UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

Commission File No. 001-31720

PIPER JAFFRAY COMPANIES

(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. Yes þ No o

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

     As of April 22, 2005, the Registrant had 20,538,425 shares of Common Stock outstanding.

Piper Jaffray Companies
Index to Quarterly Report on Form 10-Q

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Piper Jaffray Companies

See Notes to Consolidated Financial Statements

2

Piper Jaffray Companies

See Notes to Consolidated Financial Statements

3

Piper Jaffray Companies

See Notes to Consolidated Financial Statements

4

Piper Jaffray Companies

Note 1 Background and Basis of Presentation

Background

     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 through an office located in London, England; and Piper Jaffray Financial Products Inc. and Piper Jaffray Financial Products II Inc., two entities that facilitate Piper Jaffray Companies customer derivative transactions. The Company, through its subsidiaries, operates in three business segments: Capital Markets, Private Client Services, and Corporate Support and Other. Capital Markets includes institutional sales and trading services and investment banking services. Private Client Services provides financial advice and investment products and services to individual investors. Corporate Support and Other includes the Company’s results from its private equity business and certain public company and financing costs. The Company’s business segments are described more fully in Note 13.

     On April 28, 2003, Piper Jaffray Companies was incorporated in Delaware as a subsidiary of U.S. Bancorp (“USB”) to effect the spin-off of USB’s capital markets business to its shareholders. On December 31, 2003, after receiving regulatory approval, USB distributed to its shareholders all of its interest in Piper Jaffray Companies and its subsidiaries (collectively, the “Company”). On that date, 19,334,261 shares of Piper Jaffray Companies common stock were issued to USB shareholders (the “Distribution”).

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. Where appropriate, prior periods’ financial information 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, which 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, 2004.

     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 2 Summary of Significant Accounting Policies

     There have been no changes in the significant accounting policies from those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Note 3 Recent Accounting Pronouncements

     On March 29, 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) Share-Based Payment, which expresses views of the staff regarding the interaction between SFAS No. 123(R) (“SFAS 123R”) Share-Based Payment and certain SEC rules and regulations. SAB 107 also provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The Company will evaluate the requirements of SAB 107 in connection with the Company’s future adoption of SFAS 123(R). On April 14, 2005, the SEC approved a new rule that delays the effective date of SFAS 123(R) for public companies. Under the SEC’s rule, SFAS 123(R) is now effective for public companies for annual, rather than interim, periods that begin after June 15, 2005.

5

Piper Jaffray Companies
Notes to Consolidated Financial Statements
(Unaudited)

Note 4 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.

     In the normal course of business, the Company enters into derivative contracts to facilitate customer transactions and as a means to manage risk in net trading securities. The Company also enters into interest rate swap agreements to manage interest rate exposure associated with holding residual interest securities from its tender option bond program. As of March 31, 2005, and December 31, 2004, the Company was counterparty to notional/contract amounts of $2.7 billion and $2.5 billion, respectively, of derivative instruments.

     The market or fair values related to derivative contract transactions are reported in trading securities owned and trading securities sold, but not yet purchased on the Consolidated Statements of Financial Condition and any unrealized gain or loss resulting from changes in fair values of derivatives is recognized in principal transactions on the Consolidated Statements of Operations. Derivatives are reported on a net-by-counterparty basis when a legal right of offset exists under an enforceable netting agreement.

     Fair values for derivative contracts represent amounts estimated to be received from or paid to a counterparty in settlement of these instruments. These derivatives are valued using quoted market prices when available or pricing models based on the net present value of estimated future cash flows. The valuation models used require inputs including contractual terms, market prices, yield curves, credit curves and measures of volatility. The net fair value of derivative contracts was an asset of approximately $6.5 million and $1.7 million as of March 31, 2005, and December 31, 2004, respectively.

Note 5 Trading Securities Owned and Trading Securities Sold, But Not Yet Purchased

     Trading securities owned and trading securities sold, but not yet purchased were as follows:

6

Piper Jaffray Companies
Notes to Consolidated Financial Statements
(Unaudited)

     At March 31, 2005, and December 31, 2004, trading securities owned in the amount of $299.1 million and $290.5 million, respectively, have been pledged as collateral for the Company’s secured borrowings, repurchase agreements and securities loaned activities.

     Trading securities 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 hedges changes in market value of its trading securities owned utilizing trading securities sold, but not yet purchased, interest rate swaps, futures and exchange-traded options. It is the Company’s practice to hedge a significant portion of its trading securities owned.

Note 6 Goodwill and Intangible Assets

     The following table presents the changes in the carrying value of goodwill and intangible assets by reportable segment for the three months ended March 31, 2005:

The intangible assets are amortized on a straight-line basis over three years.

Note 7 Short-Term Financing

     The Company has uncommitted credit agreements with banks totaling $650 million at March 31, 2005, composed of $530 million in discretionary secured lines of which $145 million was outstanding at March 31, 2005, and $120 million in discretionary unsecured lines. In addition, the Company has established arrangements to obtain financing using as collateral the Company’s securities held by its clearing bank and by another broker dealer at the end of each business day. Repurchase agreements and securities loaned to other broker dealers are also used as sources of funding.

     Piper Jaffray has executed a $180 million subordinated debt agreement with an affiliate of USB, which satisfies provisions of Appendix D of SEC Rule 15c3-1 and has been approved by the New York Stock Exchange, Inc. (“NYSE”) and is therefore allowable in Piper Jaffray’s net capital computation. The entire amount of the subordinated debt will mature in 2008.

     During 2004, Piper Jaffray entered into an agreement whereby an affiliate of USB has agreed to provide up to $40 million in temporary subordinated debt, which will be used as necessary to facilitate underwriting transactions. The temporary subordinated debt satisfies provisions of Appendix D of SEC Rule 15c3-1, and in form has been approved by the NYSE and would therefore be allowed in Piper Jaffray’s net capital computation. No advances were made under this agreement for the three months ended March 31, 2005. The term of the agreement expires in December 2005.

7

Piper Jaffray Companies
Notes to Consolidated Financial Statements
(Unaudited)

     The Company’s subordinated debt and short-term financing bear interest at rates based on the London Interbank Offered Rate or federal funds rate. At March 31, 2005 and December 31, 2004, the weighted average interest rate on borrowings was 3.72 percent and 3.51 percent, respectively. At March 31, 2005 and December 31, 2004, no formal compensating balance agreements existed, and the Company was in compliance with all debt covenants related to these facilities.

Note 8 Legal Contingencies

     The Company has been the subject of customer complaints and also has been named as a defendant in various legal proceedings arising primarily from securities brokerage and investment banking activities, including 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 complaints, legal actions, investigations and proceedings. In addition to the Company’s established reserves, USB has agreed to indemnify the Company in an amount up to $17.5 million for certain legal and regulatory matters. Approximately $13.5 million of this amount remained available as of March 31, 2005.

     Given uncertainties regarding the timing, scope, volume and outcome of pending and potential litigation, arbitration and regulatory proceedings and other factors, the reserve is 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 counsel and after taking into account its established reserves and the USB indemnity agreement entered into in connection with the spin-off, that pending legal actions, investigations and proceedings will be resolved with no material adverse effect on the 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 and indemnification, the results of operations in that period could be materially adversely affected.

Note 9 Net Capital Requirements and Other Regulatory Matters

     As a registered broker dealer and member firm of the NYSE, Piper Jaffray is subject to the Uniform Net Capital Rule (the “Rule”) of the SEC and the net capital rule of the NYSE. Piper Jaffray has elected to use the alternative method permitted by the 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 Rule. The NYSE 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 and other provisions of the Rule and the net capital rule of the NYSE. In addition, Piper Jaffray is subject to certain notification requirements related to withdrawals of excess net capital.

     At March 31, 2005, net capital under the Rule was $325.5 million, or 58.9 percent of aggregate debit balances, and $314.5 million in excess of the minimum net capital required under the Rule.

     Piper Jaffray is also registered with the Commodity Futures Trading Commission (“CFTC”) and therefore is subject to CFTC regulations.

     Piper Jaffray Ltd., which is a registered United Kingdom broker dealer, is subject to the capital requirements of the Financial Services Authority (“FSA”). As of March 31, 2005, Piper Jaffray Ltd. was in compliance with the capital requirements of the FSA.

Note 10 Pension and Post-retirement Medical Plans

     Certain employees participate in the Piper Jaffray Companies Non-Qualified Retirement Plan, an unfunded, non-qualified cash balance pension plan. The Company froze this plan in 2004, eliminating future benefits related to pay increases and excluding new participants from the plan.

     All employees of the Company who meet defined age and service requirements are eligible to receive post-retirement health care benefits provided under a post-retirement benefit plan established by the Company in 2004. The estimated cost of these retiree health care benefits is accrued during the employees’ active service.

8

Piper Jaffray Companies
Notes to Consolidated Financial Statements
(Unaudited)

     The components of the net periodic benefits costs for the three months ended March 31, 2005 and 2004, were as follows:

     The pension plan and post-retirement medical plan do not have assets and are not funded. The Company has contributed $0.7 million to the pension plan for the three months ended March 31, 2005.

Note 11 Stock-Based Compensation and Cash Award Program

     The Company maintains one stock-based compensation plan, the Piper Jaffray Companies 2003 Amended and Restated Long-Term Incentive Plan (“the Plan”). The Plan permits the grant of share options and restricted stock to its employees and directors for up to 4.1 million shares of common stock. In 2004 and 2005, the Company granted shares of restricted stock and options to purchase Piper Jaffray Companies common stock to employees and directors. The Company believes that such awards better align the interests of employees with those of shareholders. The awards granted to employees have three-year cliff vesting periods. The director awards are fully vested upon grant. Certain option and restricted stock awards provide for accelerated vesting if there is a change in control (as defined in the Plan). The following table summarizes the Company’s stock options and restricted stock outstanding for the three months ended March 31, 2005: