57
EXHIBIT 99
DAIN RAUSCHER CORPORATION
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and
is filing this cautionary statement in connection with such safe
harbor legislation. This filing, the Company's Annual Report to
Shareholders, any Form 10-K, Form 10-Q or Form 8-K of the Company or
any other written or oral statements made by or on behalf of the
Company may include forward-looking statements which reflect the
Company's current views with respect to future events and financial
performance. The words "believe," "expect," "anticipate," "intends,"
"estimate," "forecast," "project," "should" and similar expressions
are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution investors that any forward-looking
statements made by or on behalf of the Company are subject to
uncertainties and other factors that could cause actual results to
differ materially from such statements. These uncertainties and other
factors include, but are not limited to, the "Risk Factors" listed
below. Though the Company has attempted to list comprehensively these
important factors, the Company wishes to caution investors that other
factors may in the future prove to be important in affecting the
Company's results of operations. New factors emerge from time to time
and it is not possible for management to predict all such factors, nor
can it assess the impact of each such factor on the business or the
extent to which any factor, or a combination of factors, may cause
actual results to differ materially from those contained in any
forward-looking statements.
Investors are further cautioned not to place undue reliance on
such forward-looking statements as they speak only to the Company's
views as of the date the statement is made. The Company undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Volatile Nature of the Securities Business
The Company's principal business activities, securities broker-
dealer and investment banking operations, as well as its investment
advisory, clearing and other services, are highly competitive and
subject to various risks, including volatile or illiquid trading
markets, fluctuations in the volume of market activity, counterparty
or customer failure to meet commitments and losses and expenses
resulting from litigation and regulatory proceedings. The securities
business is directly affected by a variety of factors beyond the
Company's control. Such factors include market conditions and
psychology, the availability and cost of short-term or long-term
funding and capital, the credit capacity or perceived creditworthiness
of the Company and the securities industry in the marketplace, the
level and volatility of interest rates, inflation and deflation
economic and political conditions, broad trends in business and
finance, and legislation and regulation affecting the national and
international business and financial communities and the securities
markets. These and other factors can result in significant
fluctuations in the Company's revenues and operating results from
quarter to quarter and from year to year.
Since approximately 1990, the securities markets have enjoyed a
sustained bull market that is virtually unprecedented. This, in turn,
has fueled tremendous growth in revenues and income for securities
firms generally, including the Company. Particularly in comparison to
these favorable conditions, volatile or illiquid trading markets could
expose the Company to the risk of trading losses and losses resulting
from the ownership or underwriting of securities. Reductions in the
volume of market activity or in securities prices generally can
result in reduced commission and principal transaction revenues and
reduced investment banking and asset management fees as fewer
transactions are effected and the value of the securities being sold
and assets under management declines. In periods of low transaction
volume, results of operations can be further adversely affected
because certain expenses remain relatively fixed. Sudden sharp
declines in market values of securities can result in illiquid
markets, which, in turn, may result in the Company having difficulty
selling securities, hedging its securities positions and investing
funds under its management and can increase the frequency and size of
credit extensions and counterparty and customer failures to meet
commitments. Such unfavorable market conditions may further reduce
demand for the Company's investment banking and other services.
Competition
All aspects of the Company's business are highly competitive.
The Company competes directly and indirectly for customers with
national and regional full-service broker-dealers, discount broker-
dealers, investment banking firms, investment advisors, commercial
banks, insurance companies, mutual fund companies, money managers,
financial planners and others.
The Company also competes with others in the financial services
industry with respect to the recruiting and retention of revenue
producing employees. The financial services industry has become more
concentrated recently as numerous securities firms have either ceased
operations, eliminated certain business lines or have merged with or
been acquired by other firms. International financial services firms
have also moved aggressively into the U.S. securities, banking and
other financial sectors. Industry consolidation has increased
competition from firms having significantly greater equity capital,
financial and other resources than the Company. The Company expects
competition from domestic and international commercial banks to
continue to increase in light of recent loosening of Federal Reserve
Board rules limiting the underwriting and other activities of
securities subsidiaries of bank holding companies. Acquisitions of
securities firms by banks have brought entirely new sources of capital
into the securities industry, resulting in more competition for the
Company's businesses. Legislative proposals currently under
consideration would eliminate the remaining limit on securities
activities of banks and would permit commercial banks and their
affiliates to offer additional services which have traditionally been
provided only by securities and money management firms.
Dependence on Personnel
Most aspects of the Company's business are highly dependent on
the services of skilled professional employees. The Company devotes
considerable resources to recruiting, training, retaining and
compensating such individuals. The level of competition for
experienced revenue-producing personnel is extremely intense and
levels of compensation for skilled employees has risen accordingly.
The loss of key personnel or the inability to recruit and retain key
personnel in the future could materially and adversely affect the
Company's results of operations. In addition, a key component of the
Company's growth strategy is to increase penetration of existing
markets, enter into new markets and expand the kinds of products or
services it provides. The Company's ability to succeed in pursuit of
such strategy is highly dependent on its ability to recruit and retain
experienced revenue-producing and other personnel.
Implementation of the Company's Strategies
The Company's business strategy is to gain a competitive edge in
the marketplace by coupling the regional and industry expertise,
knowledge, brand names, capital and customer relationships of its
former broker-dealer subsidiaries into a single, more powerful brand
name that will enable it to simplify its management structure gain
economies of scale and critical mass and become more responsive to
competitive changes. In order to remain competitive, the Company must
grow its revenues through further penetration of existing markets,
entry into new markets and expansion of the products and services it
provides, including possible expansion into related lines or business.
There can be no assurance that the Company will be able to identify
and capitalize on service, product or market opportunities that will
further the Company's strategy and enhance its business, results of
operations or financial condition. While the Company has grown
successfully through strategic acquisitions in the past, there can be
no assurance that the Company in the future will be able to
successfully identify, compete for or acquire on favorable terms or
integrate the business and operations of any acquired business or
entity with the Company's existing operations.
Dependence on Systems
The Company's business is highly dependent on communications,
trading, information and data processing systems. As with other
areas, the Company's technology demands have grown considerably in
recent years and are anticipated to continue to grow dramatically in
the years ahead. Investor interest and competitive forces in areas
such as electronic order entry and access to customer statements
(including through the Internet) could strain the Company's technology
resources or force it to incur substantial expenses in expanding these
resources. New regulations imposing additional audit trail and other
data capture and retention requirements will cause the Company to
incur further significant expenses. The Company has outsourced
certain of its communications and quotations and trading systems
services and currently maintains its own back-office processing
system. Although the Company and its vendors have in place tested
disaster recovery systems, any failure or interruption of the
Company's or a vendor's systems could cause delays in the Company's
securities trading and processing activities and an inability to
execute client transactions, which could have a material adverse
effect on the Company's operating results. There can be no assurance
that the Company or a vendor will not suffer any such systems failure
or interruption or that the Company's or a vendor's backup procedures
and disaster recovery capabilities will be adequate. As technology
develops and industry practices and regulations change, the Company
must update or replace various of its key systems, including, in
particular, its back-office data processing system, in order to remain
competitive. The Company has, in fact, committed to upgrade its
current back-office processing system via an internal development
process between 1998 and 2002 at an expected cost of approximately $17
million. There can be no assurance that the Company, during the
process of upgrading its current back-office processing system, will
not encounter technological difficulties, cost overruns, problems
obtaining the necessary quantity and quality of development personnel,
or difficulties in purchasing necessary components of such a system
from outside vendors. Further, there can be no assurance that the
back-office processing system, upon completion, will be state-of-the-
art and that the system upgrade or implementation process will not
result in interruption of the Company's business or delivery of its
products and services to customers.
It has become widely known that certain technological problems
may arise in connection with reaching the Year 2000. Beginning with
the Company's consolidation of the back-office brokerage operations of
Dain Bosworth and Rauscher Pierce Refsnes in 1993, the Company has
upgraded and/or replaced the bulk of its mission-critical data
processing systems. Such upgrade and replacement projects were
performed primarily for competitive reasons, though they included the
added benefit of making such systems Year 2000 compliant. Upgrades or
replacements necessary to achieve Year 2000 compliance for the
Company's remaining mission-critical systems are expected to be
completed in 1998 and the costs related to such upgrades or
replacements are not expected to have a material effect on the
Company's consolidated financial statements. During 1999, the
Company, along with the rest of the securities industry, expects to
test systems interdependencies with outside parties. While there can
be no assurance, the Company believes that its internal systems will
not experience significant disruption in connection with the Year
2000. There can be no assurance that another entity's failure to
ensure Year 2000 readiness would not have an adverse effect on the
Company. In particular, if the Company's internal systems or if the
Company's vendors and other information providers or the securities
exchanges, clearing agencies and other securities firms or financial
institutions with which the Company transacts business experience any
significant disruption in connection with the Year 2000, such
disruption may have a material adverse effect on the Company's results
of operations.
Dependence on Sources of Financing
The Company, like others in the securities industry, relies on
external sources to finance a significant portion of its day-to-day
operations, principally customer margin account balances, securities
inventory and underwriting positions and certain other transactions.
The principal sources of the Company's cash and liquidity are retained
earnings, cash balances held on behalf of customers pending
investment, collateralized repurchase agreements, collateralized bank
loans and securities lending activities. The Company also has a
$50 million unsecured committed revolving credit facility available.
The Company maintains uncommitted credit lines with a number of
banks aggregating approximately $414 million, of which $600 million
had been drawn down as of February 28, 1998. The Company will also
be dependent upon an $80 million subordinated debt commitment it has
with a bank in order to finance the pending March 31, 1998 acquisition
of Wessels, Arnold & Henderson, LLC. Finally, because a substantial
portion of the Company's capital resources could be used for
acquisitions, including the acquisition of Wessels, Arnold & Henderson,
LLC, the Company may require additional debt or equity financing for
its operations, which financing may not be available on terms
favorable to the Company, if at all. Availability of financing to
the Company can vary depending on market conditions, the volume of
certain trading activities, credit ratings, credit capacity and the
overall availability of credit to the financial services industry. See
"Liquidity and Capital Resources."
Use of Derivative Financial Instruments
The Company enters into certain financial futures contracts and
option contracts in the ordinary course of its business to hedge or
modify exposures to interest rate fluctuations related to interest-
rate-sensitive securities in its trading inventories. While the use
of these derivatives is intended to allow the Company to better manage
certain risks, it is possible that, over time, mis-matches may arise
with respect to the derivatives and the cash market instruments they
are intended to hedge. Discrepancies can also arise between the
derivative and cash markets. Derivatives also have risks that are
similar in type to the risks of the cash market instruments on which
their values are based. For example, in times of market stress, sharp
price movements or reductions in liquidity in the cash markets may be
related to comparable or even greater price movements and reductions
in liquidity in the derivative markets. Further, the risks associated
with derivatives are potentially greater than those associated with
the related cash market instruments because of the additional
complexity and potential for leverage. In addition, derivatives may
create credit risk (the risk that a counterparty on a derivative
transaction will not fulfill its contractual obligations), as well as
legal, operational and other risks beyond those associated with the
underlying cash market instruments on which their values are based.
Federal and State Regulation; Net Capital Requirements
The Company's business is, and the securities and commodities
industries are, subject to extensive regulation in the United States,
at both the federal and state level, as well as by industry self-
regulatory organizations. As a matter of public policy, regulatory
bodies are charged with safeguarding the integrity of the securities
and other financial markets and with protecting the interests of
customers participating in those markets and not with protecting the
interests of the Company's stockholders and creditors. In addition,
self-regulatory organizations and other regulatory bodies in the
United States, such as the Commission, the New York Stock Exchange,
Inc. (the "NYSE"), the National Association of Securities Dealers,
Inc. and the Municipal Securities Rulemaking Board, require strict
compliance with their rules and regulations. Failure to comply with
any of these laws, rules or regulations, many of which are quite
complex and subject to interpretation, could result in a variety of
adverse consequences including censure, fines, suspension, revocation
or reduction of the right to do business of key persons associated
with the Company or the Company itself, and private rights of action
for damages, which could have a material adverse effect upon the
Company's consolidated financial condition or results of operations.
The laws and regulations, as well as governmental policies and
accounting principles, governing the financial services and banking
industries have changed significantly over recent years and are
expected to continue to do so. During the last several years Congress
has considered numerous proposals that would significantly alter the
structure and regulation of such industries. Certain of such changes,
if adopted, could materially and adversely affect the business and
operations of the Company. The Company's businesses may also be
materially affected by regulations of general application, such as
existing and proposed tax legislation, antitrust policy and other
governmental regulations and policies (including the interest rate and
other monetary policies of the Federal Reserve Board).
The Commission, the NYSE, and various other exchanges and
regulatory bodies in the United States have rules with respect to net
capital requirements which affect the Company. These rules have the
effect of requiring that at least a substantial portion of a broker-
dealer's assets be kept in cash or highly liquid investments.
Compliance with the net capital requirements by Dain Rauscher could
limit operations that require extensive use of capital, such as
underwriting or trading activities and constrain the ability of the
Company to grow its business, either through internal expansion or by
acquisitions. A significant operating loss or any unusually large
charge against net capital could have a material adverse effect on the
Company's ability to operate its business. The net capital rules
could also restrict the ability of the Company to withdraw capital
from Dain Rauscher, even in circumstances in which it has more than
the minimum amount of required capital. Such restrictions, in turn,
could limit the ability of the Company to pay dividends, implement its
strategies, pay interest on and repay the principal of its debt and
redeem or repurchase shares of outstanding capital stock.
Litigation
Many aspects of the securities brokerage and investment banking
businesses involve substantial risks of liability. In recent years,
there has been an increasing incidence of litigation and regulatory
enforcement proceedings involving the securities industry. Such
actions include class action suits that generally seek substantial
damages, other suits seeking punitive and/or treble damages and
administrative and court proceedings brought by regulatory agencies
seeking fines, injunctions, suspensions and bars from future
participation in the business against securities firms and, in some
cases, their employees and officers. Underwriters are subject to
substantial potential liability for material misstatements and
omissions in prospectuses and other communications with respect to
underwritten offerings of securities. Like other securities brokerage
firms, the Company and certain of its personnel have been named or
threatened to be named as defendants in legal and regulatory
proceedings which cause the Company to expend substantial financial
and managerial resources in order to defend itself. The outcome of
any legal or regulatory proceeding is uncertain. The settlement of
any such proceeding under adverse circumstances or an adverse judgment
in connection with any such proceeding may have a material adverse
effect on the Company's consolidated financial condition or results of
operations.