Piper Sandler Companies (PIPR) 10-Q 2010 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the Quarterly Period Ended March 31, 2010

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                    to                    

Commission File No. 001-31720

PIPER JAFFRAY COMPANIES

(Exact Name of Registrant as specified in its Charter)

DELAWARE	30-0168701
(State or Other Jurisdiction of	(IRS Employer Identification No.)
Incorporation or Organization)
800 Nicollet Mall, Suite 800
Minneapolis, Minnesota	55402
(Address of Principal Executive Offices)	(Zip Code)

(612) 303-6000
(Registrant’s Telephone Number, Including Area Code)

     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. Yesþ Noo

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer:þ	Accelerated filer:o	Non-accelerated filer:o	Smaller reporting company:o
	(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yeso Noþ

     As of May 3, 2010, the registrant had 20,758,423 shares of Common Stock outstanding.

Piper Jaffray Companies

Index to Quarterly Report on Form 10-Q

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	3
Consolidated Statements of Financial Condition as of March 31, 2010 and December 31, 2009	3
Consolidated Statements of Operations for the three months ended March 31, 2010 and March 31, 2009	4
Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and March 31, 2009	5
Notes to Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosures About Market Risk	41
Item 4. Controls and Procedures	41
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	41
Item 1A. Risk Factors	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6. Exhibits	42
Signatures	43
Exhibit Index	44
EX-10.1
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32.1

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Piper Jaffray Companies

Consolidated Statements of Financial Condition

	March 31,			December 31,
	2010			2009
(Amounts in thousands, except share data)	(Unaudited)
Assets
Cash and cash equivalents	$	40,483		$	43,942
Cash and cash equivalents segregated for regulatory purposes		8,006			9,006
Receivables:
Customers		48,713			71,859
Brokers, dealers and clearing organizations		185,838			244,051
Deposits with clearing organizations		26,439			18,010
Securities purchased under agreements to resell		366,284			149,682
Financial instruments and other inventory positions owned		547,456			662,618
Financial instruments and other inventory positions owned and pledged as collateral		397,545			137,371
Total financial instruments and other inventory positions owned		945,001			799,989
Fixed assets (net of accumulated depreciation and amortization of $61,266 and $59,563, respectively)		16,022			16,596
Goodwill		317,034			164,625
Intangible assets (net of accumulated amortization of $11,662 and $10,686, respectively)		66,050			12,067
Other receivables		40,890			33,868
Other assets		126,112			139,635
Total assets	$	2,186,872		$	1,703,330
Liabilities and Shareholders’ Equity
Short-term financing	$	93,520		$	90,079
Variable rate senior notes		120,000			120,000
Payables:
Customers		40,458			48,179
Checks and drafts		6,235			8,622
Brokers, dealers and clearing organizations		59,668			71,818
Securities sold under agreements to repurchase		451,585			36,134
Financial instruments and other inventory positions sold, but not yet purchased		493,395			335,795
Accrued compensation		36,090			157,022
Other liabilities and accrued expenses		47,498			57,065
Total liabilities		1,348,449			924,714
Shareholders’ equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at March 31, 2010 and December 31, 2009;
Shares issued: 19,504,948 at March 31, 2010 and December 31, 2009;
Shares outstanding: 16,046,337 at March 31, 2010 and 15,633,690 at December 31, 2009		195			195
Additional paid-in capital		843,786			803,553
Retained earnings		155,703			155,193
Less common stock held in treasury, at cost: 3,458,611 shares at March 31, 2010 and 3,871,258 shares at December 31, 2009		(161,728	)		(181,443	)
Other comprehensive income		467			1,118
Total shareholders’ equity		838,423			778,616
Total liabilities and shareholders’ equity	$	2,186,872		$	1,703,330

See Notes to Consolidated Financial Statements

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Piper Jaffray Companies

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
(Amounts in thousands, except per share data)	2010		2009
Revenues:
Investment banking	$	43,748	$	24,350
Institutional brokerage		49,095		55,027
Interest		11,120		7,288
Asset management		9,154		3,009
Other income/(loss)		2,927		(3,599	)
Total revenues		116,044		86,075
Interest expense		6,458		2,193
Net revenues		109,586		83,882
Non-interest expenses:
Compensation and benefits		65,096		50,324
Occupancy and equipment		7,669		6,518
Communications		6,489		6,099
Floor brokerage and clearance		2,617		2,882
Marketing and business development		5,322		4,445
Outside services		8,004		7,519
Other operating expenses		5,234		2,551
Total non-interest expenses		100,431		80,338
Income before income tax expense		9,155		3,544
Income tax expense		8,645		6,269
Net income/(loss)	$	510	$	(2,725	)
Net income applicable to common shareholders	$	409		N/A
Earnings per basic common share
Earnings/(loss) per basic common share	$	0.03	$	(0.17	)
Earnings per diluted common share
Earnings/(loss) per diluted common share	$	0.03	$	(0.17	)  (1)
Weighted average number of common shares outstanding
Basic		15,837		15,868
Diluted		15,924		15,868	(1)

(1)	In accordance with ASC 260, earnings per diluted common share is calculated using the basic weighted average number of common shares outstanding in periods a loss is incurred.
N/A - Not applicable as no allocation of income was made due to loss position.

See Notes to Consolidated Financial Statements

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Piper Jaffray Companies

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
(Dollars in thousands)	2010			2009
Operating Activities:
Net income/(loss)	$	510		$	(2,725	)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization of fixed assets		1,847			1,763
Deferred income taxes		16,133			13,762
Stock-based compensation		27,187			6,837
Amortization of intangible assets		976			614
Decrease/(increase) in operating assets:
Cash and cash equivalents segregated for regulatory purposes		1,000			(7,001	)
Receivables:
Customers		23,569			(7,018	)
Brokers, dealers and clearing organizations		58,170			61,225
Deposits with clearing organizations		(8,429	)		(9,084	)
Securities purchased under agreements to resell		(216,602	)		15,211
Securitized municipal tender option bonds		-			45,740
Net financial instruments and other inventory positions owned		12,519			(81,423	)
Other receivables		1,733			514
Other assets		(2,417	)		34,062
Increase/(decrease) in operating liabilities:
Payables:
Customers		(7,681	)		7,778
Checks and drafts		(2,387	)		250
Brokers, dealers and clearing organizations		(8,976	)		86,550
Securities sold under agreements to repurchase		(200	)		(91	)
Tender option bond trust certificates		-			(49,267	)
Accrued compensation		(111,806	)		(45,442	)
Other liabilities and accrued expenses		(12,407	)		(12,735	)
Net cash provided by/(used in) operating activities		(227,261	)		59,520
Investing Activities:
Business acquisition, net of cash acquired		(181,906	)		-
Purchases of fixed assets, net		(952	)		(431	)
Net cash used in investing activities		(182,858	)		(431	)
Financing Activities:
Decrease in securities loaned		(3,652	)		-
Increase/(decrease) in securities sold under agreements to repurchase		415,651			(102,756	)
Increase in short-term financing		3,441			50,000
Repurchase of common stock		(8,316	)		(4,074	)
Reduced tax benefits from stock-based compensation		-			(2,941	)
Proceeds from stock option transactions		98			-
Net cash provided by/(used in) financing activities		407,222			(59,771	)
Currency adjustment:
Effect of exchange rate changes on cash		(562	)		(164	)
Net decrease in cash and cash equivalents		(3,459	)		(846	)
Cash and cash equivalents at beginning of period		43,942			49,848
Cash and cash equivalents at end of period	$	40,483		$	49,002
Supplemental disclosure of cash flow information -
Cash paid/(received) during the period for:
Interest	$	6,089		$	1,962
Income taxes	$	257		$	(36,642	)
Non-cash investing activities -
Issuance of common stock for acquisition of Advisory Research Holdings, Inc.:
893,105 shares for the three months ended March 31, 2010	$	31,822		$	-
Non-cash financing activities -
Issuance of common stock for retirement plan obligations:
81,696 shares and 134,700 shares for the three months ended March 31, 2010 and 2009, respectively	$	3,634		$	3,756
Issuance of restricted common stock for annual equity award:
699,673 shares and 585,198 shares for the three months ended March 31, 2010 and 2009, respectively	$	31,121		$	16,331

See Notes to Consolidated Financial Statements

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Piper Jaffray Companies

Notes to Consolidated Financial Statements

Note 1Background

Piper Jaffray Companies is the parent company of Piper Jaffray & Co. (“Piper Jaffray”), a securities broker dealer and investment banking firm; Piper Jaffray Ltd., a firm providing securities brokerage and investment banking services in Europe headquartered in London, England; Piper Jaffray Asia Holdings Limited, an entity providing investment banking services in China headquartered in Hong Kong; Fiduciary Asset Management, LLC (“FAMCO”) and Advisory Research Holdings, Inc. (“ARI”), entities providing asset management services to separately managed accounts, closed end funds and partnerships; Piper Jaffray Financial Products Inc., Piper Jaffray Financial Products II Inc. and Piper Jaffray Financial Products III Inc., entities that facilitate derivative transactions; and other immaterial subsidiaries. Piper Jaffray Companies and its subsidiaries (collectively, the “Company”) currently operate as one reporting segment providing investment banking services, institutional sales, trading and research services, and asset management services. Beginning in the second quarter of 2010, the Company will provide segment results for capital markets and asset management.

Basis of Presentation

The consolidated financial statements include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries and other entities in which the Company has a controlling financial interest. All material intercompany balances have been eliminated. Certain financial information for prior periods has been reclassified to conform to the current period presentation.

The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and reflect all adjustments that in the opinion of management are normal and recurring and that are necessary for a fair statement of the results for the interim periods presented. In accordance with these rules and regulations, certain disclosures that are normally included in annual financial statements have been omitted. The consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. These principles require management to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for a full year.

Note 2Summary of Significant Accounting Policies

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, for a full description of the Company’s significant accounting policies. Changes to the Company’s significant accounting policies are described below.

Principles of Consolidation

The consolidated financial statements include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries, and all other entities in which the Company has a controlling financial interest. All material intercompany balances have been eliminated. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”).

Voting interest entities are entities in which the total equity investment at risk is sufficient to enable each entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right or power to make decisions about or direct the entity’s activities that most significantly impact the entity’s economic performance. Voting interest entities, where we have a majority interest, are consolidated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 810, “Consolidations” (“ASC 810”). ASC 810 states that the usual condition for a controlling financial interest in an entity is ownership of a majority voting interest. Accordingly, the Company consolidates voting interest entities in which it has all, or a majority of, the voting interest.

As defined in ASC 810, VIEs are entities that lack one or more of the characteristics of a voting interest entity described above. With the exception of entities eligible for the deferral codified in FASB Accounting Standards Update (“ASU”) No. 2010-10,

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“Consolidation: Amendments for Certain Investment Funds,” (“ASU 2010-10”) (generally asset managers and investment companies); ASC 810 states that a controlling financial interest in an entity is present when an enterprise has a variable interest, or combination of variable interests, that have both the power to direct the activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity or the rights to receive benefits from the entity that could potentially be significant to the entity. Accordingly, the Company consolidates VIEs in which the Company has a controlling financial interest.

Entities meeting the deferral provision defined by ASU 2010-10 are evaluated under the historical VIE guidance. Under the historical guidance, a controlling financial interest in an entity is present when an enterprise has a variable interest, or combination of variable interests, that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. Accordingly, the Company consolidates VIEs subject to the deferral provisions defined by ASU 2010-10 in which the Company is deemed to be the primary beneficiary.

When the Company does not have a controlling financial interest in an entity but exerts significant influence over the entity’s operating and financial policies (generally defined as owning a voting or economic interest of between 20 percent to 50 percent), the Company accounts for its investment in accordance with the equity method of accounting prescribed by FASB Accounting Standards Codification Topic 323, “Investments – Equity Method and Joint Ventures” (“ASC 323”). If the Company does not have a controlling financial interest in, or exert significant influence over, an entity, the Company accounts for its investment at cost.

Note 3Recent Accounting Pronouncements

Adoption of New Accounting Standards

Accounting for Transfers of Financial Assets

In June 2009, the FASB issued guidance amending the Accounting Standards Codification Topic 860, “Transfers and Servicing,” (“ASC 860”) designed to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Additionally, the new guidance eliminates the qualifying special-purpose entity (“QSPE”) concept. The updates were effective for the Company January 1, 2010. The recognition and measurement provisions were effective for prospective transfers with the exception of existing QSPEs which must be evaluated at the time of adoption. The disclosures required by ASC 860 are applied to both retrospective and prospective transfers. The adoption of ASC 860 did not have an impact on the Company’s consolidated financial statements.

Consolidation of Variable Interest Entities

In June 2009, the FASB updated the accounting standards related to the consolidation of variable interest entities (“VIE”). The standard requires, among other things, a qualitative rather than quantitative analysis to determine the primary beneficiary (“PB”) of the VIE, continuous assessments of whether the entity is the PB of the VIE, and enhanced disclosures about involvement with VIEs. This standard was effective for the Company January 1, 2010 and is applicable to all entities with which the enterprise has involvement, regardless of when that involvement arose. The adoption of the new standard did not have an impact on the Company’s consolidated financial statements.

In February 2010, the FASB issued ASU 2010-10, which addresses the application of the amendments to VIE consolidation described above by reporting entities in the asset management industry by deferring the effective date of the standard’s new recognition and measurement requirements for certain investment funds. However, the standard’s new disclosure requirements will continue to apply to all entities. ASU 2010-10 was effective for the Company January 1, 2010. The adoption of this standard led to the deferral of the application of the updated consolidation guidance in ASC 810 to certain of the Company’s investment funds within the scope of ASU 2010-10.

Fair Value Measurements

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements,” (“ASU 2010-06”) amending FASB Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). The amended guidance requires entities to disclose additional information regarding assets and liabilities that are transferred between

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levels of the fair value hierarchy and to disclose information in the Level III rollforward about purchases, sales, issuances and settlements on a gross basis. ASU 2010-06 also further clarifies existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level II and Level III fair value measurements. The guidance in ASU 2010-06 was effective for the Company January 1, 2010, except for the requirement to separately disclose purchases, sales, issuances, and settlements on a gross basis in the Level III rollforward, which becomes effective for fiscal years (and for interim periods within those fiscal years) beginning after December 15, 2010. While the adoption of ASU 2010-06 did not change accounting requirements, it did impact the Company’s disclosures about fair value measurements.

Note 4Acquisition of Advisory Research Holdings, Inc.

On March 1, 2010, the Company completed the purchase of all the issued and outstanding shares of common stock, junior subordinated debentures, senior subordinated notes and promissory notes of Advisory Research Holdings, Inc. (“ARI”), an asset management firm based in Chicago, Illinois. The acquisition expanded the Company’s existing asset management business supporting the Company’s strategy of diversifying its revenues. The purchase was completed pursuant to the securities purchase agreement dated December 20, 2009. The fair value as of the acquisition date was $211.9 million, consisting of $180.1 million in cash and 893,105 shares (881,846 of which vest ratably over four years) of the Company’s common stock valued at $31.8 million. The fair value of the 881,846 shares of common stock with vesting restrictions was determined using the market price of the Company’s common stock on the date of the acquisition discounted for the liquidity restrictions in accordance with the valuation principles of ASC 820. The remaining 11,259 shares have no vesting restrictions and the fair value was determined using the market price of the Company’s common stock on the date of the acquisition. A portion of the purchase price payable in cash was funded by proceeds from the issuance of variable rate senior notes (“Notes”) in the amount of $120 million pursuant to the note purchase agreement (“Note Purchase Agreement”) dated December 31, 2009 with certain entities advised by Pacific Investment Management Company LLC (“PIMCO”).

The acquisition was accounted for under the acquisition method of accounting in accordance with FASB ASC 805, “Business Combinations.” Accordingly, goodwill was measured as the excess of the acquisition-date fair value of the consideration transferred over the amount of acquisition-date identifiable assets acquired net of assumed liabilities. The Company recorded $152.4 million of goodwill as an asset in the consolidated statement of financial condition, which is expected to be deductible for tax purposes. The final goodwill recorded on the Company’s consolidated statement of financial condition may differ from that reflected herein as a result of measurement period adjustments. In management’s opinion, the goodwill represents the reputation and expertise of ARI in the asset management business.

Identifiable intangible assets purchased by the Company consisted of customer relationships and the ARI trade name with acquisition-date fair values of $52.1 million and $2.9 million, respectively. Acquisition costs of $1.5 million were incurred in the fourth quarter of 2009 and $44,000 of acquisition costs were incurred in the three months ended March 31, 2010, and are included in outside services on the consolidated statement of operations.

The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of the acquisition:

(Dollars in thousands)
Assets:
Cash and cash equivalents	$	2,008
Other receivables		8,861
Fixed assets		377
Goodwill		152,382
Intangible assets		54,959
Other assets		244
Total assets acquired		218,831
Liabilities:
Accrued compensation		149
Other liabilities and accrued expenses		6,744
Total liabilities assumed		6,893
Net assets acquired	$	211,938

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ARI’s results of operations have been included in the Company’s financial statements prospectively beginning on the date of acquisition. Since the date of acquisition, ARI had net revenues of $4.5 million and net income of $1.2 million. The following unaudited pro forma financial data assumes the acquisition had occurred at the beginning of each period presented. Pro forma results have been prepared by adjusting the Company’s historical results to include ARI’s results of operations adjusted for the following changes: depreciation and amortization expenses were adjusted as a result of acquisition-date fair value adjustments to fixed assets, intangible assets, deferred acquisition costs and lease obligations; interest expense was adjusted for revised debt structures; and the income tax effect of applying the Company’s statutory tax rates to ARI’s results. The unaudited pro forma information presented does not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable periods presented, nor does it indicate the results of operations in future periods.

	Three Months Ended
	March 31,
(Dollars in thousands)	2010		2009
Net revenues	$	117,631	$	90,724
Net income/(loss)	$	2,257	$	(2,135	)

Note 5 Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased

Financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased were as follows:

	March 31,		December 31,
(Dollars in thousands)	2010		2009
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	2,421	$	3,070
Convertible securities		70,431		75,295
Fixed income securities		138,158		112,825
Municipal securities:
Taxable securities		242,128		151,144
Tax-exempt securities		118,826		147,809
Short-term securities		76,029		25,204
Asset-backed securities		44,121		70,425
U.S. government agency securities		204,039		125,576
U.S. government securities		25,121		70,111
Derivative contracts		23,727		18,530
	$	945,001	$	799,989
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	40,140	$	26,474
Convertible securities		3,737		3,678
Fixed income securities		112,479		122,339
Asset-backed securities		6,299		8,937
U.S. government agency securities		92,281		67,001
U.S. government securities		231,755		102,911
Derivative contracts		6,704		4,455
	$	493,395	$	335,795

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At March 31, 2010, and December 31, 2009, financial instruments and other inventory positions owned in the amount of $397.5 million and $137.4 million, respectively, had been pledged as collateral for the Company’s repurchase agreements, secured borrowings and securities loaned.

Inventory positions sold, but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices. The Company is obligated to acquire the securities sold short at prevailing market prices, which may exceed the amount reflected on the consolidated statements of financial condition. The Company economically hedges changes in market value of its financial instruments and other inventory positions owned utilizing inventory positions sold, but not yet purchased, interest rate derivatives, futures and exchange-traded options.

Derivative Contract Financial Instruments

The Company uses interest rate swaps, interest rate locks, and forward contracts to facilitate customer transactions and as a means to manage risk in certain inventory positions. The following describes the Company’s derivatives by the type of transaction or security the instruments are economically hedging.

Customer matched-book derivatives:The Company enters into interest rate derivative contracts in a principal capacity as a dealer to satisfy the financial needs of its customers. The Company simultaneously enters into an interest rate derivative contract with a third party for the same notional amount to hedge the interest rate risk of the initial client interest rate derivative contract. In certain limited instances, the Company has not entered into a hedging arrangement with a third party, and retains uncollateralized credit risk as described below. The instruments use interest rates based upon either the London Interbank Offer Rate (“LIBOR”) index or the Securities Industry and Financial Markets Association (“SIFMA”) index.

Trading securities derivatives:The Company enters into interest rate derivative contracts to hedge interest rate and market value risks associated with its fixed income securities. The instruments use interest rates based upon either the Municipal Market Data (“MMD”) index or the SIFMA index.

The following table presents the total absolute notional contract amount associated with the Company’s outstanding derivative instruments:

(Dollars in thousands)		March 31,		December 31,
Derivative Instrument	Derivative Category	2010		2009
Customer matched-book	Interest rate derivative contract	$	6,676,105	$	6,795,186
Trading securities	Interest rate derivative contract		229,500		234,500
		$	6,905,605	$	7,029,686

The Company’s interest rate derivative contracts do not qualify for hedge accounting, therefore, unrealized gains and losses are recorded on the consolidated statements of operations. The following table presents the Company’s unrealized gains/(losses) on derivative instruments:

(Dollars in thousands)		Three Months Ended
Derivative Category	Revenue Category	March 31, 2010			March 31, 2009
Interest rate derivative contract	Institutional brokerage	$	(1,041	)	$	9,716

The gross fair market value of all derivative instruments and their location on the Company’s consolidated statements of financial condition prior to counterparty netting are shown below by asset or liability position(1):

(Dollars in thousands)		Asset Value at			Liability Value at
Derivative Category	Financial Condition Location	March 31, 2010		Financial Condition Location	March 31, 2010
Interest rate derivative contract	Financial intruments and other inventory positions owned	$	301,218	Financial intruments and other inventory positions sold, but not yet purchased	$	267,161

(1)  Amounts are disclosed at gross fair value in accordance with the requirement of FASB Accounting Standards Codification Topic 815, “Derivatives and Hedging,” (“ASC 815”).

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The Company’s derivative contracts are recorded at fair value. These derivatives are valued using pricing models based on the net present value of estimated future cash flows. The valuation models inputs include contractual terms, market prices, yield curves, credit curves and measures of volatility. Derivatives are reported on a net basis by counterparty when legal right of offset exists, and on a net basis by cross product when applicable provisions are stated in master netting agreements. Cash collateral received or paid is netted on a counterparty basis, provided a legal right of offset exists.

Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. Credit exposure associated with the Company’s derivatives is driven by uncollateralized market movements in the fair value of the contracts with counterparties and is monitored regularly by its market and credit risk committee. The Company reflects counterparty credit risk in calculating derivative contract fair value. The majority of the Company’s derivative contracts are substantially collateralized by its counterparties, which are major financial institutions. The Company has a limited number of counterparties who are not required to post collateral. Based on market movements, the uncollateralized amounts representing the fair value of the derivative contract can become material, exposing the Company to the credit risk of these counterparties. As of March 31, 2010, the Company had $16.3 million of uncollateralized credit exposure with these counterparties (notional contract amount of $270.5 million), including $9.0 million of uncollateralized credit exposure with one counterparty.

Note 6Fair Value of Financial Instruments

The Company records financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased at fair value on the consolidated statements of financial condition with unrealized gains and losses reflected in the consolidated statements of operations.

The degree of judgment used in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and other characteristics specific to the instrument. Financial instruments with readily available active quoted prices for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment used in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment used in measuring fair value.

The following is a description of the valuation techniques used to measure fair value.

Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their net asset value and classified as Level I.

Financial Instruments and Other Inventory Positions Owned

Equity securities –Equity securities are valued based on quoted prices from the exchange for identical assets or liabilities as of the report date. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized as Level I.

Convertible securities –Convertible securities are valued based on observable trades, when available. Accordingly, these convertible securities are categorized as Level II. When observable price quotations are not available, fair value is determined based upon model-based valuation techniques with observable market inputs, such as specific company stock price and volatility and unobservable inputs such as credit default rates. These instruments are categorized as Level III.

Corporate fixed income securities –Fixed income securities include corporate bonds which are valued based on pricing services or broker quotes, when available. Accordingly, these corporate bonds are categorized as Level II. When observable price quotations are not available, fair value is determined based upon model-based valuation techniques with observable inputs such as specific security contractual terms and yield curves and unobservable inputs such as credit spreads. These instruments are categorized as Level III.

Taxable municipal securities –Taxable municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II.

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Tax-exempt municipal securities –Tax-exempt municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II.

Short-term municipal securities –Short-term municipal securities include auction rate securities, variable rate demand notes, and other short-term municipal securities. Auction rate securities were historically traded and valued as floating rate notes, priced at par due to the auction mechanism. Beginning in 2008, the auction rate securities market experienced dislocation due to uncertainties in the credit markets. During 2009, certain areas of the auction rate market began to function; however, lower credit issuers remain illiquid. Accordingly, auction rate securities with limited liquidity are valued based upon the Company’s expectations of issuer refunding plans and using internal models with observable inputs such as specific security contractual terms and yield curves and unobservable inputs such as yield curves and liquidity discounts and are categorized as Level III. Variable rate demand notes and other short-term municipal securities are valued using recently executed observable trades or market price quotations and therefore categorized as Level II.

Asset-backed securities –Asset backed securities are valued using observable trades, when available. Certain asset-backed securities are valued using models where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data. These asset-backed securities are categorized as Level II. Other asset-backed securities, which are principally collateralized by aircraft and have experienced low volumes of executed transactions, result in less observable transaction data. These assets are valued using cash flow models that utilize unobservable inputs including airplane lease rates, aircraft valuation, trust costs, and other factors impacting security cash flows. The Company’s aircraft asset-backed securities had a weighted average yield of 11.8% at March 31, 2010. The Company also has a minimal amount of asset-backed securities collateralized by residential mortgages. These are valued using cash flow models that utilize unobservable inputs including credit default rates ranging from 7-10%, prepayment rates ranging from 6-7% of CPR, severity ranging from 60-75% and valuation yields ranging from 6.6%-10.5%. These asset-backed securities are categorized as Level III.

U.S. government agency securities –U.S. government agency securities include agency debt bonds and mortgage bonds. Agency debt bonds are valued by using either direct price quotes or price quotes for comparable bond securities. Agency debt bonds are categorized as Level II. Mortgage bonds include mortgage pass-through securities and agency collateralized mortgage-obligations (“CMO”). Mortgage pass-through securities and CMO securities are valued using recently executed observable trades or other observable inputs, such as prepayment speeds and therefore, generally are categorized as Level II. Mortgage bonds are valued using observable market inputs, such as market yields ranging from 95–145 basis point spreads to treasury securities, or models based upon prepayment expectations ranging from 161-274 PSA prepayment levels, which are then categorized as Level II.

U.S. government securities –U.S. government securities include highly liquid U.S. treasury securities which are generally valued using quoted prices and therefore categorized as Level I.

Derivatives –Derivative contracts are financial instruments such as forwards, futures, swaps or option contracts that derive their value from underlying assets, reference rates, indices or a combination of these factors. A derivative contract generally represents future commitments to purchase or sell financial instruments at specified terms on a specified date or to exchange currency or interest payment streams based on the contract or notional amount. Derivative contracts exclude certain cash instruments, such as mortgage-backed securities, interest-only and principal-only obligations and indexed debt instruments that derive their values or contractually required cash flows from the price of some other security or index. The Company’s derivatives are principally interest rate derivatives and valued using market standard pricing models based on the net present value of estimated future cash flows. The valuation models used require market observable inputs, including contractual terms, yield curves and measures of volatility. These measurements are classified as Level II within the fair value hierarchy and are used to value interest rate swaps, interest rate locks, and forward contracts. In addition, the Company has a limited number of interest rate derivatives valued using valuation models that utilize market observable inputs, including contractual terms, yield curves and measures of volatility and unobservable inputs including credit default rates. These instruments are classified as Level III within the fair value hierarchy.

Investments

The Company’s investments valued at fair value include investments in public companies, warrants of public or private companies and investments in certain illiquid municipal bonds. Investments in public companies are valued based on quoted prices on active markets and reported in Level I. Company owned warrants, which have a cashless exercise option, are valued using the Black-Scholes option-pricing model and reported as Level III assets. Investments in certain illiquid municipal bonds that the Company is holding for investment are reported as Level III assets.

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The following table summarizes the valuation of our financial instruments by pricing observability levels defined in ASC 820 as of March 31, 2010:

							Counterparty
							Collateral
(Dollars in thousands)	Level I		Level II		Level III		Netting (1)			Total
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	2,421	$	-	$	-	$	-		$	2,421
Convertible securities		-		55,746		14,685		-			70,431
Fixed income securities		-		136,012		2,146		-			138,158
Municipal securities:
Taxable securities		-		242,128		-		-			242,128
Tax-exempt securities		-		118,826		-		-			118,826
Short-term securities		-		58,205		17,824		-			76,029
Asset-backed securities		-		16,829		27,292		-			44,121
U.S. government agency securities		-		204,039		-		-			204,039
U.S. government securities		25,121		-		-		-			25,121
Derivative instruments		-		46,928		9,046		(32,247	)		23,727
Total financial instruments and other inventory positions owned:		27,542		878,713		70,993		(32,247	)		945,001
Cash equivalents		9,915		-		-		-			9,915
Investments		1,065		-		3,042		-			4,107
Total assets	$	38,522	$	878,713	$	74,035	$	(32,247	)	$	959,023
Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	40,140	$	-	$	-	$	-		$	40,140
Convertible securities		-		3,737		-		-			3,737
Fixed income securities		-		106,863		5,616		-			112,479
Asset-backed securities		-		1,920		4,379		-			6,299
U.S. government agency securities		-		92,281		-		-			92,281
U.S. government securities		231,755		-		-		-			231,755
Derivative instruments		-		21,917		-		(15,213	)		6,704
Total financial instruments and other inventory positions sold, but not yet purchased:		271,895		226,718		9,995		(15,213	)		493,395
Investments		-		-		19		-			19
Total liabilities	$	271,895	$	226,718	$	10,014	$	(15,213	)	$	493,414

(1)  Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.

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The following table summarizes the valuation of our financial instruments by pricing observability levels defined in ASC 820 as of December 31, 2009:

							Counterparty
							Collateral
(Dollars in thousands)	Level I		Level II		Level III		Netting (1)			Total
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	3,070	$	-	$	-	$	-		$	3,070
Convertible securities		-		75,295		-		-			75,295
Fixed income securities		-		112,825		-		-			112,825
Municipal securities:
Taxable securities		-		151,144		-		-			151,144
Tax-exempt securities		-		147,809		-		-			147,809
Short-term securities		-		7,379		17,825		-			25,204
Asset-backed securities		-		46,186		24,239		-			70,425
U.S. government agency securities		-		125,576		-		-			125,576
U.S. government securities		70,111		-		-		-			70,111
Derivative instruments		-		54,391		-		(35,861	)		18,530
Total financial instruments and other inventory positions owned:		73,181		720,605		42,064		(35,861	)		799,989
Cash equivalents		13,352		-		-		-			13,352
Investments		1,139		-		2,240		-			3,379
Total assets	$	87,672	$	720,605	$	44,304	$	(35,861	)	$	816,720
Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	26,474	$	-	$	-	$	-		$	26,474
Convertible securities		-		3,678		-		-			3,678
Fixed income securities		-		114,568		7,771		-			122,339
Asset-backed securities		-		6,783		2,154		-			8,937
U.S. government agency securities		-		67,001		-		-			67,001
U.S. government securities		102,911		-		-		-			102,911
Derivative instruments		-		19,294		-		(14,839	)		4,455
Total financial instruments and other inventory positions sold, but not yet purchased:		129,385		211,324		9,925		(14,839	)		335,795
Investments		-		-		19		-			19
Total liabilities	$	129,385	$	211,324	$	9,944	$	(14,839	)	$	335,814

(1)  Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.

The Company’s Level III assets were $74.0 million and $44.3 million, or 7.7 percent and 5.4 percent of financial instruments measured at fair value at March 31, 2010, and December 31, 2009, respectively. Transfers between levels are recognized at the beginning of the reporting period. There were $21.4 million of transfers from Level II to Level III during the quarter ended March 31, 2010 related to convertible securities, asset backed securities and derivatives for which external prices and valuation inputs became unobservable. Transfers between Level I and Level II were not material for the three months ended March 31, 2010.

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The following tables summarize the changes in fair value associated with Level III financial instruments during the three months ended March 31, 2010 and 2009:

	Balance at													Balance at
	December 31,		Purchases/			Net transfers			Realized gains/		Unrealized gains/			March 31,
(Dollars in thousands)	2009		(sales), net			in/(out)			(losses) (1)		(losses) (1)			2010
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Convertible securities	$	-	$	7,590		$	4,292		$	1,836	$	967		$	14,685
Fixed income securities		-		1,937			-			211		(2	)		2,146
Municipal securities:
Short-term securities		17,825		-			-			-		(1	)		17,824
Asset-backed securities		24,239		(7,924	)		8,796			1,688		493			27,292
Derivative instruments		-		-			8,279			-		767			9,046
Total financial instruments and other inventory positions owned:		42,064		1,603			21,367			3,735		2,224			70,993
Investments		2,240		-			-			-		802			3,042
Total assets	$	44,304	$	1,603		$	21,367		$	3,735	$	3,026		$	74,035
Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Fixed income securities	$	7,771	$	(2,310	)	$	-		$	46	$	109		$	5,616
Asset-backed securities		2,154		1,586			507			18		114			4,379
Total financial instruments and other inventory positions sold, but not yet purchased:		9,925		(724	)		507			64		223			9,995
Investments		19		-			-			-		-			19
Total liabilities	$	9,944	$	(724	)	$	507		$	64	$	223		$	10,014
	Balance at													Balance at
	December 31,		Purchases/			Net transfers			Realized gains/		Unrealized gains/			March 31,
(Dollars in thousands)	2008		(sales), net			in/(out)			(losses) (1)		(losses) (1)			2009
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Convertible securities	$	3,671	$	-		$	(3,671	)	$	-	$	-		$	-
Fixed income securities		2,138		1,740			4,899			7		375			9,159
Municipal securities:
Short-term securities		17,750		25			(100	)		-		-			17,675
Asset-backed securities		22,560		(1,129	)		(157	)		234		(316	)		21,192
U.S. government agency securities		6		(1	)		(1	)		-		-			4
Total financial instruments and other inventory positions owned:		46,125		635			970			241		59			48,030
Investments		433		-			-			-		(348	)		85
Total assets	$	46,558	$	635		$	970		$	241	$	(289	)	$	48,115
Liabilities:
Investments	$	366	$	-		$	-		$	-	$	(347	)	$	19
Total liabilities	$	366	$	-		$	-		$	-	$	(347	)	$	19

(1)  Realized and unrealized gains/(losses) related to financial instruments are reported in institutional brokerage on the consolidated statements of operations. Realized and unrealized gains/(losses) related to investments are reported in other income/(loss) on the consolidated statements of operations.

Some of the Company’s financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include cash, securities either purchased or sold under agreements to resell, receivables and payables either from or to customers and brokers, dealers and clearing organizations and short-term financings.

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Note 7Variable Interest Entities

In the normal course of business, the Company periodically creates or transacts with entities that may be variable interest entities (“VIEs”). The Company has investments in and/or acts as the managing partner or member to approximately 38 partnerships and limited liability companies (“LLCs”). These entities were established for the purpose of investing in equity and debt securities of public and private investments and were initially financed through the capital commitments of the members. At March 31, 2010, the Company’s aggregate net investment in these partnerships and LLCs totaled $13.7 million. The Company’s remaining capital commitment to these partnerships and LLCs was $3.6 million at March 31, 2010.

Effective January 1, 2010, the Company adopted the guidance amending ASC 810. The Company evaluated 21 of its 38 partnerships and LLCs under the new VIE guidance and the remaining 17 partnerships and LLCs were evaluated under the historical VIE guidance as these entities met the deferral provisions defined by ASU 2010-10. The determination as to whether an entity is a VIE is based on the amount and nature of the members’ equity investment in the entity. Under the new guidance, the Company also considers other characteristics such as the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance. Under the historical guidance, the Company considers characteristics such as the ability to influence the decision making about the entity’s activities and how the entity is financed. The Company has identified 21 out of the Company’s 38 partnerships and LLC entities described above as VIEs. These VIEs had net assets approximating $991.0 million at March 31, 2010. The Company’s exposure to loss from these entities is $5.6 million, which is the value of its capital contributions recorded in other assets on the consolidated statement of financial condition at March 31, 2010. The Company had no liabilities related to these entities at March 31, 2010.

The Company is required to consolidate all VIEs for which it is considered to be the primary beneficiary. Under the new guidance, the determination as to whether the Company is considered to be the primary beneficiary is based on whether the Company has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Under the historical guidance, the determination as to whether the Company is considered to be the primary beneficiary is based on whether the Company will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. It was determined the Company is not the primary beneficiary of these 21 VIEs.

The Company has not provided financial or other support to their VIEs that it was not previously contractually required to provide as of March 31, 2010.

Note 8Receivables from and Payables to Brokers, Dealers and Clearing Organizations

Amounts receivable from brokers, dealers and clearing organizations at March 31, 2010 and December 31, 2009 included:

	March 31,		December 31,
(Dollars in thousands)	2010		2009
Receivable arising from unsettled securities transactions, net	$	21,763	$	35,324
Deposits paid for securities borrowed		138,503		166,399
Receivable from clearing organizations		12,557		21,388
Securities failed to deliver		6,448		13,102
Other		6,567		7,838
	$	185,838	$	244,051

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Amounts payable to brokers, dealers and clearing organizations at March 31, 2010 and December 31, 2009 included:

	March 31,		December 31,
(Dollars in thousands)	2010		2009
Deposits received for securities loaned	$	22,336	$	25,988
Payable to clearing organizations		28,445		11,975
Securities failed to receive		217		22,118
Other		8,670		11,737
	$	59,668	$	71,818

Deposits paid for securities borrowed and deposits received for securities loaned approximate the market value of the securities. Securities failed to deliver and receive represent the contract value of securities that have not been delivered or received by the Company on settlement date.

Note 9Other Assets

Other assets include investments in public companies valued at fair value, investments in private companies and bridge-loans valued at cost, investments in private equity partnerships that are valued using the equity method of accounting, net deferred tax assets, income tax receivables and prepaid expenses.

Other assets at March 31, 2010 and December 31, 2009 included:

	March 31,		December 31,
(Dollars in thousands)	2010		2009
Investments at fair value	$	4,107	$	3,379
Investments at cost		29,233		33,687
Investments valued using equity method		15,178		14,825
Net deferred income tax assets		63,925		80,058
Income tax receivables		5,680		453
Prepaid expenses		6,637		5,840
Other		1,352		1,393
Total other assets	$	126,112	$	139,635

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Note 10Goodwill and Intangible Assets

The following table presents the changes in the carrying value of goodwill and intangible assets for the three months ended March 31, 2010:

(Dollars in thousands)
Goodwill
Balance at December 31, 2009	$	164,625
Goodwill recorded in purchase of ARI		152,382
FAMCO earn-out payment		27
Balance at March 31, 2010	$	317,034

(Dollars in thousands)
Intangible assets
Balance at December 31, 2009	$	12,067
Intangible assets acquired in purchase of ARI		54,959
Amortization of intangible assets		(976	)
Balance at March 31, 2010	$	66,050

The addition of goodwill and intangible assets during the three months ended March 31, 2010, primarily related to the acquisition of ARI, as discussed in Note 4. Management identified $55.0 million of intangible assets, consisting primarily of the customer relationships ($52.1 million), which will be amortized over a weighted average life of 9 years, and the ARI trade name ($2.9 million), which has an indefinite life and will not be amortized.

The following table summarizes the aggregate future amortization of the Company’s intangible assets:

(Dollars in thousands)
Years Ended December 31,	Amortization
Remainder of 2010	$	6,737
2011		8,571
2012		8,038
2013		7,768
2014		7,432
Thereafter		24,645
Total	$	63,191

Note 11Short-Term Financing

The following is a summary of short-term financing and the weighted average interest rates on borrowings as of March 31, 2010 and December 31, 2009:

					Weighted Average
	Outstanding Balance				Interest Rate
	March 31,		December 31,		March 31,			December 31,
(Dollars in thousands)	2010		2009		2010			2009
Bank lines (secured)	$	54,000	$	68,000		1.61	%		1.35	%
Commercial paper (secured)		39,520		22,079		1.24	%		1.25	%
Total short-term financing	$	93,520	$	90,079

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The Company has committed short-term bank line financing available on a secured basis and uncommitted short-term bank line financing available on both a secured and unsecured basis. The Company uses these credit facilities in the ordinary course of business to fund a portion of its daily operations and the amount borrowed under these credit facilities varies daily based on the Company’s funding needs.

The Company’s committed short-term bank line financing at March 31, 2010, consisted of a $250 million committed revolving credit facility with U.S. Bank, N.A. Advances under this facility are secured by certain marketable securities. The unpaid principal amount of all advances under this facility will be due on September 30, 2010. The Company pays a nonrefundable commitment fee on the unused portion of the facility on a quarterly basis.

The Company’s uncommitted secured lines at March 31, 2010, totaled $275 million with three banks and are dependent on having appropriate collateral, as determined by the bank agreement, to secure an advance under the line. The availability of the Company’s uncommitted lines are subject to approval by the individual banks each time an advance is requested and may be denied. In addition, the Company has established arrangements to obtain financing by another broker dealer at the end of each business day related specifically to its convertible inventory.

In 2009, the Company initiated a secured commercial paper program to provide another funding source for its securities inventory. The senior secured commercial paper notes (“Series A CP Notes”) are secured by the Company’s securities inventory with maturities on the Series A CP Notes ranging from twenty-seven days to two hundred seventy days from the date of issuance. The Series A CP Notes are interest-bearing or sold at a discount to par with an interest rate based on the London Interbank Offered Rate (“LIBOR”) plus an applicable margin.

As part of these short-term financing arrangements, the Company is subject to various financial and operational covenants. At March 31, 2010, the Company was in compliance with all covenants related to its financing facilities.

Note 12Variable Rate Senior Notes

On December 31, 2009, the Company issued unsecured variable rate senior notes (“Notes”) in the amount of $120 million. The initial holders of the Notes are certain entities advised by PIMCO. Interest is based on an annual rate equal to LIBOR plus 4.10%, adjustable and payable quarterly. The weighted average interest rate for the three months ended March 31, 2010, was 4.39%. The proceeds from the Notes were used to fund a portion of the ARI acquisition discussed further in Note 4 to our consolidated financial statements. The unpaid principal amount of the Notes will be due on December 31, 2010.

Note 13Legal Contingencies

The Company has been named as a defendant in various legal actions, including complaints and litigation and arbitration claims arising from its business activities. Such activities include claims related to securities brokerage and investment banking activities, and certain class actions that primarily allege violations of securities laws and seek unspecified damages, which could be substantial. Also, the Company is involved from time to time in investigations and proceedings by governmental agencies and self-regulatory organizations. The Company has established reserves for potential losses that are probable and reasonably estimable that may result from pending and potential legal actions, investigations and regulatory proceedings.

Given uncertainties regarding the timing, scope, volume and outcome of pending and potential legal actions, investigations and regulatory proceedings and other factors, the amounts of reserves are difficult to determine and of necessity subject to future revision. Subject to the foregoing, management of the Company believes, based on its current knowledge, after consultation with outside legal counsel and taking into account its established reserves, that pending legal actions, investigations regulatory and proceedings will be resolved with no material adverse effect on the consolidated financial condition of the Company. However, if during any period a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves, the results of operations in that period could be materially adversely affected.

Note 14Restructuring

On August 11, 2006, the Company completed the sale of its Private Client Services (“PCS”) branch network and certain related assets to UBS Financial Services, Inc., a subsidiary of UBS AG (“UBS”), thereby exiting the PCS business. In connection with the sale of the Company’s PCS branch network, the Company initiated a plan to significantly restructure the Company’s support infrastructure. All restructuring costs related to the sale of the PCS branch network were included within discontinued operations. In 2008, the

19

Company implemented certain expense reduction measures as a means to better align its cost infrastructure with its revenues. The following table presents a summary of activity with respect to the restructuring-related liabilities included in other liabilities and accrued expenses on the consolidated statements of financial condition:

	Other			PCS
(Dollars in thousands)	Restructuring			Restructuring
Balance at December 31, 2009	$	1,892		$	7,565
Provision charged to continuing operations		173			-
Cash outlays		(637	)		(624	)
Non-cash write-downs		(33	)		-
Balance at March 31, 2010	$	1,395		$	6,941

Note 15Shareholders’ Equity

Share Repurchase Program

In the second quarter of 2008, the Company’s board of directors authorized the repurchase of up to $100 million in common shares through June 30, 2010. During the three months ended March 31, 2010, the Company did not repurchase any shares of the Company’s common stock under this authorization. The Company has $61.1 million remaining under this authorization.

Issuance of Shares

During the three months ended March 31, 2010, the Company issued 881,846 restricted shares and 11,259 unrestricted shares in conjunction with the acquisition of ARI as described in Note 4. The restricted shares issued in conjunction with the acquisition of ARI vest ratably over four years in equal installments beginning on March 1, 2011, and ending on March 1, 2014. These restricted shares provide for continued vesting after termination, so long as the employee does not violate certain non-solicitation restrictions.

During the three months ended March 31, 2010, the Company issued 81,696 common shares out of treasury stock in fulfillment of $3.6 million in obligations under the Piper Jaffray Companies Retirement Plan and issued 319,692 common shares out of treasury stock as a result of vesting and exercise transactions under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan.

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Note 16Earnings Per Share

The Company calculates earnings per share using the two-class method. Basic earnings per common share is computed by dividing net income/(loss) applicable to common shareholders by the weighted average number of common shares outstanding for the period. Net income/(loss) applicable to common shareholders represents net income/(loss) reduced by the allocation of earnings to participating securities. All of the Company’s outstanding restricted shares are deemed to be participating securities because they are eligible to share in the profits (e.g. receive dividends) of the Company. Losses are not allocated to participating securities. Diluted earnings per common share is calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive stock options. The computation of earnings per share is as follows:

	Three Months Ended March 31,
	2010				2009
(Amounts in thousands, except per share data)
Net income/(loss)	$	510			$	(2,725)
Earnings allocated to participating securities		(101	)			-
Net income/(loss) applicable to common shareholders (2)	$	409			$	(2,725)
Shares for basic and diluted calculations:
Average shares used in basic computation		15,837				15,868
Stock options		87				2
Restricted stock		-		(3)		2,428
Average shares used in diluted computation		15,924				18,298	(1)
Earnings per share:
Basic	$	0.03			$	(0.17)
Diluted	$	0.03			$	(0.17)

(1)	Earnings per diluted common share is calculated using the basic weighted average number of common shares outstanding in periods a loss is incurred.
(2)	Net income applicable to common shareholders for diluted and basic EPS may differ under the two-class method as a result of adding the effect of the assumed exercise of stock options to dilutive shares outstanding, which alters the ratio used to allocate earnings to common shareholders and participating securities for purposes of calculating diluted and basic EPS.
(3)	Participating securities were included in the calculation of diluted EPS using the two-class method, as this computation was more dilutive than the calculation using the treasury-stock method.

The anti-dilutive effects from stock options were immaterial for the periods ended March 31, 2010 and 2009.

Note 17Employee Benefit Plans

Certain employees participated in the Piper Jaffray Companies Non-Qualified Retirement Plan (“the Non-Qualified Plan”), an unfunded, non-qualified cash balance pension plan. The Company froze the plan effective January 1, 2004, thereby eliminating future benefits related to pay increases and excluding new participants from the plan. Effective December 31, 2009, the Company resolved to terminate the Non-Qualified Plan through lump sum cash distributions to all participants. These lump-sum cash payments, totaling $10.4 million, were based on the December 31, 2009 actuarial valuation of the Non-Qualified Plan and were distributed on March 15, 2010. The Company recognized settlement expense of $0.2 million in compensation and benefits expense on the consolidated statement of operations related to the settlement of all Non-Qualified Plan liabilities.

Note 18Stock-Based Compensation

The Company accounts for equity awards in accordance with FASB Accounting Standards Codification Topic 718, “Compensation — Stock Compensation,” (“ASC 718”), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations at grant date fair value over the service period of the award, net of estimated forfeitures.

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The Company’s primary stock-based compensation plan, Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan, (the “Incentive Plan”), permits the grant of equity awards, including restricted stock and non-qualified stock options, to the Company’s employees and directors for up to 7.0 million shares of common stock. The Company periodically grants shares of restricted stock to employees and grants shares of Piper Jaffray Companies common stock to its non-employee directors. The Company also previously granted options to purchase Piper Jaffray Companies common stock to employees and non-employee directors. The Company believes that such awards help align the interests of employees and directors with those of shareholders and serve as an employee retention tool. The awards granted to employees under the Incentive Plan have the following vesting periods: approximately 79 percent of the awards have three-year cliff vesting periods, approximately 11 percent of the awards vest ratably from 2011 through 2013 on the annual grant date anniversary, and approximately 10 percent of the awards cliff vest upon meeting a specific performance-based metric prior to May 2013. The director awards are fully vested upon grant. The plan provides for accelerated vesting of option and restricted stock awards if there is a change in control of the Company (as defined in the plan), in the event of a participant’s death, and at the discretion of the compensation committee of the Company’s board of directors.

Employee and director stock options were expensed by the Company on a straight-line basis over the required service period, based on the estimated fair value of the award on the date of grant using a Black-Scholes option-pricing model. The maximum term of the stock options granted to employees and directors is ten years. The Company has not granted stock options since 2008.

Restricted stock grants are valued at the market price of the Company’s common stock on the date of grant. Restricted stock grants are amortized over the service period. The majority of the Company’s restricted stock grants provide for continued vesting after termination, so long as the employee does not violate certain post-termination restrictions. These post-termination restrictions do not meet the criteria for an in-substance service condition as defined by ASC 718. Accordingly, such restricted stock grants are expensed in the period in which those awards are deemed to be earned, which is generally the calendar year preceding the February grant date each year.

Performance-based restricted stock awards granted in 2008 and 2009 were valued at the market price of the Company’s common stock on the date of grant. The restricted shares are amortized on a straight-line basis over the period the Company expects the performance target to be met. The performance condition must be met for the awards to vest and total compensation cost will be recognized only if the performance condition is satisfied. The probability that the performance condition will be achieved and that the awards will vest is reevaluated each reporting period with changes in actual or estimated outcomes accounted for using a cumulative effect adjustment.

In 2010, the Company established the 2010 Employment Inducement Award Plan (the “Inducement Plan”) to provide the Company a competitive advantage in attracting personnel. In conjunction with the acquisition of ARI, the Company granted $7.0 million (158,801 shares) in restricted shares to ARI employees. These shares vest ratably over five years in equal installments beginning on March 1, 2011, and ending on March 1, 2015. The Company will record compensation expense for this $7.0 million restricted stock grant on a pro rata basis over the five year vesting period. Unvested shares granted under the Inducement Plan are cancelled upon the termination of employment by the award recipient.

The Company recorded compensation expense of $8.6 million and $6.4 million for the three months ended March 31, 2010 and 2009, respectively, related to employee restricted stock. The tax benefit related to the total compensation cost for stock-based compensation arrangements totaled $3.4 million and $2.5 million for the three months ended March 31, 2010 and 2009, respectively.

In accordance with ASC 718, if any equity award is forfeited as a result of violating the post-termination restrictions, the lower of the fair value of the award at grant date or the fair value of the award at the date of forfeiture is recorded within the consolidated statements of operations as other income. The Company recorded $1.6 million and $0.3 million of forfeitures through other income for the three months ended March 31, 2010 and 2009, respectively.

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The following table summarizes the changes in the Company’s non-vested restricted stock for the three months ended March 31, 2010:

				Weighted
	Non-Vested			Average
	Restricted			Grant Date
	Stock			Fair Value
December 31, 2009		3,512,749		$	40.46
Granted		899,451			44.41
Vested		(503,477	)		70.13
Canceled		(52,091	)		34.98
March 31, 2010		3,856,632		$	37.59

As of March 31, 2010, there was $34.0 million of total unrecognized compensation cost related to restricted stock expected to be recognized over a weighted average period of 2.93 years.

The following table summarizes the changes in the Company’s outstanding stock options for the three months ended March 31, 2010:

						Weighted Average
				Weighted		Remaining		Aggregate
	Options			Average		Contractual		Intrinsic
	Outstanding			Exercise Price		Term (Years)		Value
December 31, 2009		538,804		$	44.50		5.7	$	4,237,480
Granted		-			-
Exercised		(2,456	)		40.06
Canceled		(15,105	)		42.14
March 31, 2010		521,243		$	44.60		5.6	$	420,077
Options exercisable at March 31, 2010		404,579		$	45.62		5.0	$	420,077

As of March 31, 2010, there was no unrecognized compensation cost related to stock options expected to be recognized over future years.

Cash received from option exercises for the three months ended March 31, 2010 was $0.1 million. There were no options exercised for the three months ended March 31, 2009. The tax benefit realized for the tax deduction from option exercises was immaterial for the three months ended March 31, 2010.

Note 19Geographic Areas

The following table presents net revenues and long-lived assets by geographic region:

	Three Months Ended
	March 31,
(Dollars in thousands)	2010		2009
Net revenues:
United States	$	95,016	$	80,673
Europe		7,495		2,349
Asia		7,075		860
Consolidated	$	109,586	$	83,882
	March 31,		December 31,
(Dollars in thousands)	2010		2009
Long-lived assets:
United States	$	454,657	$	260,439
Europe		804		965
Asia		11,895		11,943
Consolidated	$	467,356	$	273,347

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Note 20Net Capital Requirements and Other Regulatory Matters

Piper Jaffray is registered as a securities broker dealer with the SEC and is a member of various self regulatory organizations (“SROs”) and securities exchanges. The Financial Industry Regulatory Authority (“FINRA”) serves as Piper Jaffray’s primary SRO. Piper Jaffray is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. Piper Jaffray has elected to use the alternative method permitted by the SEC rule, which requires that it maintain minimum net capital of the greater of $1.0 million or 2 percent of aggregate debit balances arising from customer transactions, as such term is defined in the SEC rule. Under its rules, FINRA may prohibit a member firm from expanding its business or paying dividends if resulting net capital would be less than 5 percent of aggregate debit balances. Advances to affiliates, repayment of subordinated debt, dividend payments and other equity withdrawals by Piper Jaffray are subject to certain notification, approval and other provisions of the SEC and FINRA rules. In addition, Piper Jaffray is subject to certain approval requirements related to withdrawals of excess net capital.

At March 31, 2010, net capital calculated under the SEC rule was $273.4 million, and exceeded the minimum net capital required under the SEC rule by $272.4 million.

Piper Jaffray Ltd., which is a registered United Kingdom broker dealer, is subject to the capital requirements of the U.K. Financial Services Authority (“FSA”). As of March 31, 2010, Piper Jaffray Ltd. was in compliance with the capital requirements of the FSA.

Piper Jaffray Asia Holdings Limited operates three entities licensed by the Hong Kong Securities and Futures Commission, which are subject to the liquid capital requirements of the Securities and Futures (Financial Resources) Rules promulgated under the Securities and Futures Ordinance. As of March 31, 2010, Piper Jaffray Asia regulated entities were in compliance with the liquid capital requirements of the Hong Kong Securities and Futures Ordinance.

Note 21Income Taxes

The Company’s effective income tax rate for the three months ended March 31, 2010 was 94.4%, compared to 176.9% for the three months ended March 31, 2009. The provision for income taxes for the three months ended March 31, 2010 was unusually high due to a $5.2 million write-off of a deferred tax asset resulting from a restricted stock grant that vested at a share price lower than the grant date share price. This item unfavorably impacted the Company’s earnings for the three months ended March 31, 2010 by approximately $0.26 per share. The provision for income taxes for the three months ended March 31, 2009 was high compared to pre-tax income because the Company did not record a tax benefit related to its U.K. subsidiary net operating loss carryforward deductions and incurred approximately $3 million of one-time tax expense items.

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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following information should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and exhibits included elsewhere in this report. Certain statements in this report may be considered forward-looking. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward looking statements include, among other things, statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, and also may include our belief regarding the effect of various legal proceedings, as set forth under “Legal Proceedings” in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2009 and in our subsequent reports filed with the SEC. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including those factors discussed below under “External Factors Impacting Our Business” as well as the factors identified under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009, as updated in our subsequent reports filed with the SEC. These reports are available at our Web site at www.piperjaffray.com and at the SEC Web site at www.sec.gov. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

Executive Overview

Our business principally consists of providing investment banking, institutional brokerage, asset management and related financial services to corporations, private equity groups, public entities, non-profit entities and institutional investors in the United States, Europe and Asia. We generate revenues primarily through the receipt of advisory and financing fees earned on investment banking activities, commissions and sales credits earned on equity and fixed income institutional sales and trading activities, net interest earned on securities inventories, profits and losses from trading activities related to these securities inventories and asset management fees.

Our business is a human capital business. Accordingly, compensation and benefits comprise the largest component of our expenses, and our performance is dependent upon our ability to attract, develop and retain highly skilled employees who are motivated and committed to providing the highest quality of service and guidance to our clients.

As part of our growth strategy, we expanded our asset management business through the acquisition of Advisory Research Holdings, Inc. (“ARI”), a Chicago-based asset management firm with approximately $5.9 billion in assets under management. The transaction closed on March 1, 2010. For more information on our acquisition of ARI, see Note 4 of the accompanying unaudited consolidated financial statements included in this report.

Results for the three months ended March 31, 2010

For the three months ended March 31, 2010, we recorded net income of $0.5 million, or $0.03 per diluted common share, compared with a net loss of $2.7 million, or $0.17 per diluted common share for the corresponding period in the prior year. Results for the three months ended March 31, 2010, included tax expense of $5.2 million (or $0.26 per diluted share) attributable to a write-off of a deferred tax asset resulting from a restricted stock grant that vested at a share price lower than the grant date share price. For the three months ended March 31, 2010, non-compensation expenses were $35.3 million, an increase of $5.3 million compared to the first quarter of 2009, mainly attributable to increased business activity, higher litigation-related expenses, and $0.6 million of incremental expenses related to ARI (of which $0.4 million was intangible amortization). Net revenues for the three months ended March 31, 2010 were $109.6 million, up 30.6 percent from $83.9 million reported in the year-ago period driven by higher equity financing revenues.

External Factors Impacting Our Business

Performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity. Overall market conditions are a product of many factors, which are beyond our control and mostly unpredictable. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions, the volatility of the equity and fixed income markets, changes in interest rates (especially rapid and extreme changes), the level and shape of various yield curves, the volume and value of trading in securities, and the demand for asset management services as reflected by the amount of assets under management.

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Factors that differentiate our capital markets business within the financial services industry also may affect our financial results. For example, our business focuses on a middle-market clientele in specific industry sectors. If the business environment for our focus sectors is impacted disproportionately as compared to the economy as a whole, or does not recover on pace with other sectors of the economy, our business and results of operations will be negatively impacted. In addition, our business could be affected differently than overall market trends. Given the variability of the capital markets and securities businesses, our earnings may fluctuate significantly from period to period, and results for any individual period should not be considered indicative of future results.

As a participant in the financial services industry, we are subject to complex and extensive regulation of our business. In light of recent conditions in the global financial markets and the global economy, legislators and regulators have increased their focus on the regulation of the financial services industry with a view to potential changes, including fundamental changes to the manner in which the industry is regulated and/or increased regulation in a number of areas. Changes in the regulatory environment in which we operate could have an adverse effect on our business.

Outlook for the remainder of 2010

Global equity financing conditions were relatively weak in the first quarter of 2010 as declines in the equity markets in the U.S., Europe and Asia early in the quarter negatively impacted capital raising for growth companies. Equity financing conditions strengthened near the end of the first quarter, and we expect to see increasing levels of equity financing activity during 2010. Also, we expect to see improving trends in middle market advisory activity during 2010, which should result in improved performance in this business. Our public finance business recorded strong performance in 2009 as we were able to penetrate new client relationships, expand into new geographies and increase market share. Performance in our public finance business during the first quarter of 2010 was more muted than a near record fourth quarter 2009 performance; however, we believe full-year 2010 public finance performance will be strong. We expect to significantly advance our asset management strategy with the acquisition of ARI, which closed on March 1, 2010. The acquisition of ARI will add scale to our asset management business and provide a platform to support future organic growth. There can be no assurance regarding our outlook for the remainder of 2010, however.

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Results of Operations

Financial Summary

The following table provides a summary of the results of our operations and the results of our operations as a percentage of net revenues for the periods indicated.

										As a Percentage of Net
	For the Three Months Ended									Revenues
	March 31,									For the Three Months Ended
						2010				March 31,
(Dollars in thousands)	2010		2009			v2009				2010			2009
Revenues:
Investment banking	$	43,748	$	24,350			79.7		%		39.9	%		29.0	%
Institutional brokerage		49,095		55,027			(10.8	)			44.8			65.6
Interest		11,120		7,288			52.6				10.1			8.7
Asset management		9,154		3,009			204.2				8.4			3.6
Other income/(loss)		2,927		(3,599	)		N/M				2.7			(4.3)
Total revenues		116,044		86,075			34.8				105.9			102.6
Interest expense		6,458		2,193			194.5				5.9			2.6
Net revenues		109,586		83,882			30.6				100.0			100.0
Non-interest expenses:
Compensation and benefits		65,096		50,324			29.4				59.4			60.0
Occupancy and equipment		7,669		6,518			17.7				7.0			7.8
Communications		6,489		6,099			6.4				5.9			7.3
Floor brokerage and clearance		2,617		2,882			(9.2	)			2.4			3.4
Marketing and business development		5,322		4,445			19.7				4.9			5.3
Outside services		8,004		7,519			6.5				7.3			9.0
Other operating expenses		5,234		2,551			105.2				4.7			3.0
Total non-interest expenses		100,431		80,338			25.0				91.6			95.8
Income before income tax expense		9,155		3,544			158.3				8.4			4.2
Income tax expense		8,645		6,269			37.9		%		7.9			7.4
Net income/(loss)	$	510	$	(2,725	)		N/M				0.5	%		(3.2)	%

N/M - Not Meaningful

For the three months ended March 31, 2010, we recorded net income of $0.5 million. Net revenues for the three months ended March 31, 2010 were $109.6 million, a 30.6 percent increase from the year-ago period. For the three months ended March 31, 2010, investment banking revenues increased 79.7 percent to $43.7 million, compared with revenues of $24.4 million in the prior-year period. The increase in investment banking revenues was attributable to higher equity and public finance activity as well as increased advisory services revenues as compared to our extremely weak performance for these areas in the comparable period of 2009. In the first quarter of 2010, institutional brokerage revenues decreased 10.8 percent to $49.1 million, compared with $55.0 million in the corresponding period in the prior year, due to lower U.S. equity and convertible revenues. In the first quarter of 2010, net interest income decreased to $4.7 million, compared with $5.1 million in the first quarter of 2009. The decrease was primarily the result of interest expense on the $120 million of variable rate senior notes issued December 31, 2009, to finance a portion of the ARI acquisition. For the three months ended March 31, 2010, asset management fees were $9.2 million, compared with $3.0 million in the

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prior-year period. The increased revenues were primarily driven by the results for ARI, which we acquired on March 1, 2010. In the first quarter of 2010, other income increased to $2.9 million, compared with a loss of $3.6 million in the prior-year period, primarily due to gains recorded on our firm investments and income associated with the forfeitures of stock-based compensation. Non-interest expenses increased to $100.4 million for the three months ended March 31, 2010, from $80.3 million in the corresponding period in the prior year, primarily as a result of increased compensation and benefits expense.

Consolidated Non-Interest Expenses

Compensation and Benefits- Compensation and benefits expenses, which are the largest component of our expenses, include salaries, incentive compensation, benefits, stock-based compensation, employment taxes and other employee costs. A portion of compensation expense is comprised of variable incentive arrangements, including discretionary incentive compensation, the amount of which fluctuates in proportion to the level of business activity, increasing with higher revenues and operating profits. Other compensation costs, primarily base salaries and benefits, are more fixed in nature. The timing of incentive compensation payments, which generally occur in February, have a greater impact on our cash position and liquidity, than is reflected in our statements of operations.

For the three months ended March 31, 2010, compensation and benefits expenses increased 29.4 percent to $65.1 million from $50.3 million in the corresponding period in 2009. This increase was due to higher variable compensation costs resulting from higher net revenues and profitability. Compensation and benefits expenses as a percentage of net revenues were 59.4 percent for the first quarter of 2010, compared with 60.0 percent for the first quarter of 2009.

Occupancy and Equipment —In the first quarter of 2010, occupancy and equipment expenses were $7.7 million, compared with $6.5 million for the corresponding period in 2009. The increase was attributable to a one-time reduction in expense in the first quarter of 2009. We anticipate increased occupancy costs beginning in the second quarter of 2010 as we begin transitioning to new space in New York City and Hong Kong.

Communications —Communication expenses include costs for telecommunication and data communication, primarily consisting of expenses for obtaining third-party market data information. For the three months ended March 31, 2010, communications expenses were $6.5 million, compared with $6.1 million for the prior-year period.

Floor Brokerage and Clearance —For the three months ended March 31, 2010, floor brokerage and clearance expenses declined $0.3 million to $2.6 million, compared with $2.9 million for the three months ended March 31, 2009, due to reduced trading volumes.

Marketing and Business Development —In the first quarter of 2010, marketing and business development expenses increased 19.7 percent to $5.3 million, compared with $4.4 million in the first quarter of 2009. This increase was driven by higher travel costs associated with increased investment banking activities.

Outside Services —Outside services expenses include securities processing expenses, outsourced technology functions, outside legal fees and other professional fees. Outside services expenses increased to $8.0 million in the first quarter of 2010, compared with $7.5 million for the prior-year period, due primarily to increased consulting costs.

Other Operating Expenses —Other operating expenses include insurance costs, amortization of intangible assets, license and registration fees, expenses related to our charitable giving program and litigation-related expenses, which consist of the amounts we reserve and/or pay out related to legal and regulatory matters. In the first quarter of 2010, other operating expenses increased to $5.2 million, compared with $2.6 million in the first quarter of 2009. This increase was primarily due to increased litigation-related expenses and intangible amortization expense related to ARI.

Income Taxes —For the three months ended March 31, 2010, our provision for income taxes was $8.6 million, compared with $6.3 million in the prior-year period. Income tax expense recorded in the first quarter of 2010 was high compared to pre-tax income because of a $5.2 million write-off of a deferred tax asset resulting from a restricted stock grant that vested at a share price lower than the grant date share price. For more information on the write-off of this deferred tax asset, see “Income Taxes” within our Critical Accounting Policies. The $6.3 million of income tax expense recorded in the first quarter of 2009 was high compared to pre-tax income because we did not record a tax benefit related to certain foreign subsidiary net operating loss carryforward deductions, and approximately $3 million of one-time items that increased tax expense.

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Net Revenues from Continuing Operations (Detail)

	For the Three Months Ended
	March 31,
						2010
	2010		2009			v2009
(Dollars in thousands)
Net revenues:
Investment banking
Financing
Equities	$	16,988	$	4,063			318.1	%
Debt		15,181		12,388			22.5
Advisory services		11,975		8,815			35.8
Total investment banking		44,144		25,266			74.7
Institutional sales and trading
Equities		26,927		30,662			(12.2)
Fixed income		27,376		27,805			(1.5)
Total institutional sales and trading		54,303		58,467			(7.1)
Asset management		9,154		3,009			204.2
Other income/(loss)		1,985		(2,860	)		N/M
Total net revenues	$	109,586	$	83,882			30.6	%

N/M - Not meaningful

Investment banking revenues comprise all the revenues generated through financing and advisory services activities including derivative activities that relate to debt financing. To assess the profitability of investment banking, we aggregate investment banking fees with the net interest income or expense associated with these activities.

Investment banking revenues increased 74.7 percent to $44.1 million for the first three months of 2010, compared with $25.3 million for the corresponding period in 2009. For the three months ended March 31, 2010, equity financing revenues increased to $17.0 million, compared with $4.1 million in the prior year period due to increased activity. Equity capital markets activity was depressed in the first quarter of 2009 due to severely negative market conditions. Although the first quarter of 2010 was an improvement from 2009, the global equity markets declined early in the quarter, which negatively impacted capital raising for growth companies. In the first quarter of 2010, we completed 18 equity financings, raising $3.6 billion in capital, compared with 4 equity financings in the first quarter of 2009, raising $0.8 billion in capital. Debt financing revenues in the first quarter of 2010 increased 22.5 percent to $15.2 million due to higher public finance revenues, which was attributable to an increase in both the number of transactions completed and average revenue per transaction. During the first quarter of 2010, we completed 113 public finance issues with a total par value of $1.7 billion, compared with 96 public finance issues with a total par value of $1.9 billion during the prior year period. For the three months ended March 31, 2010, advisory services revenues increased 35.8 percent to $12.0 million due to increased activity. We completed 12 transactions with an aggregate enterprise value of $1.7 billion during the first quarter of 2010, compared with 6 transactions with an aggregate enterprise value of $0.7 billion in the first quarter of 2009.

Institutional brokerage revenues comprise all the revenues generated through trading activities, which consist primarily of facilitating customer trades. To assess the profitability of institutional brokerage activities, we aggregate institutional brokerage revenues with the net interest income or expense associated with financing, economically hedging and holding long or short inventory positions. Our results may vary from quarter to quarter as a result of changes in trading margins, trading gains and losses, net interest spreads, trading volumes and the timing of transactions based on market opportunities.

For the three months ended March 31, 2010, institutional brokerage revenues declined 7.1 percent to $54.3 million, compared with $58.5 million in the prior-year period, primarily driven by decreased equity institutional brokerage revenues. Equity institutional brokerage revenues decreased 12.2 percent to $26.9 million in the first quarter of 2010, compared with $30.7 million in the prior-year period. Revenues associated with the U.S. equities and convertibles business declined due to lower volumes. Fixed income institutional brokerage revenues were $27.4 million in the first quarter of 2010, compared with $27.8 million in prior-year period. This

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decline was attributable to lower revenues from secondary municipal and investment grade corporate securities offset in part by stronger revenues from municipal strategic trading.

For the three months ended March 31, 2010, asset management fees increased to $9.2 million compared with $3.0 million in the prior-year period, primarily due to the results of ARI, which we acquired on March 1, 2010.

Other income/loss includes gains and losses from our investments in private equity and venture capital funds, other firm investments, and income associated with the forfeiture of stock-based compensation. In the first quarter of 2010, other income totaled $2.0 million, compared with a loss of $2.9 million in the prior-year period. In the first quarter of 2010, we recorded income associated with unrealized gains on firm investments and income from the forfeiture of stock-based compensation. In the first quarter of 2009, we recorded a loss associated with a decline in the value of our firm investments.

Recent Accounting Pronouncements

Recent accounting pronouncements are set forth in Note 3 to our unaudited consolidated financial statements, and are incorporated herein by reference.

Critical Accounting Policies

Our accounting and reporting policies comply with generally accepted accounting principles (“GAAP”) and conform to practices within the securities industry. The preparation of financial statements in compliance with GAAP and industry practices requires us to make estimates and assumptions that could materially affect amounts reported in our consolidated financial statements. Critical accounting policies are those policies that we believe to be the most important to the portrayal of our financial condition and results of operations and that require us to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by us to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical, including whether the estimates are significant to the consolidated financial statements taken as a whole, the nature of the estimates, the ability to readily validate the estimates with other information (e.g. third-party or independent sources), the sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be used under GAAP.

For a full description of our significant accounting policies, see Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year-ended December 31, 2009. We believe that of our significant accounting policies, the following are our critical accounting policies.

Valuation of Financial Instruments

Financial instruments and other inventory positions owned, financial instruments and other inventory positions sold, but not yet purchased and certain firm investments on our consolidated statements of financial condition consist of financial instruments recorded at fair value. Unrealized gains and losses related to these financial instruments are reflected on our consolidated statements of operations.

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. When available, we use observable market prices, observable market parameters, or broker or dealer prices (bid and ask prices) to derive the fair value of the instrument. In the case of financial instruments transacted on recognized exchanges, the observable market prices represent quotations for completed transactions from the exchange on which the financial instrument is principally traded. Bid prices represent the highest price a buyer is willing to pay for a financial instrument at a particular time. Ask prices represent the lowest price a seller is willing to accept for a financial instrument at a particular time.

A substantial percentage of the fair value of our financial instruments and other inventory positions owned, and financial instruments and other inventory positions sold, but not yet purchased, are based on observable market prices, observable market parameters, or derived from broker or dealer prices. The availability of observable market prices and pricing parameters can vary from product to product. Where available, observable market prices and pricing or market parameters in a product may be used to derive a price without requiring significant judgment. In certain markets, observable market prices or market parameters are not available for all products, and fair value is determined using techniques appropriate for each particular product. These techniques may involve some degree of judgment. Results from valuation models and other valuation techniques in one period may not be indicative of the future period fair value measurement.

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For investments in illiquid or privately held securities that do not have readily determinable fair values, the determination of fair value requires us to estimate the value of the securities using the best information available. Among the factors considered by us in determining the fair value of such financial instruments are the cost, terms and liquidity of the investment, the financial condition and operating results of the issuer, the quoted market price of publicly traded securities with similar quality and yield, and other factors generally pertinent to the valuation of investments. In instances where a security is subject to transfer restrictions, the value of the security is based primarily on the quoted price of a similar security without restriction but may be reduced by an amount estimated to reflect such restrictions. Even where the value of a security is derived from an independent source, certain assumptions may be required to determine the security’s fair value. For example, we assume that the size of positions that we hold would not be large enough to affect the quoted price of the securities if we sell them, and that any such sale would happen in an orderly manner. The actual value realized upon disposition could be different from the current estimated fair value.

Derivatives are valued using market standard pricing models based on the net present value of estimated future cash flows. Management deemed the net present value of estimated future cash flows model to be the best estimate of fair value as most of our derivative products are interest rate products. The valuation models used require inputs including contractual terms, market prices, yield curves, credit curves and measures of volatility. The valuation models are monitored over the life of the derivative product. If there are any changes in the underlying inputs, the model is updated for those new inputs.

FASB Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to inputs with little or no pricing observability (Level III measurements). Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Instruments that trade infrequently and therefore have little or no price transparency are classified within Level III based on the results of our price verification process. The Company’s Level III assets were $74.0 million and $44.3 million as of March 31, 2010 and December 31, 2009, respectively, and represented approximately 7.7 percent and 5.4 percent of financial instruments measured at fair value. At March 31, 2010, this balance primarily consisted of asset-backed securities, principally collateralized by aircraft and residential mortgages, that have experienced low volumes of executed transactions, such that unobservable inputs had to be utilized for the fair value measurements and auction-rate securities related to lower credit issuers for which the market has remained illiquid. Asset-backed securities collateralized with airplane leases are valued using cash flow models that utilize unobservable inputs including airplane lease rates, trust costs, aircraft valuation and other factors impacting security cash flows. Asset-backed securities collateralized with residential mortgages are valued using cash flow models that utilize unobservable inputs that include credit default rates, prepayment rates and severity rates. Auction-rate securities are valued based upon our expectations of issuer refunding plans and using internal models. We could experience reductions in the value of these inventory positions, which would have a negative impact on our business and results of operations.

During the quarter-ended March 31, 2010, we recorded net purchases of $1.6 million of Level III assets, primarily consisting of $7.6 million of net purchases of convertible securities and $1.9 million net purchases of corporate bonds offset with $7.9 million in net sales of asset-backed securities. We had net transfers of $21.4 million of assets from Level II to Level III during the first quarter of 2010. Transfers of assets from Level II to Level III were primarily related to convertible securities, asset-backed securities and derivatives as external prices became unobservable. During the first quarter of 2010, net gains (realized and unrealized) on Level III assets of $6.7 million were attributed to increased fair values of certain asset-backed securities, certain convertible securities and certain principal investments as well as gains on the sale of certain convertible securities and certain asset-backed securities.

During the quarter-ended March 31, 2010, we recorded net sales of $0.7 million of Level III liabilities related to fixed income and asset-backed securities made to facilitate customer activity. We had $0.5 million of liabilities transfer from Level II to Level III, related to asset-backed securities. Our valuation adjustments (realized and unrealized) increased Level III liabilities by $0.3 million.

Financial instruments carried at contract amounts have short-term maturities (one year or less), are repriced frequently or bear market interest rates and, accordingly, the carrying amount of those contracts approximate fair value. Financial instruments carried at contract amounts on our consolidated statements of financial condition include receivables from and payables to brokers, dealers and clearing organizations, securities purchased under agreements to resell, securities sold under agreements to repurchase, receivables from and payables to customers and short-term financing.

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Goodwill and Intangible Assets

We record all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangible assets, at fair value. Determining the fair value of assets and liabilities acquired requires certain management estimates. At March 31, 2010, we had goodwill of $317.0 million. Of this goodwill balance, $152.4 million was recorded in 2010 as a result of the acquisition of Advisory Research Holdings, Inc. and $105.5 million is a result of the 1998 acquisition by U.S. Bancorp of our predecessor, Piper Jaffray Companies Inc., and its subsidiaries.

Under FASB Accounting Standards Codification Topic 350, “Intangibles – Goodwill and Other,” we are required to perform impairment tests of our goodwill and indefinite-lived intangible assets annually and on an interim basis when certain events or circumstances exist that could indicate possible impairment. We have elected to test for goodwill impairment in the fourth quarter of each calendar year. The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of our two principal reporting units (capital markets and asset management) based on the following factors: our market capitalization, a discounted cash flow model using revenue and profit forecasts, public market comparables and multiples of recent mergers and acquisitions of similar businesses. Valuation multiples may be based on revenues, price-to-earnings and tangible capital ratios of comparable public companies and business segments. These multiples may be adjusted to consider competitive differences including size, operating leverage and other factors. The estimated fair values of our reporting units are compared with their carrying values, which includes the allocated goodwill. If the estimated fair values are less than the carrying values, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires us to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value.

As noted above, the initial recognition of goodwill and other intangible assets and the subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired assets or businesses will perform in the future using valuation methods including discounted cash flow analysis. Our estimated cash flows typically extend for five years and, by their nature, are difficult to determine over an extended time period. Events and factors that may significantly affect the estimates include, among others, competitive forces and changes in revenue growth trends, cost structures, technology, discount rates and market conditions. To assess the reasonableness of cash flow estimates and validate assumptions used in our estimates, we review historical performance of the underlying assets or similar assets. In assessing the fair value of our reporting units, the volatile nature of the securities markets and our industry requires us to consider the business and market cycle and assess the stage of the cycle in estimating the timing and extent of future cash flows.

We completed our annual goodwill impairment testing as of November 30, 2009, and no impairment was identified. In addition, we tested the definite-lived intangible assets acquired as part of the FAMCO acquisition and concluded there was no impairment.

Stock-Based Compensation

As part of our compensation to employees and directors, we use stock-based compensation, consisting of restricted stock and stock options. The Company accounts for equity awards in accordance with FASB Accounting Standards Codification Topic 718, “Compensation – Stock Compensation,” (“ASC 718”), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations at grant date fair value over the service period of the award, net of estimated forfeitures.

Compensation paid to employees in the form of restricted stock or stock options is generally accrued or amortized on a straight-line basis over the required service period of the award and is included in our results of operations as compensation expense. The majority of these awards have a three-year cliff vesting schedule. The majority of our restricted stock and option grants provide for continued vesting after termination, so long as the employee does not violate certain post-termination restrictions as set forth in the award agreements or any agreements entered into upon termination. These post-termination restrictions do not meet the criteria for an in-substance service condition as defined by ASC 718. Accordingly, such restricted stock and option grants are expensed in the period in which those awards are deemed to be earned, which is generally the calendar year preceding our annual February equity grant. If any of these awards are cancelled, the lower of the fair value at grant date or the fair value at the date of cancellation is recorded within other income in the consolidated statements of operations.

Performance-based restricted stock awards granted are amortized on a straight-line basis over the period we expect the performance target to be met. The performance condition must be met for the awards to vest and total compensation cost will be recognized only if the performance condition is satisfied. The probability that the performance conditions will be achieved and that the awards will vest

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is reevaluated each reporting period with changes in actual or estimated compensation expense accounted for using a cumulative effect adjustment.

Stock-based compensation granted to our non-employee directors is in the form of unrestricted common shares of Piper Jaffray Companies stock. Stock-based compensation paid to directors is immediately expensed and is included in our results of operations as outside services expense as of the date of grant.

We granted stock options in fiscal years 2004 through 2008. In determining the estimated fair value of stock options, we used the Black-Scholes option-pricing model. This model requires management to exercise judgment with respect to certain assumptions, including the expected dividend yield, the expected volatility, and the expected life of the options.

Contingencies

We are involved in various pending and potential legal proceedings related to our business, including litigation, arbitration and regulatory proceedings. Some of these matters involve claims for substantial amounts, including claims for punitive and other special damages. We have, after consultation with outside legal counsel and consideration of facts currently known by management, recorded estimated losses in accordance with FASB Accounting Standards Codification Topic 450, “Contingencies,” to the extent that claims are probable of loss and the amount of the loss can be reasonably estimated. The determination of these reserve amounts requires significant judgment on the part of management. In making these determinations, we consider many factors, including, but not limited to, the loss and damages sought by the plaintiff or claimant, the basis and validity of the claim, the likelihood of a successful defense against the claim, and the potential for, and magnitude of, damages or settlements from such pending and potential litigation and arbitration proceedings, and fines and penalties or orders from regulatory agencies.

Given the uncertainties regarding timing, size, volume and outcome of pending and potential legal proceedings and other factors, the amounts of reserves are difficult to determine and of necessity subject to future revision. Subject to the foregoing, we believe, based on our current knowledge, after appropriate consultation with outside legal counsel and after taking into account our established reserves, that pending litigation, arbitration and regulatory proceedings will be resolved with no material adverse effect on our financial condition. However, if, during any period, a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves, the results of operations in that period could be materially adversely affected.

Income Taxes

We file a consolidated U.S. federal income tax return, which includes all of our qualifying subsidiaries. We also are subject to income tax in various states and municipalities and those foreign jurisdictions in which we operate. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income taxes are provided for temporary differences in reporting certain items, principally, amortization of share-based compensation. The realization of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized. We believe that our future taxable profits will be sufficient to recognize our U.S. deferred tax assets. If however, our projections of future taxable profits do not materialize, we may conclude that a valuation allowance is needed. We have recorded a deferred tax asset valuation allowance of $4.7 million related to foreign subsidiary net operating loss carry forwards.

We record deferred tax benefits for future tax deductions expected upon the vesting of share-based compensation. If deductions reported on our tax return for share-based compensation (i.e., the value of the share-based compensation at the time of vesting) exceed the cumulative cost of those instruments recognized for financial reporting (i.e., the grant date fair value of the compensation computed in accordance with ASC 718), we record the excess tax benefit as additional paid-in capital. Conversely, if deductions reported on our tax return for share-based compensation are less than the cumulative cost of those instruments recognized for financial reporting, we offset the deficiency first to any previously recognized excess tax benefits recorded as additional paid-in capital and any remaining deficiency is recorded as income tax expense. As of March 31, 2010, we do not have any available excess tax benefits within additional paid-in capital. Approximately 500,000 shares of restricted stock vested in the first quarter of 2010 at values less than the grant date fair value resulting in $5.2 million of income tax expense in the first quarter of 2010.

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We establish reserves for uncertain income tax positions in accordance with FASB Accounting Standards Codification Topic 740, “Income Taxes” when, it is not more likely than not that a certain position or component of a position will be ultimately upheld by the relevant taxing authorities. Significant judgment is required in evaluating uncertain tax positions. Our tax provision and related accruals include the impact of estimates for uncertain tax positions and changes to the reserves that are considered appropriate. To the extent the probable tax outcome of these matters changes, such change in estimate will impact the income tax provision in the period of change.

Liquidity, Funding and Capital Resources

Liquidity is of critical importance to us given the nature of our business. Insufficient liquidity resulting from adverse circumstances contributes to, and may be the cause of, financial institution failure. Accordingly, we regularly monitor our liquidity position, including our cash and net capital positions, and we have implemented a liquidity strategy designed to enable our business to continue to operate even under adverse circumstances, although there can be no assurance that our strategy will be successful under all circumstances.

The majority of our tangible assets consist of assets readily convertible into cash. Financial instruments and other inventory positions owned are stated at fair value and are generally readily marketable in most market conditions. Receivables and payables with customers and brokers and dealers usually settle within a few days. As part of our liquidity strategy, we emphasize diversification of funding sources to the extent possible and maximize our lower-cost financing alternatives. Our assets are financed by our cash flows from operations, equity capital, and other short-term funding arrangements. The fluctuations in cash flows from financing activities are directly related to daily operating activities from our various businesses.

Certain market conditions can impact the liquidity of our inventory positions, requiring us to hold larger inventory positions for longer than expected or requiring us to take other actions that may adversely impact our results.

A significant component of our employees’ compensation is paid in annual discretionary incentive compensation. The timing of these incentive compensation payments, which generally are made in February, has a significant impact on our cash position and liquidity when paid.

We currently do not pay cash dividends on our common stock and do not plan to in the foreseeable future.

On April 16, 2008, we announced that our board of directors had authorized the repurchase of up to $100 million in shares of our common stock, which expires on June 30, 2010. In the first quarter of 2010, we did not repurchase any shares of our common stock under this authorization. Based upon prior repurchases, $61.1 million of this authorization remains as of March 31, 2010.

We currently do not have a credit rating, which may adversely affect our liquidity and increase our borrowing costs by limiting access to sources of liquidity that require a credit rating as a condition to providing funds.

Funding Sources

Short-term financing

Short-term financing is obtained primarily through the use of repurchase agreements, securities lending arrangements, commercial paper issuance and bank lines of credit and is typically collateralized by the firm’s securities inventory. In addition, we have established arrangements to obtain financing by another broker dealer at the end of each business day related specifically to our convertible inventory. Short-term financing is generally obtained at rates based upon the federal funds rate and/or the London Interbank Offer Rate. We have available both committed and uncommitted short-term financing with a diverse group of banks.

Uncommitted Lines - We use uncommitted lines in the ordinary course of business to fund a portion of our daily operations, and the amount borrowed under our uncommitted lines varies daily based on our funding needs. Our uncommitted secured lines total $275 million with three banks and are dependent on having appropriate collateral, as determined by the bank agreement, to secure an advance under the line. Collateral limitations could reduce the amount of funding available under these secured lines. We also have a $100 million uncommitted unsecured facility with one of these banks. These uncommitted lines are discretionary and are not a commitment by the bank to provide an advance under the line. These lines are subject to approval by the respective bank each time an advance is requested and advances may be denied. We manage our relationships with the banks that provide these uncommitted

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facilities in order to have appropriate levels of funding for our business. At March 31, 2010, we had $54 million outstanding against these lines of credit.

Committed Lines - Our committed line is a $250 million revolving secured credit facility. We use this credit facility in the ordinary course of business to fund a portion of our daily operations, and the amount borrowed under the facility varies daily based on our funding needs. Advances under this facility are secured by certain marketable securities. The facility includes a covenant that requires our U.S. broker dealer subsidiary to maintain a minimum net capital of $150 million, and the unpaid principal amount of all advances under the facility will be due on September 30, 2010. At March 31, 2010, we had no advances against our committed line of credit.

Commercial Paper Program - In 2009, we initiated a secured commercial paper program to fund a portion of our securities inventories. The maximum amount that may be issued under the program is $300 million, of which $39.5 million is outstanding at March 31, 2010. The commercial paper notes are secured by our securities inventory with maturities on the commercial paper ranging from 27 days to 270 days from date of issuance.

Average net repurchase agreements (excluding repurchase agreements used to facilitate economic hedges) of $92 million and $33 million and short-term bank loans of $74 million and $14 million in the first quarter of 2010 and 2009, respectively, were primarily used to finance inventory as well as customer and trade-related receivables. We also used an average of $28 million in securities lending arrangements and an average of $31 million in commercial paper in the first quarter of 2010 to finance inventory and receivables. Growth in our securities inventories is generally financed through a combination of these various short-term financing arrangements.

Variable rate senior notes

On December 31, 2009, we issued variable rate senior notes (“Notes”) in the amount of $120 million. The initial holders of the Notes are certain entities advised by Pacific Investment Management Company LLC (“PIMCO”). The proceeds from the Notes were used to fund a portion of the ARI acquisition, discussed above under “Executive Overview.” The unpaid principal amount of the Notes will be due on December 31, 2010.

Contractual Obligations

Our contractual obligations have not materially changed from those reported in our Annual Report to Shareholders on Form 10-K for the year ended December 31, 2009.

Capital Requirements

As a registered broker dealer and member firm of FINRA, our U.S. broker dealer subsidiary is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. We have elected to use the alternative method permitted by the uniform net capital rule, which requires that we maintain minimum net capital of the greater of $1.0 million or 2 percent of aggregate debit balances arising from customer transactions, as this is defined in the rule. FINRA may prohibit a member firm from expanding its business or paying dividends if resulting net capital would be less than 5 percent of aggregate debit balances. Advances to affiliates, repayment of subordinated liabilities, dividend payments and other equity withdrawals are subject to certain notification and other provisions of the uniform net capital rule and the net capital rule of FINRA. We expect that these provisions will not impact our ability to meet current and future obligations. We also are subject to certain notification requirements related to withdrawals of excess net capital from our broker dealer subsidiary. At March 31, 2010, our net capital under the SEC’s Uniform Net Capital Rule was $273.4 million, and exceeded the minimum net capital required under the SEC rule by $272.4 million.

Although we operate with a level of net capital substantially greater than the minimum thresholds established by FINRA and the SEC, a substantial reduction of our capital would curtail many of our revenue producing activities.

Piper Jaffray Ltd., our broker dealer subsidiary registered in the United Kingdom, is subject to the capital requirements of the U.K. Financial Services Authority. Each of our Piper Jaffray Asia entities licensed by the Hong Kong Securities and Futures Commission is subject to the liquid capital requirements of the Securities and Futures (Financial Resources) Rule promulgated under the Securities and Futures Ordinance.

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Off-Balance Sheet Arrangements

In the ordinary course of business we enter into various types of off-balance sheet arrangements. The following table summarizes our off-balance-sheet arrangements at March 31, 2010 and December 31, 2009:

											Total
Expiration Per Period at March 31, 2010											Contractual Amount
					2013-		2015-				March 31,		December 31,
(Dollars in thousands)	2011		2012		2014		2016		Later		2010		2009
Customer matched-book derivative contracts(1)(2)	$	-	$	-	$	155,090	$	150,463	$	6,370,552	$	6,676,105	$	6,795,186
Trading securities derivative contracts(2)		-		-		-		12,500		217,000		229,500		234,500
Loan commitments		-		-		-		-		-		5,000		5,000
Private equity and other principal investments		-		-		-		-		-		3,588		3,652

(1)

Consists of interest rate swaps. We have minimal market risk related to these matched-book derivative contracts; however, we do have counterparty risk with two major financial institutions, which are mitigated by collateral deposits. In addition, we have a limited number of counterparties (contractual amount of $270.5 million at March 31, 2010) who are not required to post collateral. Based on market movements, the uncollateralized amounts representing the fair value of the derivative contract can become material, exposing us to the credit risk of these counterparties. At March 31, 2010, we had $16.3 million of credit exposure with these counterparties, including $9.0 million of credit exposure with one counterparty.

(2)

We believe the fair value of these derivative contracts is a more relevant measure of the obligations because we believe the notional or contract amount overstates the expected payout. At March 31, 2010 and December 31, 2009, the net fair value of these derivative contracts approximated $17.0 million and $14.1 million, respectively.

Derivatives

Derivatives’ notional contract amounts are not reflected as assets or liabilities on our consolidated statements of financial condition. Rather, the market value, or fair value, of the derivative transactions are reported on the consolidated statements of financial condition as assets or liabilities in financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased, as applicable. Derivatives are presented on a net basis by counterparty when a legal right of offset exists and on a net basis by cross product when applicable provisions are stated in a master netting agreement.

We enter into derivative contracts in a principal capacity as a dealer to satisfy the financial needs of clients. We also use derivative products to hedge the interest rate and market value risks associated with our security positions. Our interest rate hedging strategies may not work in all market environments and as a result may not be effective in mitigating interest rate risk. For a complete discussion of our activities related to derivative products, see Note 5, “Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased,” in the notes to our unaudited consolidated financial statements.

Loan Commitments

We may commit to short-term bridge-loan financing for our clients or make commitments to underwrite corporate debt. We had $5.0 million in loan commitments outstanding at March 31, 2010.

Private Equity and Other Principal Investments

We have committed capital to certain non-consolidated private-equity funds. These commitments have no specified call dates. We had $3.6 million of fund commitments outstanding at March 31, 2010.

Special Purpose Entities

As of March 31, 2010, we have investments in various entities, typically partnerships or limited liability companies, established for the purpose of investing in equity and debt securities of public and private investments. We commit capital or act as the managing partner or member of these entities. Some of these entities are deemed to be VIEs. For a complete discussion of our activities related to these types of entities, see Note 7, “Variable Interest Entities,” to our unaudited consolidated financial statements.

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Other Off-Balance Sheet Exposure

Our other types of off-balance-sheet arrangements include contractual commitments. For a discussion of our activities related to these off-balance sheet arrangements, see Note 17, “Contingencies and Commitments,” to our consolidated financial statements included in our Annual Report to Shareholders on Form 10-K for the year ended December 31, 2009.

Enterprise Risk Management

Risk is an inherent part of our business. In the course of conducting business operations, we are exposed to a variety of risks. Market risk, liquidity risk, credit risk, operational risk, legal, regulatory and compliance risk, and reputational risk are the principal risks we face in operating our business. We seek to identify, assess and monitor each risk in accordance with defined policies and procedures. The extent to which we properly identify and effectively manage each of these risks is critical to our financial condition and profitability.

With respect to market risk and credit risk, our risk management process is focused on daily communication among traders, trading department management and senior management concerning our inventory positions and overall risk profile. Our risk management functions supplement this communication process by providing their independent perspectives on our market and credit risk profile on a daily basis. The broader goals of our risk management functions are to understand the risk profile of each trading area, to consolidate risk monitoring company-wide, to assist in implementing effective hedging strategies, to articulate large trading or position risks to senior management, and to ensure accurate mark-to-market pricing.

In addition to supporting daily risk management processes on the trading desks, our risk management functions support our market and credit risk committee. This committee oversees risk management practices, including defining acceptable risk tolerances and approving risk management policies.

Market Risk

Market risk represents the risk of financial volatility that may result from the change in value of a financial instrument due to fluctuations in its market price. Our exposure to market risk is directly related to our role as a financial intermediary for our clients, to our market-making activities and our proprietary activities. Market risks are inherent to both cash and derivative financial instruments. The scope of our market risk management policies and procedures includes all market-sensitive financial instruments.

Our different types of market risk include:

Interest Rate Risk —Interest rate risk represents the potential volatility from changes in market interest rates. We are exposed to interest rate risk arising from changes in the level and volatility of interest rates, changes in the shape of the yield curve, changes in credit spreads, and the rate of prepayments. Interest rate risk is managed through the use of appropriate hedging in U.S. government securities, agency securities, mortgage-backed securities, corporate debt securities, interest rate swaps, options, futures and forward contracts. We utilize interest rate swap contracts to hedge a portion of our fixed income inventory and to hedge rate lock agreements and forward bond purchase agreements we may enter into with our public finance customers. Additionally, we historically used interest rate swap agreements to hedge residual cash flows from our tender option bond program. Our interest rate hedging strategies may not work in all market environments and as a result may not be effective in mitigating interest rate risk. These interest rate swap contracts are recorded at fair value with the changes in fair value recognized in earnings.

Equity Price Risk —Equity price risk represents the potential loss in value due to adverse changes in the level or volatility of equity prices. We are exposed to equity price risk through our trading activities in the U.S. and European markets on both listed and over-the-counter equity markets. We attempt to reduce the risk of loss inherent in our market-making and in our inventory of equity securities by establishing limits on the notional level of our inventory and by managing net position levels with those limits.

Currency Risk —Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of financial instruments. A portion of our business is conducted in currencies other than the U.S. dollar, and changes in foreign exchange rates relative to the U.S. dollar can therefore affect the value of non-U.S. dollar net assets, revenues and expenses. A change in the foreign currency rates could create either a foreign currency transaction gain/loss (recorded in our consolidated statements of operations) or a foreign currency translation adjustment to the stockholders’ equity section of our consolidated statements of financial condition.

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Value-at-Risk

Value-at-Risk (“VaR”) is the potential loss in value of our trading positions due to adverse market movements over a defined time horizon with a specified confidence level. We perform a daily VaR analysis on substantially all of our trading positions, including fixed income, equities, convertible bonds, exchange traded options, and all associated economic hedges. These positions encompass both customer-related activities and proprietary investments. We use a VaR model because it provides a common metric for assessing market risk across business lines and products. Changes in VaR between reporting periods are generally due to changes in levels of risk exposure, volatilities and/or correlations among asset classes and individual securities.

We use a Monte Carlo simulation methodology for VaR calculations. We believe this methodology provides VaR results that properly reflect the risk profile of all our instruments, including those that contain optionality and accurately models correlation movements among all of our asset classes. In addition, it provides improved tail results as there are no assumptions of distribution, and can add additional insight for scenario shock analysis.

Model-based VaR derived from simulation has inherent limitations including: reliance on historical data to predict future market risk; VaR calculated using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or offset with hedges within one day; and published VaR results reflect past trading positions while future risk depends on future positions.

The modeling of the market risk characteristics of our trading positions involves a number of assumptions and approximations. While we believe that these assumptions and approximations are reasonable, different assumptions and approximations could produce materially different VaR estimates.

The following table quantifies the model-based VaR simulated for each component of market risk for the periods presented computed using the past 250 days of historical data. When calculating VaR we use a 95 percent confidence level and a one-day time horizon. This means that, over time, there is a 1 in 20 chance that daily trading net revenues will fall below the expected daily trading net revenues by an amount at least as large as the reported VaR. Shortfalls on a single day can exceed reported VaR by significant amounts. Shortfalls can also accumulate over a longer time horizon, such as a number of consecutive trading days. Therefore, there can be no assurance that actual losses occurring on any given day arising from changes in market conditions will not exceed the VaR amounts shown below or that such losses will not occur more than once in a 20-day trading period.

	March 31,			December 31,
(Dollars in thousands)	2010			2009
Interest Rate Risk	$	2,233		$	1,147
Equity Price Risk		98			68
Diversification Effect (1)		(161	)		(74	)
Total Value-at-Risk	$	2,170		$	1,141

(1) Equals the difference between total VaR and the sum of the VaRs for the two risk categories. This effect arises because the two market risk categories are not perfectly correlated.

We view average VaR over a period of time as more representative of trends in the business than VaR at any single point in time. The table below illustrates the daily high, low and average value-at-risk calculated for each component of market risk during the three months ended March 31, 2010 and the year ended December 31, 2009, respectively.

For the Three Months Ended March 31, 2010
(Dollars in thousands)	High		Low		Average
Interest Rate Risk	$	4,359	$	1,689	$	2,407
Equity Price Risk		530		36		170
Diversification Effect (1)						(276	)
Total Value-at-Risk	$	4,227	$	1,591	$	2,301

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For the Year Ended December 31, 2009
(Dollars in thousands)	High		Low		Average
Interest Rate Risk	$	2,947	$	531	$	1,397
Equity Price Risk		951		21		221
Diversification Effect (1)						(252	)
Total Value-at-Risk	$	2,937	$	513	$	1,366

(1) Equals the difference between total VaR and the sum of the VaRs for the two risk categories. This effect arises because the two market risk categories are not perfectly correlated. Because high and low VaR numbers for these risk categories may have occurred on different days, high and low numbers for diversification benefit would not be meaningful.

Trading losses incurred on a single day did not exceed our one-day VaR on any occasions during the first quarter of 2010.

The aggregate VaR as of March 31, 2010 was higher compared to levels reported as of December 31, 2009. This is due mainly to overall higher balances in our inventories.

In addition to VaR, we also employ additional measures to monitor and manage market risk exposure, including the following: net market position, duration exposure, option sensitivities, and inventory turnover. All metrics are aggregated by asset concentration and are used for monitoring limits and exception approvals.

Liquidity Risk

Market risk can be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities and/or at normal bid-offer spreads. Depending on the specific security, the structure of the financial product, and/or overall market conditions, we may be forced to hold onto a security for substantially longer than we had planned. Our inventory positions subject us to potential financial losses from the reduction in value of illiquid positions.

We are also exposed to liquidity risk in our day-to-day funding activities. We have a relatively low leverage ratio of 2.61 as of March 31, 2010. We calculate our leverage ratio by dividing total assets by total shareholders’ equity. Our U.S. broker dealer had net capital of $273.4 million as of March 31, 2010. We manage liquidity risk by diversifying our funding sources across products and among individual counterparties within those products. For example, our treasury department actively manages the use of repurchase agreements, securities lending arrangements, commercial paper issuance and secured and unsecured bank borrowings each day depending on pricing, availability of funding, available collateral and lending parameters from any one of these sources. We also added a committed bank line to our funding sources during 2008 to further manage liquidity risk, which we renewed in September 2009.

In addition to managing our capital and funding, the treasury department oversees the management of net interest income risk and the overall use of our capital, funding, and balance sheet.

We currently act as the remarketing agent for approximately $6.4 billion of variable rate demand notes, all of which have a financial institution providing a liquidity guarantee. As remarketing agent for our clients’ variable rate demand notes, we are the first source of liquidity for sellers of these instruments. At certain times, demand from buyers of variable rate demand notes is less than the supply generated by sellers of these instruments. In times of supply and demand imbalance, we may (but are not obligated to) facilitate liquidity by purchasing variable rate demand notes from sellers for our own account. Our liquidity risk related to variable rate demand notes is ultimately mitigated by our ability to tender these securities back to the financial institution providing the liquidity guarantee.

Credit Risk

Credit risk in our business arises from potential non-performance by counterparties, customers, borrowers or issuers of securities we hold in our trading inventory. The global credit crisis also has created increased credit risk, particularly counterparty risk, as the interconnectedness of the financial markets has caused market participants to be impacted by systemic pressure, or contagion, that results from the failure or expected failure of large market participants.

We have concentrated counterparty credit exposure with six non-publicly rated entities totaling $16.3 million at March 31, 2010. This counterparty credit exposure is part of our derivative program, consisting primarily of interest rate swaps. One derivative counterparty represents 55.6 percent, or $9.0 million, of this exposure. Credit exposure associated with our derivative counterparties is driven by

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uncollateralized market movements in the fair value of the interest rate swap contracts and is monitored regularly by our market and credit risk committee.

We are exposed to credit risk in our role as a trading counterparty to dealers and customers, as a holder of securities and as a member of exchanges and clearing organizations. Our client activities involve the execution, settlement and financing of various transactions. Client activities are transacted on a delivery versus payment, cash or margin basis. Our credit exposure to institutional client business is mitigated by the use of industry-standard delivery versus payment through depositories and clearing banks.

Credit exposure associated with our customer margin accounts in the U.S. and Hong Kong is monitored daily. Our risk management functions have created credit risk policies establishing appropriate credit limits and collateralization thresholds for our customers utilizing margin lending.

Credit exposure associated with our investments in private company debt instruments are monitored regularly by our market and credit risk committee. These investments are recorded in other assets at amortized cost on the consolidated statement of financial condition. At March 31, 2010, we had three debt investments totaling $13.9 million and one committed, but unfunded loan commitment totaling $5.0 million.

Our risk management functions review risk associated with institutional counterparties with whom we hold repurchase and resale agreement facilities, stock borrow or loan facilities, derivatives, TBAs and other documented institutional counterparty agreements that may give rise to credit exposure. Counterparty levels are established relative to the level of counterparty ratings and potential levels of activity.

We are subject to credit concentration risk if we hold large individual securities positions, execute large transactions with individual counterparties or groups of related counterparties, extend large loans to individual borrowers or make substantial underwriting commitments. Concentration risk can occur by industry, geographic area or type of client. Potential credit concentration risk is carefully monitored and is managed through the use of policies and limits.

We also are exposed to the risk of loss related to changes in the credit spreads of debt instruments. Credit spread risk arises from potential changes in an issuer’s credit rating or the market’s perception of the issuer’s credit worthiness.

Operational Risk

Operational risk refers to the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. We rely on the ability of our employees, our internal systems and processes and systems at computer centers operated by third parties to process a large number of transactions. In the event of a breakdown or improper operation of our systems or processes or improper action by our employees or third-party vendors, we could suffer financial loss, regulatory sanctions and damage to our reputation. We have business continuity plans in place that we believe will cover critical processes on a company-wide basis, and redundancies are built into our systems as we have deemed appropriate. These control mechanisms attempt to ensure that operations policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits.

Legal, Regulatory and Compliance Risk

Legal, regulatory and compliance risk includes the risk of non-compliance with applicable legal and regulatory requirements and the risk that a counterparty’s performance obligations will be unenforceable. We are generally subject to extensive regulation in the various jurisdictions in which we conduct our business. We have established procedures that are designed to ensure compliance with applicable statutory and regulatory requirements, including, but not limited to, those related to regulatory net capital requirements, sales and trading practices, use and safekeeping of customer funds and securities, credit extension, money-laundering, privacy and recordkeeping.

We have established internal policies relating to ethics and business conduct, and compliance with applicable legal and regulatory requirements, as well as training and other procedures designed to ensure that these policies are followed.

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Reputation and Other Risk

We recognize that maintaining our reputation among clients, investors, regulators and the general public is critical. Maintaining our reputation depends on a large number of factors, including the conduct of our business activities and the types of clients and counterparties with whom we conduct business. We seek to maintain our reputation by conducting our business activities in accordance with high ethical standards and performing appropriate reviews of clients and counterparties.

Effects of Inflation

Because our assets are generally liquid in nature, they are not significantly affected by inflation. However, the rate of inflation affects our expenses, such as employee compensation, office space leasing costs and communications charges, which may not be readily recoverable in the price of services we offer to our clients. To the extent inflation results in rising interest rates and has other adverse effects upon the securities markets, it may adversely affect our financial position and results of operations.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information under the caption “Enterprise Risk Management” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Form 10-Q is incorporated herein by reference.

ITEM 4.CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding disclosure. During the fist quarter of our fiscal year ending December 31, 2010, there was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS.

The following supplements and amends our discussion set forth under Item 3 “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Municipal Derivatives Investigations and Litigation

Defendants filed a motion to dismissIn re Municipal Derivatives Antitrust Litigation,which the Court denied on March 25, 2010. Also, several California municipalities have brought separate class action complaints in California, which have since been transferred to the Southern District of New York and consolidated for pretrial purposes. In addition, approximately eleven California municipalities have filed individual lawsuits and not as a part of class actions. These individual California lawsuits have also been transferred to the Southern District of New York and consolidated for pretrial purposes. All three sets of complaints assert similar claims under federal (and for the California plaintiffs, state) antitrust claims. The Court has denied defendants’ motion to dismiss the California complaints for the great majority of the named defendants, including Piper Jaffray.

ITEM 1A.RISK FACTORS.

The discussion of our business and operations should be read together with the risk factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC, as updated in our subsequent reports on Form 10-Q filed with the SEC. These risk factors describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

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ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The table below sets forth the information with respect to purchases made by or on behalf of Piper Jaffray Companies or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the quarter ended March 31, 2010.

In addition, a third-party trustee makes open-market purchases of our common stock from time to time pursuant to the Piper Jaffray Companies Retirement Plan, under which participating employees may allocate assets to a company stock fund.

							Total Number of
							Shares Purchased as		Approximate Dollar Value
	Total Number						Part of Publicly		of Shares that May Yet Be
	of Shares			Average Price Paid			Announced Plans or		Purchased Under the Plans
Period	Purchased			per Share			Programs		or Programs (1)
Month #1
(January 1, 2010 to January 31, 2010)		0			$	-		0		$61   million
Month #2
(February 1, 2010 to February 28, 2010)		186,952	(2)		$	44.48		0		$61   million
Month #3
(March 1, 2010 to March 31, 2010)		0			$	-		0		$61   million
Total		186,952			$	-		0		$61   million

(1)	On April 16, 2008, we announced that our board of directors had authorized the repurchase of up to $100 million of common stock through June 30, 2010.
(2)	Consists of shares of common stock withheld from recipients of restricted stock to pay taxes upon the vesting of the restricted stock.

ITEM 6.EXHIBITS.

Exhibit		Method of
Number	Description	Filing
10.1	Letter Agreement between Piper Jaffray Companies and Brien M. O’Brien	Filed herewith
10.2	Restricted Stock Agreement with Brien O’Brien	Filed herewith
10.3	First Amendment to Sublease Agreement, by and among U.S. Bancorp and Piper Jaffray & Co. dated March 26, 2010	Filed herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.	Filed herewith
32.1	Certifications furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 7, 2010.

PIPER JAFFRAY COMPANIES
 

By   /s/ Andrew S. Duff  

Its Chairman and Chief Executive Officer 

By   /s/ Debbra L. Schoneman  

Its Chief Financial Officer 

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Exhibit Index

Exhibit		Method of
Number	Description	Filing
10.1	Letter Agreement between Piper Jaffray Companies and Brien M. O’Brien	Filed herewith
10.2	Restricted Stock Agreement with Brien O’Brien	Filed herewith
10.3	First Amendment to Sublease Agreement, by and among U.S. Bancorp and Piper Jaffray & Co. dated March 26, 2010	Filed herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.	Filed herewith
32.1	Certifications furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith

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