogers 0 0 27,000 0 305,438 0
Thomas E. Stanberry 0 0 14,000 27,000 158,375 460,688
</TABLE>
- - ------------------
(1) Represents shares acquired upon the exercise of options granted pursuant to
the Company's 1983 Book Value Stock Purchase Plan (the "Book Value Plan").
(2) Value realized and value of unexercised options for options granted pursuant
to the Plan are calculated by determining the difference between the fair market
value of the shares underlying the options at exercise or at Sept. 30, 1997, as
applicable, and the exercise price of the options. Value realized and value of
unexercised options for options granted pursuant to the Book Value Plan are
calculated by determining the difference between (i) the greater of book value
of the shares underlying the options or the fair market value of the freely
transferable shares into which such shares are exchangeable at exercise or at
Sept. 30, 1997, as applicable, and (ii) the exercise price of the options.
(3) Includes shares subject to options granted pursuant to the Book Value Plan
as follows: for Mr. Piper, 8,850; Mr. Duff, 1,700; and Mr. Huber, 5,200.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of common stock of the Company as of Dec. 9, 1997, by each person or
entity known by the Company to own beneficially more than five percent of the
outstanding common stock, each director, each executive officer named in the
Summary Compensation Table within Item 11 of this Form 10-K, and all directors
and executive officers of the Company as a group. Except as otherwise noted
below, the listed beneficial owner has sole voting and investment power with
respect to such shares.
<PAGE>
Number of
Shares Percent of
Beneficially Outstanding
Beneficial Owner Owned Shares
(1)(2)(3) (1)(2)(3)
- - ---------------------------------------------------------------
Piper Jaffray Companies ESOP 7,594,789 39.70
(the "ESOP")
Addison L. Piper 587,293 3.04
Andrew S. Duff 87,329 *
Bruce C. Huber 197,798 1.03
Ross E. Rogers 29,178 *
Thomas E. Stanberry 46,547 *
Ralph W. Burnet 30,481 *
Christopher E. Clouser 1,200 *
Susan E. Engel - *
Kathy Halbreich 6,519 *
Robert S. Slifka 10,519 *
David Stanley 21,181 (4) *
All directors and
executive officers
as a group (13 persons) 1,195,963 6.03
- - ------------------
* Less than 1%
(1) Includes shares held for the benefit of such persons by the ESOP as follows:
Mr. Piper, 74,747; Mr. Duff, 17,829; Mr. Huber, 52,612; Mr. Rogers, 443; Mr.
Stanberry, 5,180; and all directors and executive Officers of the Company as a
group, 224,112.
(2) Includes shares which the following persons have a right to acquire upon
exercise of stock options pursuant to the Omnibus Stock Plan: Mr. Piper,
166,070; Mr. Burnet, 10,000; Mr. Duff, 61,000; Ms. Halbreich, 6,000; Mr. Huber,
90,000; Mr. Rogers, 27,000; Mr. Slifka, 10,000; Mr. Stanberry, 41,000; Mr.
Stanley, 10,000; and all directors and executive officers of the Company as a
group, 822,120.
(3) Includes shares which the following persons have a right to acquire upon
exercise of stock options pursuant to the 1983 Book Value Stock Purchase Plan
(the "Book Value Plan"): Mr. Piper, 8,850; Mr. Duff, 1,700; Mr. Huber, 5,200;
Mr. Rogers, 0; Mr. Stanberry, 0; and all directors and executive officers of the
Company as a group, 35,450.
(4) Does not include 1,180 shares held by a trust for the benefit of an adult
child of Mr. Stanley, in which shares Mr. Stanley disclaims any beneficial
interest.
On Dec. 15, 1997, the Company and U.S. Bancorp announced that they had entered
into an Agreement and Plan of Merger, dated as of December 14, 1997. The $730
million cash transaction, $37.25 per share, is expected to close in the second
calendar quarter of 1998, subject to regulatory and shareholder approval.
Item 13. Certain Relationships and Related Transactions
Certain directors and officers of the Company (and members of the immediate
families of such persons) maintained margin accounts with Piper Jaffray during
the fiscal year ended Sept. 30, 1997, and had margin account indebtedness during
such year. All such indebtedness was incurred in the ordinary course of
business, on substantially the same terms (including interest rates and
collateral) as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a)
1. Consolidated financial statements:
Independent Auditors' Report
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Incorporated herein by reference is the 1997 Annual Report to Shareholders, a
copy of which is filed herewith as Exhibit 13.
2. Financial statement schedules:
Schedule III - Condensed Financial Information of Registrant
Schedules not listed above have been omitted because they are either not
applicable or the required information has been given in the Consolidated
Financial Statements or notes thereto.
(b)
Reports on Form 8-K
The Registrant was not required to file any reports on Form 8-K to the
Securities and Exchange Commission during the quarter ended September 30,
1997.
(c)
Exhibits:
2.1 Agreement and plan of merger dated as of December 14, 1997 by and among
Piper Jaffray Companies Inc., U.S. Bancorp and Cub Acquisition Corporation
(incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission dated December 19, 1997).
3.1 Restated Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Form 10-K for the fiscal
year ended September 27, 1991, as amended by Form 8 dated January 30,
1992, Commission File No. 1-7421).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the
Registrant's Form 10-K for the fiscal year ended September 27, 1991, as
amended by Form 8 dated January 30, 1992, Commission File No. 1-7421).
3.3 Certificate of Ownership & Merger dated April 8, 1992, amending the
Restated Certificate of Incorporation of the Registrant to change the
Registrant's name to Piper Jaffray Companies Inc. (incorporated by
reference to Exhibit 3.3 to the Registrant's Form 10-Q for the quarter
ended March 27, 1992, Commission File No. 1-7421).
3.4 Order Consenting to the Withdrawal of a Registration Statement for
Mortgage-Backed Bonds for Piper Mortgage Acceptance Corporation, a wholly
owned subsidiary of the Registrant, filed May 2, 1997 with the Securities
and Exchange Commission and Certificate of Dissolution issued June 27,
1997 from the State of Delaware.
4.1 Indenture dated July 19, 1988 between Premier Acceptance Corporation, a
wholly owned subsidiary of the Registrant, as issuer, and First Trust
National Association, as trustee, relating to the subsidiary's issuance of
mortgage-backed bonds (incorporated by reference to Exhibit A to Premier
Acceptance Corporation's Form 8-K dated July 22, 1988, Commission File
No.'s 33-21775, 33-25070, 33-33261).*
4.2 Indenture dated as of November 23, 1988 between Premier Acceptance
Corporation, as issuer, and First Bank National Association , as trustee
(incorporated by reference to Exhibit 4.1 to Premier Acceptance
Corporation's Form 8-K dated November 23, 1988, Commission File No.'s
33-21775, 33-25070, 33-33261).*
10.1 Amended and Restated Limited Liability Company Agreement among the
Registrant, Midland Walwyn Capital Corporation and Hercules International
Management l.l.c. dated October 18, 1993. (incorporated by reference to
Exhibit 10.1 of the Registrant's Form 10-K for the fiscal year ended
September 30, 1993, Commission File No. 1-7421).
10.2 Lease Agreement between the Registrant and OB Joint Venture II dated as of
March 31, 1983, including amendments thereto through September 27, 1991,
(portions of the lease have been omitted pursuant to Rule 24b-2
promulgated under the Securities Exchange Act of 1934) (incorporated by
reference to Exhibit 10.2 of the Registrant's Form 10-K for the fiscal
year ended September 27, 1991, as amended by Form 8 dated January 30,
1992, Commission File No. 1-7421).
10.3 1983 Book Value Stock Purchase Plan of the Registrant (incorporated by
reference to Exhibit 10.3 of the Registrant's S-8 Registration Statement
dated January 30, 1987, Commission File No. 33-11657).**
10.4 Deferred Compensation Plan of the Registrant (incorporated by reference to
Exhibit 10.4 of the Registrant's Form 10-K for the fiscal year ended
September 27, 1991, as amended by Form 8 dated January 30, 1992,
Commission File No. 1-7421).**
10.6 Piper Capital Management Incorporated 1988 Phantom Share Incentive Bonus
Plan (incorporated by reference to Exhibit 10.6 of the Registrant's Form
10-K for the fiscal year ended September 27, 1991, as amended by Form 8
dated February 25, 1992, Commission File No. 1-7421).**
10.7 Piper Jaffray Inc. Participating Bonus Agreement for Premier Acceptance
Corporation Transactions (incorporated by reference to Exhibit 10.7 of the
Registrant's Form 10-K for the fiscal year ended September 27, 1991, as
amended by Form 8 dated February 25, 1992, Commission File No. 1-7421).**
10.8 1993 Omnibus Stock Plan of the Registrant (incorporated by reference to
Appendix A to the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders held on January 28, 1993, Commission File No.
1-7421).**
10.9 Piper Jaffray Companies Stock Investment Plan (incorporated by reference
to Exhibit 4.03 of the Registrant's Form S-8 dated June 4, 1994,
Commission File No. 033-53979).**
10.10 Piper Jaffray Companies Inc. 1995 Executive Performance Bonus Plan
(incorporated by reference to Appendix A to the Registrant's definitive
Proxy Statement for the Annual Meeting of Shareholders held on January 25,
1995, Commission File No. 1-7421).**
10.11 Agreement to dissolve Hercules International Management, Limited Liability
Company, between the Registrant and Midland Walwyn Capital Corporation,
dated November 16, 1995.
10.12 Piper Capital Management Incorporated 1995 Phantom Stock Option Plan.**
10.13 Pledge and Collateral Administration Agreement, between Piper Jaffray Inc.
and Northern Trust Company, dated November 23, 1994.
10.14 Credit Agreement, between Piper Jaffray Inc. and Norwest Bank Minnesota,
National Association, dated November 23, 1994.
10.15 Credit Agreement, between Piper Jaffray Inc. and First Bank National
Association, dated November 23, 1994.
10.16 Credit Agreement, between Piper Jaffray Inc. and Northern Trust Company,
dated November 23, 1994.
10.17 First Amendment to Credit Agreement, between Piper Jaffray Inc. and
Norwest Bank Minnesota, National Association, dated December 28, 1994.
10.18 First Amendment to Credit Agreement, between Piper Jaffray Inc. and First
Bank National Association, dated December 27, 1994.
10.19 First Amendment to Credit Agreement, between Piper Jaffray Inc. and
Northern Trust Company, dated December 23, 1994.
10.20 Second Amendment to Credit Agreement, between Piper Jaffray Inc. and
Norwest Bank Minnesota, National Association, dated November 7, 1995.
10.21 Second Amendment to Credit Agreement, between Piper Jaffray Inc. and First
Bank National Association, dated November 7, 1995.
10.22 Second Amendment to Credit Agreement, between Piper Jaffray Inc. and
Northern Trust Company, dated November 9, 1995.
10.23 Piper Jaffray Inc. Second Century Growth Deferred Compensation Plan, dated
September 26, 1996.**
10.24 Loan Agreement between Piper Jaffray Companies Inc. and First Bank
National Association, dated August 27, 1996.
10.25 Fourth Amendment to Credit Agreement and First Amendment to Pledge and
Collateral Administration Agreement, dated May 9, 1997, between Piper
Jaffray Inc. and Norwest Bank Minnesota, N.A.
10.26 Fourth Amendment to Credit Agreement and First Amendment to Pledge and
Collateral Administration Agreement, dated May 9, 1997, between Piper
Jaffray Inc. and Northern Trust Company.
10.27 Fourth Amendment to Credit Agreement and Collateral Agreement, dated May
9, 1997, between Piper Jaffray Inc. and First Bank National Association.
10.28 First Amendment to Credit Agreement and Collateral Agreement, dated May 9,
1997, between Piper Jaffray Companies and First Bank National Association.
11 Statement Re: Computation of Per Share Earnings
13 1997 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
* Premier Acceptance Corporation has filed Registration Statements pursuant
to which $900,000,000 in aggregate principal amount of mortgage-backed
bonds were registered under the Securities Act. The bonds are issued in
series, pursuant to series supplements and supplemental indentures
referenced in Item 14(a)(3) of Premier Acceptance Corporation's Form 10-K
for the fiscal year ended September 30, 1997. Norwest Bank Minnesota,
National Association was appointed successor Trustee under the Indentures
in 1991.
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: December 29, 1997
By:
/s/Addison Piper
Addison L. Piper
Chairman and Chief Executive Officer, and Director
/s/Deborah K. Roesler
Deborah K. Roesler
Managing Director and Chief Financial Officer
/s/Sandra G. Sponem
Sandra G. Sponem
Managing Director and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
Signature Title Signature Title
/s/Ralph W. Burnet Director /s/Christopher E. Clouser Director
Ralph W. Burnet Christopher E. Clouser
/s/Susan E. Engel Director /s/Kathy Halbreich Director
Susan E. Engel Kathy Halbreich
Director /s/David Stanley Director
Robert S. Slifka David Stanley
Dated: December 29, 1997 /s/Andrew S. Duff Director
Andrew Duff
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Piper Jaffray Companies Inc.
Minneapolis, Minnesota
We have audited the consolidated financial statements of Piper Jaffray Companies
Inc. and subsidiaries as of September 30, 1997 and 1996, and for each of the
three years in the period ended September 30, 1997, and have issued our report
thereon dated November 5, 1997; such consolidated financial statements and
report are included in your 1997 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of Piper Jaffray Companies Inc. and subsidiaries, listed in
Item 14(a)2. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/Deloitte & Touche LLP
Minneapolis, Minnesota
November 5, 1997
<PAGE>
Schedule III
PIPER JAFFRAY COMPANIES INC.
Parent Company Only
(Dollars in thousands)
Condensed Statements of Operations
<TABLE>
Year Ended September 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
Revenue
<S> <C> <C> <C>
Interest income $ 264 $ 36 $ 839
Land and facilities rental 263 1,452 896
------------ ------------ ------------
527 1,488 1,735
Expense
Compensation 20,340 15,240 11,176
Interest expense 3,438 3,030 35
Loss on investments 283 432 1,103
Occupancy 10,502 9,784 7,648
Communications 1,921 1,351 652
Travel and promotional 1,600 1,364 1,178
Professional fees 4,314 4,454 1,804
PJIGX settlement, net - - 56,090
Other operating expense
including settlements 59,901 54,055 20,026
------------ ------------ ------------
102,299 89,710 99,712
Holding Company Management Fee (43,199) (34,254) (26,777)
------------ ------------ ------------
Loss before income taxes and equity in
earnings of subsidiaries (58,573) (53,968) (71,200)
Income tax benefit (21,672) (21,047) (27,468)
------------ ------------ ------------
Loss before equity in earnings of
subsidiaries (36,901) (32,921) (43,732)
Equity in earnings of subsidiaries 37,855 40,217 29,614
------------ ------------ ------------
Net income (loss) $ 954 $ 7,296 $ (14,118)
============ ============ ============
</TABLE>
Certain reclassifications have been made to prior year financial statements to
reflect current year presentation.
<PAGE>
Schedule III
PIPER JAFFRAY COMPANIES INC.
Parent Company Only
(Dollars in thousands)
Condensed Statements of Financial Condition
<TABLE>
September 30,
--------------------------
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Cash $ 2 $ 2
Investments in subsidiaries 261,995 228,988
Equipment and leasehold improvements 9,533 9,975
Firm investments, at estimated market value 1,808 2,323
Advances to subsidiaries - 4,379
Deferred income tax assets 31,472 21,274
Other assets 2,745 14,603
------------ ------------
307,555 281,544
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings - 30,000
Employee compensation 27,228 26,238
Advances from subsidiaries 33,687 -
Other liabilities and payables 75,077 58,481
------------ ------------
135,992 114,719
------------ ------------
Shareholders' equity:
Common stock 18,754 18,198
Additional paid-in capital 28,237 19,432
Retained earnings 124,586 129,201
Treasury stock, at cost (14) (6)
------------ ------------
171,563 166,825
------------ ------------
$ 307,555 $ 281,544
============ ============
</TABLE>
Certain reclassifications have been made to prior year financial statements to
reflect current year presentation.
<PAGE>
Schedule III
PIPER JAFFRAY COMPANIES INC.
Parent Company Only
(Dollars in thousands)
Condensed Statements of Cash Flows
<TABLE>
Year Ended September 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss before earnings in subsidiaries $ (36,901) $ (32,921) $ (43,732)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 3,092 3,434 2,101
Deferred income taxes (10,197) 11,644 (32,918)
Decrease (increase) in:
Advances to (from) subsidiaries 38,066 20,945 (17,817)
Firm investments 515 696 10,078
Increase (decrease) in:
Employee compensation 990 7,417 1,198
Dividends received from
subsidiaries 5,569 5,401 5,177
Other 28,454 (44,027) 85,453
------------ ------------ ------------
Net cash provided by
(used in) operating activities 29,587 (27,411) 9,540
Investing activities:
Other changes in investments in
subsidiaries (721) - 2,323
Net additions to equipment and
leaseholds (2,651) (6,393) (3,902)
------------ ------------ ------------
Net cash used in
investing activities (3,371) (6,393) (1,579)
------------ ------------ ------------
Financing activities:
Short-term borrowings (30,000) 30,000 (10,000)
Net common stock issued 15,138 12,840 7,576
Dividends paid (5,569) (5,401) (5,177)
Acquisition of treasury stock (5,785) (3,635) (360)
------------ ------------ ------------
Net cash (used in) provided by
financing activities (26,216) 33,804 (7,961)
------------ ------------ ------------
Increase in cash - - -
Cash at beginning of year 2 2 2
------------ ------------ ------------
Cash at end of year $ 2 $ 2 $ 2
============ ============ ============
</TABLE>
Certain reclassifications have been made to prior year financial statements to
reflect current year presentation.
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Form of Filing
<S> <C> <C>
2.1 Agreement and plan of merger dated as of December 14, 1997 by and
among Piper Jaffray Companies Inc., U.S. Bancorp and Cub Acquisition
Corporation (incorporated by reference to the Company's Form 8-K filed
with the Securities and Exchange Commission dated December 19, 1997).
3.1 Restated Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 of the Registrant's Form 10-K for the
fiscal year ended September 27, 1991, as amended by Form 8 dated
January 30, 1992, Commission File No. 1-7421).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of
the Registrant's Form 10-K for the fiscal year ended September 27,
1991, as amended by Form 8 dated January 30, 1992, Commission File No.
1-7421).
3.3 Certificate of Ownership & Merger dated April 8, 1992, amending the
Restated Certificate of Incorporation of the Registrant to change the
Registrant's name to Piper Jaffray Companies Inc. (incorporated by
reference to Exhibit 3.3 to the Registrant's Form 10-Q for the quarter
ended March 27, 1992, Commission File No.
1-7421).
3.4 Order Consenting to the Withdrawal of a Registration Statement for
Mortgage-Backed Bonds for Piper Mortgage Acceptance Corporation, a
wholly owned subsidiary of the Registrant, filed May 2, 1997 with the
Securities and Exchange Commission and Certificate of Dissolution
issued June 27, 1997 from the State of Delaware.
4.1 Indenture dated July 19, 1988 between Premier Acceptance Corporation,
a wholly owned subsidiary of the Registrant, as issuer, and First
Trust National Association, as trustee, relating to the subsidiary's
issuance of mortgage-backed bonds (incorporated by reference to
Exhibit A to Premier Acceptance Corporation's Form 8-K dated July 22,
1988, Commission File No.'s 33-21775, 33-25070, 33-33261).*
4.2 Indenture dated as of November 23, 1988 between Premier Acceptance
Corporation, as issuer, and First Bank National Association , as
trustee (incorporated by reference to Exhibit 4.1 to Premier
Acceptance Corporation's Form 8-K dated November 23, 1988, Commission
File No.'s 33-21775, 33-25070, 33-33261).*
10.1 Amended and Restated Limited Liability Company Agreement among the
Registrant, Midland Walwyn Capital Corporation and Hercules
International Management l.l.c. dated October 18, 1993 (incorporated
by reference to Exhibit 10.1 of the Registrant's Form 10-K for the
fiscal year ended September 30, 1993, Commission File No. 1-7421).
10.2 Lease Agreement between the Registrant and OB Joint Venture II dated
as of March 31, 1983, including amendments thereto through September
27, 1991, (portions of the lease have been omitted pursuant to Rule
24b-2 promulgated under the Securities Exchange Act of 1934)
(incorporated by reference to Exhibit 10.2 of the Registrant's Form
10-K for the fiscal year ended September 27, 1991, as amended by Form
8 dated January 30, 1992, Commission File No. 1-7421).
10.3 1983 Book Value Stock Purchase Plan of the Registrant (incorporated by
reference to Exhibit 10.3 of the Registrant's S-8 Registration
Statement dated January 30, 1987, Commission File No. 33-11657).**
10.4 Deferred Compensation Plan of the Registrant (incorporated by
reference to Exhibit 10.4 of the Registrant's Form 10-K for the fiscal
year ended September 27, 1991, as amended by Form 8 dated January 30,
1992, Commission File No. 1-7421).**
10.6 Piper Capital Management Incorporated 1988 Phantom Share Incentive
Bonus Plan (incorporated by reference to Exhibit 10.6 of the
Registrant's Form 10-K for the fiscal year ended September 27, 1991,
as amended by Form 8 dated February 25, 1992, Commission File No.
1-7421).**
10.7 Piper Jaffray Inc. Participating Bonus Agreement for Premier
Acceptance Corporation Transactions (incorporated by reference to
Exhibit 10.7 of the Registrant's Form 10-K for the fiscal year ended
September 27, 1991, as amended by Form 8 dated February 25, 1992,
Commission File No. 1-7421).**
10.8 1993 Omnibus Stock Plan of the Registrant (incorporated by reference
to Appendix A to the Registrant's definitive Proxy Statement for the
Annual Meeting of Shareholders held on January 28, 1993, Commission
File No. 1-7421).**
10.9 Piper Jaffray Companies Stock Investment Plan (incorporated by
reference to Exhibit 4.03 of the Registrant's Form S-8 dated June 4,
1994, Commission File No. 033-53979).**
10.10 Piper Jaffray Companies Inc. 1995 Executive Performance Bonus Plan
(incorporated by reference to Appendix A to the Registrant's
definitive Proxy Statement for the Annual Meeting of Shareholders held
on January 25, 1995, Commission File No. 1-7421).**
10.11 Agreement to dissolve Hercules International Management, Limited
Liability Company, between the Registrant and Midland Walwyn Capital
Corporation, dated November 16, 1995.
10.12 Piper Capital Management Incorporated 1995 Phantom Stock Option
Plan.**
10.13 Pledge and Collateral Administration Agreement, between Piper Jaffray
Inc. and Northern Trust Company, dated November 23, 1994.
10.14 Credit Agreement, between Piper Jaffray Inc. and Norwest Bank
Minnesota, National Association, dated November 23, 1994.
10.15 Credit Agreement, between Piper Jaffray Inc. and First Bank National
Association, dated November 23, 1994.
10.16 Credit Agreement, between Piper Jaffray Inc. and Northern Trust
Company, dated November 23, 1994.
10.17 First Amendment to Credit Agreement, between Piper Jaffray Inc. and
Norwest Bank Minnesota, National Association, dated December 28, 1994.
10.18 First Amendment to Credit Agreement, between First Bank National
Association, dated December 27, 1994.
10.19 First Amendment to Credit Agreement, between Northern Trust Company,
dated December 23, 1994.
10.20 Second Amendment to Credit Agreement, between Piper Jaffray Inc. and
Norwest Bank Minnesota, National Association, dated November 7, 1995.
10.21 Second Amendment to Credit Agreement, between Piper Jaffray Inc. and
First Bank National Association, dated November 7, 1995.
10.22 Second Amendment to Credit Agreement, between Piper Jaffray Inc. and
Northern Trust Company, dated November 9, 1995.
10.23 Piper Jaffray Inc. Second Century Growth Deferred Compensation Plan,
dated September 26, 1996.**
10.24 Loan Agreement between Piper Jaffray Companies Inc. and First Bank
National Association, dated August 27, 1996.
10.25 Fourth Amendment to Credit Agreement and First Amendment to Pledge
and Collateral Administration Agreement, dated May 9, 1997, between
Piper Jaffray Inc. and Norwest Bank Minnesota, N.A.
10.26 Fourth Amendment to Credit Agreement and First Amendment to Pledge
and Collateral Administration Agreement, dated May 9, 1997, between
Piper Jaffray Inc. and Northern Trust Company.
10.27 Fourth Amendment to Credit Agreement and Collateral Agreement, dated
May 9, 1997, between Piper Jaffray Inc. and First Bank National
Association.
10.28 First Amendment to Credit Agreement and Collateral Agreement, dated
May 9, 1997, between Piper Jaffray Companies and First Bank National
Association.
11 Statement Re: Computation of Per Share Earnings electronic
transmission
13 1997 Annual Report to Shareholders electronic
transmission
21 Subsidiaries of the Registrant electronic
transmission
23 Independent Auditors' Consent electronic
transmission
27 Financial Data Schedule electronic
transmission
</TABLE>
* Premier Acceptance Corporation has filed Registration Statements pursuant
to which $900,000,000 in aggregate principal amount of mortgage-backed
bonds were registered under the Securities Act. The bonds are issued in
series pursuant to series supplements and supplemental indentures
referenced in Item 14(a)(3) of Premier Acceptance Corporation's Form 10-K
for the fiscal year ended September 30, 1997. Norwest Bank Minnesota,
National Association was appointed successor Trustee under the Indentures
in 1991.
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
Exhibit 11
PIPER JAFFRAY COMPANIES INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
Year Ended September 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
PRIMARY NET INCOME (LOSS) PER SHARE:
<S> <C> <C> <C>
Net income (loss) $ 954 $ 7,296 $ (14,118)
============ ============ ============
Average number of common and common
equivalent shares outstanding: 18,580 17,953 17,300
Average common shares outstanding
Dilutive effect of CSE's:
Book value plan options 155 175 --
Executive incentive stock
options 524 249 --
------------ ------------ ------------
19,259 18,377 17,300
------------ ------------ ------------
Primary net income (loss) per share $ .05 $ .40 $ (.82)
============ ============ ============
NET INCOME (LOSS) PER SHARE
ASSUMING FULL DILUTION:
Net income (loss) $ 954 $ 7,296 $(14,118)
============ ============ ============
Average number of common and common
equivalent shares outstanding: 18,580 17,953 17,300
Average common shares outstanding
Dilutive effect of CSE's:
Book value plan options 184 175 --
Executive incentive stock
options 963 249 --
------------ ------------ ------------
19,727 18,377 17,300
------------ ------------ ------------
Fully diluted net income (loss)
per share $ .05 $ .40 $ (.82)
============ ============ ============
</TABLE>
<TABLE>
FINANCIAL SUMMARY
<CAPTION>
(Dollars in thousands, except per share amounts)
Fiscal years ending September 1997 1996 1995 1994 1993
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue
Commissions $ 218,139 $ 185,301 $ 145,492 $ 147,539 $ 128,940
Profits on principal transactions 162,340 165,284 124,910 101,381 95,656
Investment banking 98,335 98,812 64,138 61,146 112,829
Interest 53,107 41,130 33,765 24,792 19,110
Asset management fees 37,517 37,442 43,913 51,917 40,811
Other income 32,456 25,935 19,489 10,736 13,379
- - --------------------------------------------------------------------------------------------------
Total revenue 601,894 553,904 431,707 397,511 410,725
Interest expense 26,964 16,866 11,741 7,242 4,774
- - --------------------------------------------------------------------------------------------------
Net revenue 574,930 537,038 419,966 390,269 405,951
- - --------------------------------------------------------------------------------------------------
Non-Interest Expense
Employee compensation 372,703 343,518 262,110 245,567 254,198
Other operating expense 200,713 181,559 180,509 104,572 83,441
- - --------------------------------------------------------------------------------------------------
Total non-interest expense 573,416 525,077 442,619 350,139 337,639
- - --------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 1,514 11,961 (22,653) 40,130 68,312
Income Taxes (Benefit) 560 4,665 (8,535) 14,848 27,325
- - --------------------------------------------------------------------------------------------------
Net Income (Loss) $ 954 $ 7,296 $ (14,118) $ 25,282 $ 40,987
==================================================================================================
Per Share Data
Net income (loss) $ .05 $ .40 $ (.82) $ 1.41 $ 2.28
Dividends .30 .30 .30 .70 .50
Shareholders' equity 9.15 9.17 8.90 9.76 9.01
- - --------------------------------------------------------------------------------------------------
Other Data (at year end)
Total assets $1,131,869 $ 923,740 $ 679,763 $ 584,447 $ 535,146
Shareholders' equity $ 171,563 $ 166,825 $ 155,724 $ 167,803 $ 157,912
Common shares outstanding
(in thousands) 18,754 18,197 17,500 17,188 17,089
Total full-time employees 3,133 2,956 2,703 2,658 2,427
Total retail branch offices 89 78 77 74 72
Piper Capital assets under
management (in billions) $ 12.8 $ 9.1 $ 9.4 $ 11.6 $ 12.0
- - --------------------------------------------------------------------------------------------------
</TABLE>
In 1997 eight previous satellite locations were reclassified as
branch offices, which accounts for the majority of the change over 1996.
<PAGE>
MANAGEMENT'S FINANCIAL DISCUSSION
Business Environment
Piper Jaffray Companies Inc. (the Company) is principally engaged in general
securities brokerage, corporate and public finance services, and investment
management. Statements regarding the Company's expectations as to its future
operations and financial condition and certain other information presented in
this Annual Report constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Although the Company
believes that its expectations are based on reasonable assumptions, there is no
assurance that actual results will not differ from expectations as the Company's
businesses are highly competitive and sensitive to many factors, including the
volatility and price level of securities markets; the volume, size and timing of
securities transactions; the demand for investment banking services; and the
level and volatility of interest rates. In addition, a significant portion of
the Company's expense, including salaries, benefits, occupancy and
communications, is relatively fixed and does not vary with market activity.
Consequently, the Company's revenue and net income have been and may continue to
be subject to wide fluctuations.
The accompanying table summarizes the changes in the major categories of revenue
and expense for the past two fiscal years.
<TABLE>
Increase (Decrease) Increase (Decrease)
1997 vs. 1996 1996 vs. 1995
- - --------------------------------------------------------------------------------
(in thousands) Amount % Amount %
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Commissions $ 32,838 18 $ 39,809 27
Profits on principal transactions (2,944) (2) 40,374 32
Investment banking (477) 0 34,674 54
Interest, net 1,879 8 2,240 10
Asset management fees 75 0 (6,471) (15)
Other income 6,521 25 6,446 33
- - --------------------------------------------------------------------------------
Net revenue 37,892 7 117,072 28
- - --------------------------------------------------------------------------------
Non-Interest Expense
Employee compensation 29,185 8 81,408 31
Floor brokerage and clearance 1,557 17 1,182 15
Occupancy and equipment 5,742 16 5,916 19
Communications 3,950 20 4,015 25
Travel and promotional 5,266 31 1,411 9
Charge for PJIGX settlement, net - - (56,090) (100)
Other operating expense 2,639 3 44,616 82
- - --------------------------------------------------------------------------------
Total non-interest expense 48,339 9 82,458 19
- - --------------------------------------------------------------------------------
Income Before Income Taxes (10,447) - 34,614 -
Income Taxes (4,105) - 13,200 -
- - --------------------------------------------------------------------------------
Net Income $ (6,342) - $ 21,414 -
================================================================================
</TABLE>
Operations
Fiscal 1997 vs. Fiscal 1996
The Company's total revenue grew 9 percent in fiscal 1997, exceeding $600
million for the first time in the firm's history. These revenue results
reflected generally favorable conditions in the financial markets throughout the
year. For fiscal 1997, net income was $1.0 million and net income per share was
$0.05, compared to net income of $7.3 million and net income per share of $0.40
in the prior year. The current year's operations include a $6.6 million pretax
charge to earnings for proposed settlement of a derivatives-related class action
lawsuit and a related claim, an additional $24.0 million accrual for the
estimated remaining costs of litigation and regulatory inquiries relating to
funds or assets managed by Piper Capital and certain other litigation matters,
and various other litigation-related costs. The prior year also included various
litigation costs, including $29.5 million in pretax charges for two class action
litigation settlements, as well as other legal settlements, professional fees
and costs related to funds or assets managed by Piper Capital.
Commission revenue increased 18 percent ($32.8 million) over fiscal 1996, with
strong growth in equity commissions and in sales of mutual funds and annuity
products in the Company's retail branch system. The growth in equity
commissions, which are equity transactions in which the Company acts as an
agent, was somewhat influenced by the decision to reduce the number of stocks in
which the Company makes a market. Consequently, while equity commissions
increased, profits on principal transactions dropped 2 percent ($2.9 million),
with most of this decrease coming in the equity secondary market. Revenue in the
equity secondary market also decreased due to downward pressure on spreads from
the new limit order rules implemented in 1997.
Investment banking revenue was essentially flat to the prior year as a slowing
in the equity underwriting calendar was offset by additional merger and
acquisition activity and an increase in the Company's market share of municipal
underwriting business.
Substantial growth in customer margin receivables and higher average levels of
fixed income inventories led to an 8 percent increase in net interest income
($1.9 million) over fiscal 1996. This increase was partially offset by interest
that has been accruing on several structured legal settlements during fiscal
1997. Average assets under management at Piper Capital were essentially flat to
the prior year at approximately $9.4 billion, leading to no substantial change
in asset management fees. However, late in fiscal 1997 Piper Capital acquired an
additional $2.6 billion in assets under management to end the year with a total
of $12.8 billion under management. Other income increased 25 percent ($6.5
million), primarily reflecting growth in the fee-based managed account business.
The Company's non-interest expense grew 9 percent ($48.3 million) in fiscal 1997
including the impact of legal settlements and other related expense.
Growth in revenue-based broker compensation, significant recruiting efforts in
the equity capital markets division, and additions to sales support staff in the
branches and administrative support in headquarters contributed to the 8 percent
increase in employee compensation ($29.2 million).
Occupancy expense increased 16 percent ($5.7 million) in fiscal 1997 due to
addition or expansion of several offices, along with continued spending to build
the Company's technology infrastructure. Implementation of a wide area network
and increases in the installed base of various data services caused
communication expense to increase 20 percent ($4.0 million).
Travel and promotional expense for fiscal 1997 increased 31 percent ($5.3
million) compared to the prior year due to additional promotional campaigns,
expansion of investor conferences and a general increase in visits to clients.
Other operating expense increased 3 percent ($2.6 million). The Company
anticipates other operating expense in fiscal 1998 will be lower than the
previous two years due to a reduction in ongoing litigation expense.
Fiscal 1996 vs. Fiscal 1995
The Company's total revenue was a record $553.9 million in fiscal 1996,
contributing to a solid compound annual revenue growth rate of 16 percent over
the preceding five years. Total revenue increased 28 percent ($122.2 million)
over fiscal 1995, reflecting strong growth in equity secondary markets as well
as a continuation of the active markets for new issues experienced at the end of
fiscal 1995. For fiscal 1996, net income was $7.3 million and net income per
share was $0.40, compared to a net loss of $14.1 million and a net loss per
share of $0.82 in the prior year. Operations for fiscal 1996 included $29.5
million in pretax charges for two class action litigation settlements, as well
as other legal settlements, professional fees and costs related to funds or
assets managed by Piper Capital. Fiscal 1995 also included various litigation
costs, including a $70 million pretax charge to settle Institutional Government
Income Portfolio (PJIGX) mutual fund litigation, partially offset by $13.9
million in insurance proceeds, net of related expense.
Commission revenue, or the income realized in securities transactions in which
the Company acts as agent, increased 27 percent ($39.8 million) over fiscal
1995, reflecting the favorable equity markets and strong sales of mutual fund
products. Profits on principal transactions, or the income realized in
securities transactions in which the Company acts as a secondary market trader
of securities, grew 32 percent ($40.4 million). This growth in principal revenue
was also driven primarily by equity products, with strong revenue increases
recorded by the retail and institutional sales forces. An active corporate
equity underwriting calendar, additional merger and acquisition fees and market
share gains in municipal underwriting contributed to a 54 percent increase in
investment banking revenue ($34.7 million).
Net interest income increased 10 percent ($2.2 million) over fiscal 1995 due to
substantial growth in customer margin receivables and higher average levels of
fixed income inventories. This increase was partially offset by interest that
was accrued on several structured legal settlements during fiscal 1996. Although
assets under management at Piper Capital have remained essentially flat from
1995 year end at $9.1 billion, asset management fees declined 15 percent ($6.5
million) in fiscal 1996. This decline related primarily to the closing of
privately managed accounts and mutual fund net redemptions from fund
reorganizations which occurred during the last quarter of the prior year. Other
income increased 33 percent ($6.4 million), primarily reflecting growth in the
number of wrap fee accounts as well as increases in other non-product revenue.
The Company's non-interest expense grew 19 percent ($82.5 million) in fiscal
1996 including the impact of legal settlements and other litigation and legal
expense.
Employee compensation increased 31 percent ($81.4 million) due to growth in
revenue-based broker compensation, profit-based incentive compensation and
salaries from additions to sales support staff in the branches and
administrative support staff at headquarters.
Investment in the technology infrastructure of the branches and headquarters
along with the addition or expansion of several retail offices contributed to
the 19 percent increase ($5.9 million) in occupancy expense. Related to this
technology investment were increases in data services, which, along with volume
increases in market data quotes, were reflected in the 25 percent ($4.0 million)
increase in communication expense.
Travel and promotional expense for fiscal 1996 increased 9 percent ($1.4
million) compared to the prior year, as lower spending on media advertising and
mutual fund shareholder services was offset by a higher percentage of the sales
force qualifying for incentive trips and increased spending for institutional
travel and conferences.
Other operating expense increased 82 percent ($44.6 million) due primarily to
legal settlements, professional fees and other costs resulting from lawsuits and
arbitrations related to various funds or assets managed by Piper Capital.
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. Securities inventories are stated
at market value and are generally readily marketable. Customers' margin loans
are collateralized by securities and have floating interest rates. Other
receivables and payables with customers and other brokers and dealers usually
settle within a few days. The Company's assets are financed by its equity
capital, bank lines of credit, proceeds from securities lending and securities
sold under agreements to repurchase, in addition to non-interest bearing
liabilities such as checks and drafts payable, payables to customers and
employee compensation payable. 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.
The Company's securities broker/dealer, Piper Jaffray Inc. (Piper Jaffray), is
required by Securities and Exchange Commission regulations to meet certain
liquidity and capital standards. At Sept. 30, 1997, Piper Jaffray had net
capital, as defined in the regulations, of $115.6 million, which exceeded the
minimum net capital requirements by $102.0 million. Piper Jaffray's regulatory
capital consists entirely of shareholder's equity.
The Company's margin loans to customers have increased significantly over 1996
levels. Margin loans to customers totaled $574.9 million at Sept. 30, 1997,
versus $457.0 million a year earlier. The Company regularly reviews the credit
quality of these margin loans.
The Company's securities inventories consist principally of corporate equity and
debt securities and municipal and government debt obligations. Inventories are
maintained generally to provide product and liquidity for the Company's
customers rather than for firm investment or market speculation purposes, and
therefore experience relatively high turnover. At Sept. 30, 1997, approximately
$25.1 million of debt inventories were aged over 30 days. The Company's trading
inventories do not contain a significant amount of securities which derive their
value from other investment products (derivatives). Piper Capital manages mutual
funds and other investment portfolios which do contain such derivatives.
In the ordinary course of business, the Company may hold high-yield debt
obligations which are either unrated or rated below investment grade. At Sept.
30, 1997, Piper Jaffray held approximately $10.9 million of such securities in
inventory. Consistent with Piper Jaffray's inventory pricing policy, these
securities are recorded on a market value basis with unrealized gains and losses
being recognized currently in earnings.
The Company's growth during recent years has been financed principally by the
earnings and borrowings of Piper Jaffray. The ability of Piper Jaffray to fund
the activities of its parent or affiliates is subject to restrictions under
applicable net capital rules as previously mentioned.
Over the past three years, Piper Jaffray entered into operating lease or other
contractual commitments of approximately $9.3 million for personal computer
hardware and software relating to the workstation system for investment
executives. Over half of these commitments expire during fiscal 1998, at which
time they will be considered for renewal. In addition, the Company's current
headquarters lease expires in the year 2000 and the Company intends to enter
into a 14-year commitment on a new headquarters location in fiscal 1998. The
Company expects other capital expenditures in fiscal 1998 to approach $10.3
million. Refer to Note Eight of the financial statements for a summary of the
Company's contractual commitments and contingent liabilities.
At Sept. 30, 1997, Piper Jaffray had $185 million in committed credit agreements
collateralized by customers' margin securities. The committed facility included
up to $95 million in uncommitted lines collateralized by securities inventories.
Piper Jaffray has additional credit facilities which provide $200 million in
uncommitted credit lines collateralized by customers' margin securities, $50
million in uncommitted credit lines collateralized by securities inventories,
and $75 million in uncommitted credit lines collateralized by government
securities inventories. All credit arrangements bear interest at rates based on
the federal funds rate. In addition, at Sept. 30, 1997, the Company had a $15.0
million unsecured line of credit which bears interest at a variable rate based
on LIBOR. Management believes that existing capital, funds from operations,
current credit lines and other available resources will be sufficient to finance
the Company's business.
The Company has structured certain legal settlements related to various funds
and assets managed by Piper Capital. At Sept. 30, 1997, the total payable under
these agreements through Sept. 30, 2002, was $35.0 million. These payments are
expected to be financed through cash flow from operations and available credit
facilities.
The Company is involved in various lawsuits or arbitrations or threatened
lawsuits or arbitrations and regulatory inquiries incidental to its securities
business. Management of the Company, after consultation with counsel, believes
the resolution of these various lawsuits, arbitrations, claims and regulatory
inquiries will have no material adverse effect on the consolidated financial
statements.
Inflation
The Company's net assets are primarily monetary, consisting of cash, securities
inventories and receivables less monetary liabilities. These monetary net assets
are generally liquid in nature and turn over rapidly and thus are not
significantly affected by inflation. However, to the extent that inflation
affects the Company's costs, such costs may not be readily recoverable in the
price of its services.
Concern over inflation is one of the factors influencing the Federal Reserve's
interest rate increases. Actions by the Federal Reserve could cause rates to
increase, which would generally have an unfavorable impact on the Company's
financial results.
Other Matters
Like most corporations, the Company is heavily reliant on technology to deliver
services. As the millennium approaches, the Company is working toward becoming
year 2000 ready. We have developed specific plans to address this issue and are
in the process of implementing them. In this process, the Company expects to
replace some systems and upgrade others. The incremental costs of this project
are not presently expected to be material to the Company's consolidated
financial statements. However, the Company may be adversely impacted if similar
efforts of other organizations are unsuccessful.
Effects of Recent Accounting Standards
Effective in January 1998, the Company will adopt certain provisions of
Statement of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
which are applicable to its business. SFAS No. 125 introduces a financial
components approach which focuses on the recognition of financial assets and
liabilities an entity controls and the derecognition of financial assets and
liabilities for which control has been transferred. The adoption of this
statement is not expected to have a material effect on the Company's financial
condition or results of operations.
In February 1997, SFAS No. 128, Earnings Per Share, was issued and is effective
for financial statements issued for periods ending after Dec. 15, 1997. This
statement changes the method for calculating and disclosing earnings per share.
This statement will not have a material effect on the Company's earnings per
share computations.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended Year Ended
Sept. 30, Sept. 30, Sept. 30,
(in thousands, except per share amounts) 1997 1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Commissions $218,139 $185,301 $145,492
Profits on principal transactions 162,340 165,284 124,910
Investment banking 98,335 98,812 64,138
Interest 53,107 41,130 33,765
Asset management fees 37,517 37,442 43,913
Other income 32,456 25,935 19,489
- - --------------------------------------------------------------------------------
Total revenue 601,894 553,904 431,707
Interest expense 26,964 16,866 11,741
- - --------------------------------------------------------------------------------
Net revenue 574,930 537,038 419,966
- - --------------------------------------------------------------------------------
Non-Interest Expense
Employee compensation 372,703 343,518 262,110
Floor brokerage and clearance 10,876 9,319 8,137
Occupancy and equipment 42,229 36,487 30,571
Communications 23,993 20,043 16,028
Travel and promotional 22,227 16,961 15,550
Charge for PJIGX settlement, net - - 56,090
Other operating expense 101,388 98,749 54,133
- - --------------------------------------------------------------------------------
Total non-interest expense 573,416 525,077 442,619
- - --------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 1,514 11,961 (22,653)
Income Taxes (Benefit) 560 4,665 (8,535)
- - --------------------------------------------------------------------------------
Net Income (Loss) $ 954 $ 7,296 $(14,118)
- - --------------------------------------------------------------------------------
Net Income (Loss) Per Common and Common
Equivalent Share (Primary and Fully
Diluted) $ .05 $ .40 $ (0.82)
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 19,727 18,377 17,300
- - --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Sept. 30, Sept. 30,
(in thousands, except per share amounts) 1997 1996
- - --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash (including $1,361 and $1,863, respectively, which
was required to be segregated under federal and
other regulations) $ 30,862 $ 23,406
Receivable from other brokers and dealers 68,802 87,427
Receivable from customers 640,686 520,489
Trading securities owned, at market 156,779 105,540
Securities purchased under agreements to resell 34,113 12,259
Investments pursuant to mortgage-backed bonds 39,871 44,064
Office equipment and leasehold improvements, at cost
(less accumulated depreciation of $44,574 and
$52,546, respectively) 32,756 30,185
Deferred income tax asset 31,532 21,215
Other assets 96,468 79,155
- - --------------------------------------------------------------------------------
$1,131,869 $923,740
================================================================================
Liabilities and Shareholders' Equity
Short-term borrowings $ 210,805 $183,320
Checks and drafts payable 57,081 70,628
Payable to other brokers and dealers 262,081 109,776
Payable to customers 127,513 160,930
Securities sold under agreements to repurchase 14,810 -
Trading securities sold but not yet purchased,
at market 49,370 27,472
Mortgage-backed bonds payable 40,709 45,333
Employee compensation 96,302 81,740
Other payables and accrued expense 101,635 77,716
- - --------------------------------------------------------------------------------
960,306 756,915
- - --------------------------------------------------------------------------------
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; 18,754,153 and
18,197,725 shares issued, respectively 18,754 18,198
Additional paid-in capital 28,237 19,432
Retained earnings 124,586 129,201
Treasury stock, at cost; 555 and 467 shares,
respectively (14) (6)
- - --------------------------------------------------------------------------------
171,563 166,825
- - --------------------------------------------------------------------------------
$1,131,869 $923,740
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
Common Stock Additional Total
------------------ Paid-In Retained Treasury Shareholders'
(in thousands, except share Shares Amount Capital Earnings Stock Equity
and per share amounts)
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at Sept. 30, 1994 17,188,161 $17,462 $ 7,163 $146,601 $(3,423) $167,803
Net loss (14,118) (14,118)
Net stock issued
(redeemed):
Book value stock
purchase plan (558,991) (559) (2,292) (2,851)
Stock investment plan 244,115 2,734 2,734
ESOP contribution 645,787 646 6,942 7,588
Other 17,082 17 88 105
Cash dividends-$.30 per share (5,177) (5,177)
Treasury stock acquired (35,900) (360) (360)
- - --------------------------------------------------------------------------------------------------
Balances at Sept. 30, 1995 17,500,254 17,566 11,901 127,306 (1,049) 155,724
Net income 7,296 7,296
Net stock issued:
Stock investment plan 347,178 4,678 4,678
ESOP contribution 534,188 534 6,544 7,078
Other 98,138 98 987 1,085
Cash dividends-$.30 per share (5,401) (5,401)
Treasury stock acquired (282,500) (3,635) (3,635)
- - --------------------------------------------------------------------------------------------------
Balances at Sept. 30, 1996 18,197,258 18,198 19,432 129,201 (6) 166,825
Net income 954 954
Net stock issued:
Stock investment plan 332,112 5,776 5,776
ESOP contribution 469,270 469 7,215 7,684
Other 87,158 87 1,590 1,677
Cash dividends-$.30 per share (5,569) (5,569)
Treasury stock acquired (332,200) (5,784) (5,784)
- - --------------------------------------------------------------------------------------------------
Balances at Sept. 30, 1997 18,753,598 $18,754 28,237 124,586 (14) 171,563
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended Year Ended Year Ended
Sept. 30, Sept.30, Sept. 30,
(in thousands) 1997 1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 954 $ 7,296 $ (14,118)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities
Depreciation and amortization 10,715 8,913 7,478
Loss on disposal of fixed assets 441 261 604
Deferred income taxes (10,317) 18,878 (35,903)
Accrual for PJIGX settlement, net
of escrow deposit - - 51,500
Decrease (increase) in
Net receivable from customers (153,614) (66,766) 5,892
Net trading securities (29,341) (40,908) (2,717)
Securities purchased under
agreements to resell (21,854) (12,259) -
Other 6,606 (37,645) 15,868
Increase (decrease) in
Checks and drafts payable (13,547) 26,427 266
Net payable to other brokers
and dealers 170,930 (6,390) 4,584
Employee compensation 14,562 18,062 4,591
Federal and state income taxes
payable - (19,136) 17,855
- - --------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (24,465) (103,267) 55,900
- - --------------------------------------------------------------------------------
Financing Activities
Net change in
Short-term borrowings 27,485 119,539 (44,351)
Securities sold under repurchase
agreements 14,810 - -
Mortgage-backed bonds payable (4,624) (8,744) 52,475
Investments and funds pursuant to
mortgage-backed bonds 4,193 8,885 (51,344)
Payments made on capitalized lease
obligations - (562) (1,577)
Acquisition of treasury stock (5,785) (3,635) (360)
Net common stock issued 15,138 12,841 7,576
Dividends paid (5,569) (5,401) (5,177)
- - --------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 45,648 122,923 (42,758)
- - --------------------------------------------------------------------------------
Net cash used for purchases of office
equipment and leasehold improvements (13,727) (13,595) (7,867)
- - --------------------------------------------------------------------------------
Increase in cash 7,456 6,061 5,275
Cash at beginning of year 23,406 17,345 12,070
- - --------------------------------------------------------------------------------
Cash at end of year $ 30,862 $ 23,406 $ 17,345
- - --------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for
Interest $ 26,534 $ 16,888 $ 11,011
Income taxes (refund) $ (3,940) $ 18,636 $ 9,513
- - --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ONE Summary of Significant Accounting Policies
Piper Jaffray Companies Inc. is the parent company of Piper Jaffray Inc. (Piper
Jaffray), a securities broker/dealer and investment banking firm; Piper Capital
Management Incorporated (Piper Capital), an asset management firm; Piper Trust
Company (Piper Trust), which provides trust services to individuals and
institutions; Piper Jaffray Ventures Inc. (Piper Jaffray Ventures), a private
equity venture capital firm investing in emerging growth companies; Premier
Acceptance Corporation (Premier), an issuer of mortgage-backed bonds; and other
immaterial subsidiaries. All operate within or are related to the securities
industry. The consolidated financial statements include the accounts of Piper
Jaffray Companies Inc. and its subsidiaries (the Company), all of which are
wholly owned. All material intercompany accounts and transactions have been
eliminated. Where appropriate, prior years' financial information has been
reclassified to conform with the current-year presentation.
Customer securities transactions are recorded on a settlement date basis with
the related commission revenue and expense recorded on a trade date basis.
Principal securities transactions are also recorded on trade date.
Substantially all of the Company's assets and liabilities consist of cash and
assets readily convertible to cash and liabilities which by their short-term
nature approximate current fair value. Trading securities owned and trading
securities sold but not yet purchased are stated at market value and are
generally readily marketable. Market value is determined by using published
market quotes or last-traded prices for most securities. In the event a market
price is not available for a security, other valuation methods are used
depending on the type of security and related market.
Securities borrowed and securities loaned are recorded at the amount of the
cash collateral provided for securities borrowed transactions and received for
securities loaned transactions, respectively. The adequacy of the collateral is
continuously monitored and adjusted when deemed necessary to minimize the risk
associated with this activity. Substantially all of these transactions are
executed under master netting agreements, which give the Company right of offset
in the event of counterparty default.
Securities purchased under agreements to resell (reverse repurchase
agreements) and securities sold under repurchase agreements are accounted for as
financing transactions and are recorded at the contract amount at which the
securities will subsequently be resold or reacquired, plus accrued interest.
Depreciation of office equipment is provided using straight-line and
accelerated methods over estimated useful lives of three to seven years.
Leasehold improvements are amortized over the life of the lease.
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. Stock options were antidilutive in fiscal 1995.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenue and expense during the reporting period. Actual results could
differ from those estimates.
Effective Oct. 1, 1997, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, which establishes a fair value-based method of
accounting for stock-based compensation plans. The Company has elected to
continue to follow the guidance of Accounting Principles Board Opinion (APB) No.
25, Accounting for Stock Issued to Employees, for measurement and recognition of
stock-based transactions with employees. Pro-forma impact of this statement is
disclosed in Note Seven to the consolidated financial statements.
Effective in January 1998, the Company will adopt certain provisions of SFAS
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which are applicable to its business. SFAS No.
125 introduces a financial components approach which focuses on the recognition
of financial assets and liabilities which an entity controls and the
derecognition of financial assets and liabilities for which control has been
transferred. The adoption of this statement is not expected to have a material
effect on the Company's financial condition or results of operations.
In February 1997, SFAS No. 128, Earnings Per Share, was issued and is
effective for financial statements issued for periods ending after Dec. 15,
1997. This statement changes the method for calculating and disclosing earnings
per share. This statement will not have a material effect on the Company's
earnings per share computations.
TWO Receivable From and Payable to Customers
(in thousands) Amounts receivable from customers include cash accounts totaling
$65,772 and $63,506 and margin accounts totaling $574,914 and $456,983 at Sept.
30, 1997 and 1996, respectively. Substantially all receivables from customers
are collateralized by customers' marketable securities.
THREE Receivable From and Payable to Brokers and Dealers
<TABLE>
Sept. 30, Sept. 30,
(in thousands) 1997 1996
- - -------------------------------------------------------------------
<S> <C> <C>
Receivable From Brokers and Dealers
Deposits for securities borrowed $ 29,686 $ 17,945
Securities failed to deliver 13,915 13,154
Clearing organizations, correspondent
brokers and others 25,201 56,328
- - -------------------------------------------------------------------
$ 68,802 $ 87,427
- - -------------------------------------------------------------------
Payable to Brokers and Dealers
Deposits for securities loaned $ 237,989 $ 100,322
Securities failed to receive 14,082 9,100
Clearing organizations, correspondent
brokers and others 10,010 354
- - -------------------------------------------------------------------
$ 262,081 $ 109,776
- - -------------------------------------------------------------------
</TABLE>
Securities failed to deliver and receive represent the contract value of
securities which have not been delivered or received by settlement date.
Securities borrowed and securities loaned are recorded at the amount of
collateral advanced or received in connection with the transaction. Securities
borrowed transactions require the Company to deposit cash or other collateral
with the lender. With respect to securities loaned, the Company receives cash or
other collateral. The initial collateral advanced or received has a market value
equal to or greater than the market value of the securities borrowed and loaned.
The Company monitors the market value of the securities borrowed and loaned on a
daily basis and requests additional collateral or returns excess collateral, as
appropriate.
FOUR Trading Securities
Trading securities are as follows (at market value):
<TABLE>
Sept. 30, Sept. 30,
(in thousands) 1997 1996
- - -----------------------------------------------
<S> <C> <C>
Owned
Corporate securities
Equity $ 15,413 $ 18,818
Fixed income 48,587 31,544
Government securities 29,607 8,072
Municipal securities 63,172 47,106
- - -----------------------------------------------
$156,779 $105,540
- - -----------------------------------------------
Sold But Not Yet Purchased
Corporate securities
Equity $ 13,519 $ 12,834
Fixed income 3,049 2,089
Government securities 28,632 12,306
Municipal securities 4,170 243
- - -----------------------------------------------
$ 49,370 $ 27,472
- - -----------------------------------------------
</TABLE>
FIVE Short-Term Borrowings
Piper Jaffray borrows from banks under various committed and uncommitted secured
lines of credit principally to finance customers' purchases on margin and dealer
trading securities. These borrowings are primarily collateralized by securities
held in customer margin accounts and trading securities owned and bear interest
at rates based on the federal funds rate. At Sept. 30, 1997, the market value of
customer securities and firm inventory pledged as collateral against outstanding
borrowings was approximately $323.0 million and approximately $299.0 million of
additional credit was available, subject to collateral requirements, under
committed and uncommitted lines of credit. As of Sept. 30, 1997, no formal
compensating balance agreements existed and Piper Jaffray was in compliance with
all debt covenants related to these committed facilities. In addition, the
Company has a $15.0 million unsecured line of credit which was fully available
at Sept. 30, 1997.
SIX Mortgage-Backed Bonds
(in thousands) Premier periodically issues bonds which are collateralized by
GNMA and FNMA certificates. The bonds are obligations solely of Premier and
bondholders' only recourse is to the underlying series' collateral. The
collateral, which was purchased with the issuance proceeds, is held by a
trustee. The collateral is carried at market value, which approximates amortized
cost and is based on quoted market prices. Principal and interest payments on
the collateral are used to meet the debt service of the mortgage-backed bonds.
During fiscal 1995, Premier issued three series of mortgage-backed bonds with
an aggregate principal amount of $54,400. Prior to fiscal 1995, Premier issued
six series of mortgage-backed bonds with a remaining aggregate principal amount
of $17,486 and purchased related collateral which has been accounted for
financial reporting purposes as a sale. Accordingly, the assets, liabilities,
interest income and interest expense relating to these series do not appear on
the consolidated financial statements of the Company.
Interest revenue and expense related to mortgage-backed bonds have been
recorded net in the consolidated statements of income. Gross interest revenue
was $3,490, $3,994 and $3,412, and interest expense was $3,528, $4,062 and
$3,512 for fiscal years 1997, 1996 and 1995, respectively.
SEVEN Shareholders' Equity
The Company has authorized the repurchase of 1,650,000 shares of its common
stock to satisfy employee benefit plan obligations, of which 332,200, 282,500
and 35,900 shares were repurchased during fiscal 1997, 1996 and 1995,
respectively. At Sept. 30, 1997, approximately 420,000 shares remained available
for repurchase.
On Nov. 4, 1997, the board of directors declared a quarterly dividend of 7.5
cents per share, payable on Dec. 9, 1997, to shareholders of record on Nov. 25,
1997. Also on Nov. 4, the board of directors approved the fiscal 1997 ESOP
contribution of approximately $13.4 million. This contribution will be made 50
percent in cash and 50 percent in the Company's common stock, thereby increasing
shareholders' equity by $6.7 million in the first quarter of fiscal 1998.
Stock Plans
Effective July 1, 1994, the Company offered the Piper Jaffray Companies Stock
Investment Plan, which allows eligible employees the opportunity to purchase the
Company's common stock at a discount through after-tax payroll deductions. Each
month the payroll deductions are used to purchase the Company's common stock at
85 percent of the closing market price on the last day of the month. The plan
provides for 2.0 million shares of common stock to be purchased by employees
under the plan. The Company satisfies the share obligations by reissuing
treasury shares. At Sept. 30, 1997, a total of 986,113 common shares had been
issued.
The Company's 1983 Book Value Stock Purchase Plan provided for up to 3.2
million shares to be sold to certain key employees. Effective Nov. 9, 1993, the
Board suspended offerings under this plan and no additional shares are expected
to be issued, but the status of the outstanding shares and options under the
plan is unchanged. The plan allowed certain employees the right to purchase the
Company's common stock at a price equal to the book value per share at the time
of sale. These shares are entitled to full dividend and voting rights. Within
seven years from date of issuance, the shares must have been sold back to the
Company at the current book value per share or exchanged for a specific number
of freely transferrable shares based on the relative market and book values at
the date of purchase. Any shares repurchased or exchanged by the Company may be
reissued under the plan. Stock options have also been granted under the plan for
additional book value shares. Shares acquired by an employee upon the exercise
of an option would generally be subject to the same rights and restrictions
described above.
The Company issues executive incentive stock options to certain employees to
purchase shares of the Company's common stock under the 1993 Piper Jaffray
Companies Inc. Omnibus Stock Plan. The number of shares available for
distribution under the plan shall not exceed 2.0 million and 439,550 shares
remained available as of Sept. 30, 1997. During fiscal 1995 executive incentive
stock options totaling 405,250 were canceled to provide approximately 600,000
special option grants to certain key employees. The purchase price of each share
subject to an option is fixed, but is not less than 100 percent of the fair
market value at the time the option is granted. Options expire 10 years from the
date of grant or earlier as determined by the Company and have vesting lives
ranging from one to five years. No charges have been made to operations under
this plan.
The Company applies the provisions of APB No. 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for its employee stock
plans. Accordingly, as options granted under the plans are either
"non-compensatory" or have exercise prices equal to market value at the time the
option is granted, under APB No. 25 no compensation expense has been recognized.
A summary of the Company's stock options as of Sept. 30, 1997, 1996 and 1995,
and changes during the years ending on those dates is presented as follows:
<TABLE>
Fiscal years ending Sept. 30, 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Price Shares Average Price Shares Average Price Shares
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Book Value Plan Shares
Outstanding
Beginning of year $ 5.20 729,250 $ 4.92 923,500 $ 5.03 1,719,800
Options exercised 4.66 79,600 3.93 51,100 3.75 64,650
Converted to market shares 4.20 (322,250) 3.50 (214,600) 3.43 (254,000)
Repurchased 5.86 (13,150) 6.53 (30,750) 5.73 (606,950)
- - -----------------------------------------------------------------------------------------------------------
End of year $ 5.77 473,450 $ 5.20 729,250 $ 4.92 923,500
- - -----------------------------------------------------------------------------------------------------------
Book Value Plan Shares
Available Under Options
Beginning of year $ 5.66 280,850 $ 5.42 339,750 $ 5.18 427,000
Exercised 4.66 (79,600) 3.93 (51,100) 3.75 (64,650)
Canceled 6.36 (4,350) 6.37 (7,800) 5.76 (22,600)
- - -----------------------------------------------------------------------------------------------------------
End of year $ 6.05 196,900 $ 5.66 280,850 $ 5.42 339,750
- - -----------------------------------------------------------------------------------------------------------
Executive Incentive Stock
Options Outstanding
Beginning of year $ 11.56 1,495,420 $ 11.17 1,372,820 $ 12.95 1,020,220
Granted 19.25 164,000 13.50 175,000 10.43 769,850
Exercised 11.26 (80,600) 4.75 (24,000) 4.25 (12,000)
Canceled 11.01 (32,850) 10.38 (28,400) 14.10 (405,250)
- - -----------------------------------------------------------------------------------------------------------
End of year $ 12.41 1,545,970 $ 11.56 1,495,420 $ 11.17 1,372,820
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
As of Sept. 30, 1997, the 1,742,870 options outstanding have exercise prices
between $4.25 and $19.25 and a weighted average contractual life of 6.2 years.
There are 1,073,520 options currently exercisable with a weighted average price
of $11.15.
If compensation expense for the Company's stock plans had been determined
based on the estimated fair value of the options granted, consistent with SFAS
No. 123, Accounting for Stock-Based Compensation, the Company's net earnings and
earnings per share would have been reduced to $453,000 and $0.02, respectively,
in 1997, and $6,967,000 and $0.38, respectively, in 1996. The fair values of
options granted were calculated using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 1997 and
1996, respectively: risk-free interest rate of 6.0 percent and 6.5 percent;
expected volatility of 35.3 percent in both years; dividend yield of 1.0 percent
and 2.5 percent; expected lives of six years.
EIGHT Commitments and Contingent Liabilities
(in thousands) The Company and its subsidiaries lease office space and equipment
under various noncancelable leases. Certain leases have renewal options and
clauses for escalation and operating cost adjustments.
Aggregate minimum lease commitments as of Sept. 30, 1997, under operating
leases and various other contractual commitments are as follows for the fiscal
years ending in September:
- - -----------------------------
1998 $27,852
1999 24,664
2000 17,164
2001 9,902
2002 7,397
Thereafter 11,791
- - -----------------------------
$98,770
Rental expense, including operating costs and real estate taxes, charged to
operations was $40,947, $35,078 and $27,779 in fiscal years 1997, 1996 and 1995,
respectively. The Company's current headquarters lease expires in the year 2000
and the Company intends to enter into a 14-year commitment on a new headquarters
location in fiscal 1998.
In the normal course of business, the Company enters into underwriting and
other commitments. The ultimate settlement of such transactions open at year end
is not expected to have a material effect on the consolidated financial
statements.
NINE Litigation
The Company's fiscal 1997 operations included a $6.6 million pretax charge
related to a proposed settlement on its final derivatives-related class action
lawsuit and a related claim, a $24.o million pretax charge for the estimated
remaining costs of litigation and regulatory inquiries relating to funds or
assets managed by Piper Capital and costs for certain other litigation matters,
and various other litigation-related costs. The Company's fiscal 1996 operations
included $29.5 million in pretax charges for two class action litigation
settlements, as well as other legal settlements, professional fees and costs
related to funds or assets managed by Piper Capital. In addition, fiscal 1995
also included various litigation costs, including a $70.0 million pretax charge
to settle Institutional Government Income Portfolio (PJIGX) litigation,
partially offset by $13.9 million in insurance proceeds, net of related expense.
The pretax charges taken in fiscal 1997 represent the final anticipated costs to
the Company of litigation related to funds or assets managed by Piper Capital.
The Company has structured certain legal settlements related to various funds
and assets managed by Piper Capital. At Sept. 30, 1997, the total payable under
these agreements through Sept. 30, 2002, was $35.0 million.
The Company is involved in various other lawsuits or arbitrations or
threatened lawsuits or arbitrations and regulatory inquiries incidental to its
securities business. Management of the Company, after consultation with counsel,
believes the resolution of these various lawsuits, arbitrations, claims and
regulatory inquiries will have no material adverse effect on the consolidated
financial statements.
TEN Financial Instruments With Off-Balance-Sheet Risk
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).
Piper Capital manages mutual funds and other investment portfolios which do
contain such derivatives.
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, as does the
securities industry, 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.
Concentrations of Credit Risk
The Company provides investment, financing and related services to a diverse
group of domestic and foreign customers including governments, corporations, and
institutional and individual investors. The Company's exposure to credit risk
associated with the nonperformance of customers in fulfilling their contractual
obligations pursuant to securities transactions can be directly impacted by
volatile securities markets, credit markets and regulatory changes. This
exposure is measured on an individual customer basis, as well as for groups of
customers that share similar attributes. To alleviate the potential for risk
concentrations, credit limits are established and continually monitored in light
of changing customer and market conditions.
As of Sept. 30, 1997, the Company did not have significant concentrations of
credit risk with any one single or group of customers or counterparties.
ELEVEN Net Capital Requirements
(in thousands) Piper Jaffray is subject to the Uniform Net Capital Rule (the
Rule) of the Securities and Exchange Commission (SEC) and the net capital rule
of the New York Stock Exchange (the Exchange). Piper Jaffray has elected to use
the alternative method permitted by the Rule, which requires that it maintain
minimum net capital of 2 percent of aggregate debit balances arising from
customer transactions. The Exchange may prohibit a member firm from expanding
its business or paying cash dividends if resulting net capital would be less
than 5 percent of aggregate debit balances. In addition, Piper Jaffray is
subject to certain notification requirements related to withdrawals of excess
net capital.
At Sept. 30, 1997, net capital under the Rule was $115,554 or 17 percent of
aggregate debit balances and $102,016 in excess of the minimum required net
capital.
TWELVE Employee Benefit Plans
(in thousands) The Company has qualified employee stock ownership (ESOP) and
401(k) plans which cover substantially all employees. The plans are
self-administered and may be altered or terminated at any time by the Company.
The Company's contributions to the plans are determined by the board of
directors within limits to qualify as deductions for income tax purposes.
Charges to operations for contributions to the ESOP were $18,853, $21,803 and
$17,971 in fiscal years 1997, 1996 and 1995, respectively. Contribution expense
for the 401(k) plan was $2,212, $1,991 and $1,693 in fiscal years 1997, 1996 and
1995, respectively.
THIRTEEN Income Taxes
The provision (benefit) for income taxes consists of:
<TABLE>
Year Ended Year Ended Year Ended
Sept. 30, Sept. 30, Sept. 30,
(in thousands) 1997 1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 8,519 $ (12,904) $ 22,188
State 2,358 (1,309) 5,180
- - --------------------------------------------------------------------------------
10,877 (14,213) 27,368
Changes in deferred taxes
Federal (9,099) 16,478 (31,290)
State (1,218) 2,400 (4,613)
- - --------------------------------------------------------------------------------
(10,317) 18,878 (35,903)
- - --------------------------------------------------------------------------------
$ 560 $ 4,665 $ (8,535)
================================================================================
The sources of the changes in deferred
taxes are
Deferred employee compensation $ 678 $ 8,343 $ (5,870)
Partnership investment losses 364 411 252
Capital infusion for proprietary fund - - 2,000
Litigation settlement 1,813 21,334 (27,000)
Other, principally accruals or their
reversal, not currently deductible
for tax purposes (13,172) (11,210) (5,285)
- - --------------------------------------------------------------------------------
$ (10,317) $ 18,878 $ (35,903)
================================================================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes using enacted tax rates in
effect in the years in which the differences are expected to reverse. The tax
effects of significant items comprising the Company's net deferred tax assets
are as follows:
<TABLE>
Year Ended Year Ended
Sept. 30, Sept. 30,
1997 1996
- - --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Accruals not currently deductible $ 36,023 $ 27,366
Litigation settlement 2,853 4,666
Other, including mark-to-market accounting
and depreciation 4,655 1,090
- - --------------------------------------------------------------------------------
43,531 33,122
- - --------------------------------------------------------------------------------
Deferred tax liabilities
Partnership investments 9,477 8,984
Other, including mark-to-market accounting
and prepaid expense 2,522 2,923
- - --------------------------------------------------------------------------------
11,999 11,907
- - --------------------------------------------------------------------------------
Net deferred tax assets $ 31,532 $ 21,215
================================================================================
</TABLE>
Reconciliations of the expected federal income tax provision (benefit) and the
actual income taxes provided are as follows:
<TABLE>
Year Ended Year Ended Year Ended
Sept. 30, Sept. 30, Sept. 30,
1997 1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed federal income tax at the
weighted statutory rate of
35 percent $ 530 $ 4,186 $ (7,929)
Increase (reduction) in taxes resulting
from
State income taxes net of federal
tax benefit 562 1,241 (394)
Net tax-exempt municipal bond interest (1,223) (1,062) (872)
Other 691 300 660
- - --------------------------------------------------------------------------------
Income taxes (benefit) provided $ 560 $ 4,665 $ (8,535)
================================================================================
Effective tax rate 37.0% 39.0% 37.7%
- - --------------------------------------------------------------------------------
</TABLE>
The Company expects to fully realize the benefit of deferred tax assets given
its historical earnings. Accordingly, no valuation allowance has been
established.
<PAGE>
REPORT OF MANAGEMENT
Financial Reporting Responsibility
Management is responsible for the content of the consolidated financial
statements of Piper Jaffray Companies Inc. The statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgments. The financial information
throughout the Annual Report is consistent with that in the financial
statements.
To meet its responsibility for the integrity of the financial statements,
management relies on an internal control structure that recognizes that there
are inherent limitations in all internal control structures, and that the cost
of such a structure should never exceed the benefits to be derived. Management
believes its internal control structure provides reasonable assurance that the
consolidated financial statements are free of material misstatement.
The internal control structure is reviewed by the internal audit staff and the
independent auditors, Deloitte & Touche LLP, also consider the internal control
structure in performing their audit. The audit committee of the board of
directors, comprising outside directors, also provide oversight of the internal
control structure. The audit committee meets periodically with the director of
internal audit and with Deloitte & Touche LLP to review matters related to the
internal control structure, and to discuss the nature, extent and results of
audit efforts. Such meetings are held with and without management present.
The consolidated financial statements have been audited by Deloitte & Touche
LLP. Their report expresses their independent professional opinion as to the
fairness of the financial statements and is based upon audits made in accordance
with generally accepted auditing standards.
/s/Addison L. Piper
Addison L. Piper
President, Chief Executive Officer and
Chairman of the Board of Directors
Piper Jaffray Companies
/s/Deborah K. Roesler
Deborah K. Roesler
Chief Financial Officer
Piper Jaffray Companies
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Piper Jaffray Companies Inc.
Minneapolis, Minn.
We have audited the accompanying consolidated statements of financial condition
of Piper Jaffray Companies Inc. and subsidiaries as of Sept. 30, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended Sept. 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Piper Jaffray Companies Inc. and
subsidiaries as of Sept. 30, 1997 and 1996, and the results of their operations
and cash flows for each of the three years in the period ended Sept. 30, 1997,
in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
Minneapolis, Minn.
Nov. 5, 1997
<PAGE>
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share amounts) First Second Third Fourth
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1997
Total revenue $138,829 $153,282 $145,407 $164,376
Income (loss) before income taxes 2,983 11,761 10,466 (23,696)
Net income (loss) 1,820 7,469 6,593 (14,928)
Net income (loss) per share .10 .39 .34 (.80)
Fiscal 1996
Total revenue $132,526 $137,592 $147,631 $136,155
Income (loss) before income taxes 10,908 (3,987) (2,256) 7,296
Net income (loss) 6,654 (2,294) (1,514) 4,450
Net income (loss) per share .37 (.13) (.08) .24
Market Prices and Dividends Per Share
Fiscal 1997
Market Price Range
High $ 16.625 $ 19.375 $ 22.500 $ 30.563
Low 11.375 13.875 13.750 20.750
Dividends Paid .075 .075 .075 .075
Fiscal 1996
Market Price Range
High $ 14.125 $ 14.500 $ 13.750 $ 12.375
Low 11.625 12.875 12.500 11.625
Dividends Paid .075 .075 .075 .075
- - ------------------------------------------------------------------------------------
</TABLE>
The common stock of Piper Jaffray Companies Inc. (NYSE:PJC) is listed on the New
York Stock Exchange. At Nov. 28, 1997, there were approximately 652 registered
shareholders of the Company's common stock.
Cash dividends have been paid on common shares in each year since 1971. The
Company's policy is to pay regular quarterly dividends on the common stock in
March, June, September and December. On Nov. 4, 1997, the board of directors
declared a quarterly dividend of 7.5 cents per share of its common stock.
The fourth quarter of fiscal 1997 included a $6.6 million pretax charge for a
derivatives-related class action lawsuit and a related claim. Results also
reflected a $24.0 million pretax accrual for the estimated remaining cost of
litigation and regulatory inquiries relating to funds or assets managed by Piper
Capital and other litigation matters.
The second and third quarters of fiscal 1996 included $14.0 million and $15.5
million, respectively, in pretax charges for class action litigation
settlements.
Exhibit 21
PIPER JAFFRAY COMPANIES INC.
SUBSIDIARIES OF THE REGISTRANT
September 30, 1997
Percentage
of Voting
State of Securities
Subsidiary Name Incorporation Owned
- - --------------------------------------------------------------------------------
Piper Jaffray Inc. Delaware 100%
Piper Jaffray International Inc. Delaware 100%
(a wholly owned subsidiary of Piper Jaffray Inc.)
Piper Capital Management Incorporated Delaware 100%
Piper Trust Company Minnesota 100%
Premier Acceptance Corporation Delaware 100%
Piper Realty Management Incorporated Delaware 100%
Piper Jaffray Ventures, Inc. Delaware 100%
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-88699, No. 33-4542 and No. 33-11657 on Form S-8, of our report dated November
5, 1997 appearing in and incorporated by reference in the Annual Report on Form
10-K of Piper Jaffray Companies Inc. for the fiscal year ended September 30,
1997.
/s/Deloitte & Touche LLP
Minneapolis, Minnesota
December 23, 1997
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PIPER JAFFRAY COMPANIES INC. AS OF
AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 30,862
<RECEIVABLES> 709,488
<SECURITIES-RESALE> 34,113
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 196,650
<PP&E> 32,756
<TOTAL-ASSETS> 1,131,869
<SHORT-TERM> 210,805
<PAYABLES> 446,675
<REPOS-SOLD> 14,810
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 49,370
<LONG-TERM> 40,709
0
0
<COMMON> 18,754
<OTHER-SE> 152,809
<TOTAL-LIABILITY-AND-EQUITY> 1,131,869
<TRADING-REVENUE> 162,340
<INTEREST-DIVIDENDS> 53,107
<COMMISSIONS> 218,139
<INVESTMENT-BANKING-REVENUES> 98,335
<FEE-REVENUE> 37,517
<INTEREST-EXPENSE> 26,964
<COMPENSATION> 372,703
<INCOME-PRETAX> 1,514
<INCOME-PRE-EXTRAORDINARY> 1,514
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 954
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
