Piper Sandler Companies (PIPR) 2004 Q4 法說會逐字稿

Welcome to the Piper Jaffrey conference call to review fourth-quarter and full-year 2004 financial results. My name is Ashley, and I will be your facilitator today. (OPERATOR INSTRUCTIONS) Now I will turn the call over to Jennifer Olson-Goude, Director of Investor Relations.

Good morning, and thank you for joining us this morning. Before we begin our formal remarks, let me remind you that statements made on this call that are not historical or current facts, including statements about beliefs and expectations are forward-looking statements that involve inherent risks and uncertainties. Factors that could cause actual results to differ materially from those anticipated are identified in our reports on file with the SEC and are available at our website at www.piperjaffray.com and at the SEC's website at www.sec.gov. And now, I'd like to turn the call over to Andrew Duff.

Thanks, Jennifer. Good morning to everyone joining us today. We'll cover 2 topics this morning before taking your questions. First, I'll give some highlights of the Firm and each of our business segments for the year. Second, Andy will cover the fourth-quarter and full-year financial results.

In 2004, Piper Jaffrey re-entered the market as a new public company. I would characterize our performance for the year as respectable in laying a solid foundation for the future. We have stated our long-term goal is to be a top performer among our public company comparables of A.G. Edwards, Jefferies Group, and Raymond James, in terms of revenue growth, pretax margin, and return on tangible shareholder equity.

Let me touch on our performance in each area. Our net revenue growth for the year was essentially flat compared to 2003. We started the year with good momentum; however, rising interest rates significantly impacted our fixed income sales and trading business, which was off nearly 22 percent from last year.

But we demonstrated the value of a diversified business portfolio. Our equity underwriting and M&A revenues improved significantly year over year, which more than offset weaker fixed income sales and trading. Our Private Client Services revenues were relatively flat, but we stemmed three years of negative trends.

Let me highlight a few accomplishments of 2004 in each business segment. First, Capital Markets -- public finance underwriting held up well, despite rising interest rates. We maintained our number-1 rank in the upper Midwest, and improved our national ranking to number 4 from number 5 in 2003 in terms of number of completed transactions.

For equity underwriting, we improved our ranking for completed transactions to 13th from 14th in 2003. We accomplished this gain by outpacing the industry in year-over-year growth in both completed transactions and total capital raised.

We were very pleased to close on the acquisition of Vie Securities in the fourth quarter. We believe this acquisition will enable Piper Jaffrey to meet the increasing client demand for automated, cost-effective equity trading services. We will continue to offer high-touch execution services, and expect this new acquisition to be complementary to our existing capabilities.

We continue to focus on the revenue growth going forward. Day to day, we have to be relentless in advancing our financial advisory strategy throughout our firm. We have to be absolutely focused on the niches where we have experts and can differentiate ourselves with clients in a very intense marketplace.

To build revenue over the long term, we will continue to look for ways to deliver more capabilities to our clients. The electronic trading capability we added last year is a good example.

Now turning to Private Client Services. We continue to make progress in advancing and the Primary Financial Advisory strategy.

Let me comment on a few of the highlights for 2004. As I mentioned earlier, revenues were essentially flat to last year after several years of declines. Second, we had 2 consecutive quarters in increases in our total financial adviser count. The increases are slight, but reverse a prolonged negative trend.

During 2004, we hired a substantial number of developing financial advisers. As we have stated in the past, we are focusing on developing our own financial advisers and only selectively recruiting seasoned advisers. This approach takes longer to pay off, but we think it is in the best long-term strategy for our business. In 2004, we exceeded our hiring plans for developing financial advisers. These professionals are an important pipeline for our future business.

Over the summer and fall of 2004, we rolled out information to each financial adviser on client relationship metrics. This information provides financial advisers detailed information on client relationships, and helps them identify ways to redirect their efforts to deepen their existing client relationships. This information and effort are critical to improving our productivity.

This year, we named new leaders in 4 key markets -- Minneapolis, San Francisco, Kansas City, and Denver. We also hired an experienced senior executive to lead our training and development efforts.

We recognize we have more work to do in Private Client Services to return this business to being a healthy contributor. But we are making solid progress.

Now let me comment on our profitability. For 2004, our pretax margin was 10 percent compared to 5.2 in 2003. If we take into account the 2003 impact of the charge for the cash award program of 24 million and the 3.9 million royalty fee payment to our then-parent U.S. Bancorp, our pretax margin for 2003 would have been 8.7 percent.

So with flat revenues and absorbing approximately an additional 6 million of public company costs, another 5 million of ongoing expense for the cash award program, we were able to improve pretax margin by 130 basis points.

Our private client business was a large contributor to our overall improvement in firm pretax margin. The business recorded a 13.5 percent operating margin in 2004, a 550 basis point improvement over 2003. We continue to be disciplined on managing expenses. However, to make further strides in enhancing our pretax margin, we need to improve topline growth.

Finally, we significantly enhanced our return on tangible common equity. Given the significant goodwill on our balance sheet, we believe we get a more accurate picture when we evaluate ourselves on tangible basis. This year, our return on average tangible shareholder equity was 12.9 percent versus the return of 8 percent in 2003. A reconciliation of total shareholder equity to tangible shareholder equity was included with our earnings release, which is posted on our website.

In summary, we were able to offset the weakness in our fixed income business with much stronger equity, underwriting, and M&A revenue. The acquisition of Vie Securities provides an important capability that we didn't have previously. Several indicators point to a stabilized and improving Private Client business -- stabilized revenue, improved operating margin, and increased total financial advisers. We are advancing our primary financial advisor strategy in Private Client Services, although additional improvement in financial results will take time to realize. We enhanced our profitability and return on tangible equity.

Now, Sandy will provide a detailed look at our financial results for the fourth quarter and full year. Sandy?

Thanks, Andrew. Fourth-quarter net income of 11.8 million and diluted earnings per share of 51 cents improved markedly from the net loss of 3.3 million and 17 cents per diluted share for the year-ago period. For the full year, both net income and earnings per diluted share nearly doubled to 50.3 million and $2.60 cents, respectively, compared to the last year. Net revenues were just under 798 million, or roughly flat to last year.

For the full year, our pretax operating margin was 10 percent, or nearly double the 5.2 percent margin achieved in 2003. In addition, our compensation expense ratio was 61.2 percent, which was even with last year. Our non-compensation expense ratio improved to 28.8 percent from 33.5 percent last year.

Now I'll review in more detail the consolidated results for the fourth quarter and full year, and then move to the segment results. Fourth-quarter net revenues declined 7.2 million or 3.6 percent from the prior year, primarily due to lower equity institutional sales and trading activities. Sequentially, net revenues rose 4.5 percent. The growth was driven by increased private client activity, improved equity underwriting revenue, and much stronger fixed-income institutional sales and trading, which was the stronger quarter of the year for this area. Partially offsetting these increases were lower public finance and merger and acquisition revenues.

As I indicated earlier, for the year, net revenues were just under 798 million, or roughly flat to last year. We demonstrated the value of diversified revenues, had substantially stronger equity underwriting, and mergers and acquisitions revenues entirely offset weaker fixed-income institutional sales and trading performance. For the quarter, non-interest expenses were 176.4 million, down 14.9 percent in the fourth quarter of 2003.

Compensation expense was 116.8 million, essentially flat to the prior year. Non-compensation expenses were 59.6 million, a decrease of 30.6 million or 33.9 percent.

The decrease from the prior year was due largely to 3 items -- a $24 million charge in the fourth quarter of last year for cash awards granted as part of our spinoff from U.S. Bancorp; a $4 million charge in the fourth quarter of last year for disposal of stock par (ph) related to the implementation of a new fixed-income trading system; and lastly, reduced litigation expenses.

On a sequential quarter basis, non-interest expenses increased 5.2 percent, primarily due to higher litigation-related expenses. For the year, noninterest expenses were just under 718 million, down 28 million or 3.8 percent. Compensation expense was 488.4 million, or relatively flat compared to last year.

Non-compensation expenses were 229.5 million, down 12.9 percent from the prior year. This decline was due to several factors. First, reduced litigation-related expenses; reduced clearing and transaction costs due to management of ECNCs (ph) and floor brokerage costs; an $8.8 million charge in 2003 to establish an allowance for financial advisor loan losses -- the allowance was subsequently reduced by 2.1 million in 2004; the 4.1 million charge in 2003 for disposal of software (ph); the $24 million charge in 2003 for cash awards, compared to a charge of 4.7 million in 2004; and lastly, the elimination of a $3.9 million royalty fee charged to Piper Jaffray by U.S. Bancorp for the use of tradenames and trademark. These reductions in expenses were partially offset by new costs related to being a standalone public company and ongoing annual expense for cash awards.

For the quarter, pretax operating margins was 9.3 percent, a substantial improvement from the negative margin of 2.7 percent in the prior year. For the full year, pretax operating margin was 10 percent, or nearly double the 5.2 percent margin in 2003.

Now, I'll cover the segment results, starting with Capital Markets. Capital Markets recorded 104.4 million in net revenue for the fourth quarter, down 6.4 million or 5.7 percent from the prior year. Segment pretax operating income for the quarter was 17.4 million, down 2.7 percent compared to the fourth quarter of 2003. The decline in revenue was driven by lower equity institutional sales and trading revenue due to lower volumes and higher trading losses. On a sequential quarter basis, net revenue improved 3.1 percent.

Fixed-income institutional sales and trading revenues improved 52.3 percent due to increased trading volumes and improved trading profits. And equity underwriting rose by 35.8 percent due to more favorable deal economics. These improvements in revenues were offset in large part by lower mergers and acquisitions revenue, which declined 7.7 million or 33.1 percent.

We completed 1 more M&A transactions in the fourth quarter than in the third quarter. But the aggregate transaction value was lower. As we've said before, this is a lumpy business. Public finance revenues were also down by 19.8 percent due to comparison to a strong higher quarter.

Segment operating expenses for the quarter were 87 million, a decrease of 5.9 million or 6.3 percent from the same period a year ago. The improvement was primarily driven by the $4.1 million charge in 2003 for disposal of software related to the implementation of a new fixed-income trading system. For the quarter, segment pretax operating margin was 16.7 percent, up from 16.2 percent recorded in the prior year.

For the full year, Capital Markets recorded net revenue of 431.1 million, essentially flat compared to last year. Weaker fixed-income institutional sales and trading activities was offset by significantly stronger equity underwriting and mergers and acquisitions activity, which increased 24.6 percent and 23.4 percent, respectively. Segment pretax operating income for the year was 74.4 million, down 2.4 million or 3.1 percent. Segment operating expenses were 356.7 million, up slightly compared to 2003. Segment pretax operating margins was 17.3 percent compared to 17.8 percent last year.

Now I'd like to move on to Private Client Services. This segment recorded net revenues of 87.8 million for the quarter, about flat compared to the fourth quarter of 2003. On a sequential quarter basis, net revenues rose 4.9 percent as private client activities strengthened after the presidential election. Segment pretax operating income was 11.8 million, up 41.5 percent in the fourth quarter of 2003. Segment operating expenses were 76 million for the quarter, a 5.5 percent improvement from the prior year, primarily due to lower litigation-related expenses.

Segment pretax operating margin was 13.5 percent, up from 9.4 percent margin in the fourth quarter of 2003. For the full year, segment net revenues were 355.2 million, up 0.9 percent compared to the prior year. Segment pretax operating income was 48 million, an improvement of almost 20 million or 70.5 percent over 2003.

Segment operating expenses were 371.1 million, an improvement of 16.8 million or 5.2 percent over 2003, mainly driven by lower litigation-related expenses and reduced financial advisor loan losses. Segment pretax operating margin was 13.5 percent compared to 8 percent for 2003.

Finally, a couple of comments on corporate support and other. Corporate support and other pretax operating loss was 9.9 million for the fourth quarter, an increase of 3.1 million over the fourth quarter of 2003. For the full year, pretax operating loss was 38.1 million compared to 36.1 million last year. The increase in pretax operating loss in both periods was due primarily due to new public company costs.

Finally, today, we announce that our Board of Directors has authorized a he share repurchase program of up to 143 million shares of our outstanding common stock for an aggregate maximum purchase price of $65 million. Our balance sheet and liquidity are strong, and we believe this is an effective use of capital and will help offset the dilutive effect of the employee equity-based compensation. The repurchase program will be conducted under a 10b5-1 plan, and will commence early this year and end December 31, 2005.

In summary for the year -- weaker fixed-income institutional sales and trading was entirely offset by significantly stronger equity underwriting and M&A activities. We maintained our attractive operating margin in Capital Markets. Private Client Services significantly improved profitability and operating margins. And for the firm, we nearly doubled our pretax operating margin.

Finally, we continued to effectively manage our capital base as we work to deliver enhanced return to shareholders.

Thank you for your book (ph) -- that concludes our prepared comments. Now Sandy and I will be happy to take your questions.

(Operator Instructions) Todd Halkey, Sandler O'Neil.

The first thing I want to touch on is the litigation expense during the quarter. How much on an absolute basis of that 7 million change of other operating expense is from litigation?

The change is primarily related to litigation as we stated just a moment ago. And what you're going to find is litigation expenses tend to be lumpy from quarter to quarter, depending -- we go through a pretty thorough process every quarter to review outstanding items and assess potential exposures. And so it was really kind of a part of that process that we increased litigation reserves during the quarter.

When you look at it, right -- so the other operating expenses at 7 million and change is pretty consistent with the first half of the year, but up dramatically from the third quarter. And is that kind of a run rate that you're looking at going forward is kind of in that 7 million range?

I think your best bet for other is to look at kind of a full year -- again, it can be lumpy from quarter to quarter because of changes in litigation expenses does go through the other category. So you're probably better off to look at a full-year run rate there than in a particular quarter.

Okay. On the Capital Markets side and the equity business, we saw pretty much a phenomenal operating environment for equities in general from a capital markets standpoint. Everybody has been putting up pretty strong numbers. The revenues within these 2 -- sales and trading were basically flat from the third quarter -- for all intents and purposes, 1 of the worst quarters we've seen in 2 to 3 years. And I'm trying to get a feel for how you look at that business -- was there trading losses during the quarter that amplified the flat sequential results, or is there something else going on within equity trading that you're deploying resources? Or just kind of what's the -- we were anticipating that number was going to be fairly strong.

Our share volume moved modestly lower during the quarter. We had a slightly softer quarter sequentially. I don't think it's anything more pronounced than that.

Okay. And then can we just talk about the pipeline on the banking side as we move into '05 here -- how is it shaping up? If you can give us a little bit of color there.

Yes, the color I can give you, as we always do, is the number of file deal. And we have 9 on file at the moment.

Great. The last thing is as you look to -- in the private client segment, you have increased the numbers of advisors in the last 2 quarters. Can we just get a feel for what you're looking at in '05? If you said that your hiring targets exceeded your '04 estimate, what are you looking at in '05 to get that number to? Is it to get it -- add (ph) 100, 150? What is the level you're looking for?

We don't announce specific targets. But what we did comment on is the fact that it's a combination. And we intend to continue to higher 3 to 1 and develop them into the industry through our own training. We think that's obviously going to take longer. But it has a number of benefits when you take a longer-term perspective. And we intend to continue to do that.

And then balance come from recruiting within the industry. We have more modest objectives there. Having said that, we might be opportunistic. And in the markets we compete in, there are still what we view as unreasonable economics that we compete with. So we're willing to be patient. If we see an opportunity, people are attracted to our firm for the right reasons, those being platform and culture. We believe we have reasonable economics.

Jonathan Casteleyn, Wachovia Securities.

Look at your compensation ratio, it looks that 60 percent this quarter seems to be in a sequential downtrend. Can you sort of discuss where you're thinking there, and if there is sort of systemic relief on that compensation line?

Sure. For the full year, our compensation ratio was fairly close to last year. I think we were down about 10 basis points for the year. I would say that it's typical that our compensation ratio tends to be a little bit higher in the first quarter, and tends to be a little bit lower in the fourth quarter of the year. The first quarter tends to pick up because you restart all the benefit plan and FICA accruals and so forth. And fourth quarter, we always, as most firms do, take a look at how the results came in for the year. We might true-up benefits plan accruals, profit-sharing accruals, and various and sundry compensation accruals.

So we did tick down a little bit in the fourth quarter this year. But it was related to that year-end look that we do at the overall compensation pool. Going forward, I would not expect, other than business mix changes, significant changes in our compensation ratio.

Right. And the thought process that as you build out your private client group -- I mean, do you incur higher fixed costs as you hire trainees and they sort of flow through the training program without being producers as of yet? Is that something that affects that ratio?

It does, but it's something that can be managed within our overall targets of where we're trying to hit our compensation ratio. Whether you're hiring experienced financial advisers or developing financial advisers, there's typically some form of fixed compensation that comes with that. We just find that we like the concept of hiring the developing financial advisers, as Andrew mentioned, as we can build them into our culture and start from a starting point as a financial advisory model.

Okay. And in municipal finance, can you sort of characterize the production this quarter -- do you think it was a blip on a quarterly basis, or are there different issues there, such as potentially competitive bidding? There's a lot of banter out there about the potential issue. But what are you seeing in that business?

Yes, actually we were comparing -- sort of looking Q3 to Q4 -- Q3 was a very strong quarter. If you look at our overall public finance for the year, you'll find it was very flat to down lightly, which we feel is a very good result, given the increase in interest rates during the year. What we're finding is that is a fairly stable business, because our public sector clients still need capital to finance their infrastructure and deficits. So we were very pleased with how busy (ph) that business was for the year.

Okay, because actually, we had your volume up in the quarter. But obviously, the result came in lower. I'm just wondering if there is a pricing issue there, if it's being competitive, or if maybe the balance sheets of your clients being -- some specific states are actually becoming more saturated, or if that's -- what exactly is happening there?

Just to point out, one of the items that are included in public finance is advisory fees, and that is when we're advising client, but we may not be actually underwriting the issue. We still earn a fee for advising them. So you can't look straight at par value issued to get a feel for what's happening in business.

I see. That's helpful. Lastly, can you just sort of explain the fixed-income paradigm in the quarter? Essentially, your trading numbers look very good. Banking was weaker. Obviously, we talked about municipals. But shouldn't the secondary -- the aftermarket trading have been stronger -- or actually, I'm trying to understand why the secondary market was stronger and the banking was weaker?

Let me take that. Sandy I think addressed the public finance for a full-year view. We will have some lumpiness in our public finance business quarter to quarter. Our business mix is such that we do a large number of volumes, number of transactions during the course of the year -- some of them are substantially larger. And where they fall from any one quarter to another can actually make a material difference in our public finance results.

From a sales trading environment, we experienced a downturn that was pretty substantial in the first couple of quarters -- right through the third quarter, for that matter. And what we're seeing is an anticipated recovery.

I think if you take the full-year view -- I'm not sure any one quarter necessarily tells you exactly where we're headed. But I would offer up that we feel like we found the bottom. And we clearly had sustained higher volumes during the fourth quarter as well as a substantially improved P&L.

I see. And then -- forgive me -- the number you quoted on the backlog, the 9 issues -- which market is that in? (multiple speakers)

(multiple speakers) filed equity public offering.

That's filed equity --

Yes, either IPO or secondary.

Can you talk about your M&A backlog a bit? I mean, by our count, it's like 163 million, which doesn't leave much for deferred revenues. Is that entirely accurate? Can you give us any sort of indication?

Yes. What we communicate is the number of announced transactions. And we have 2.

Announced, but not closed?

Yes, yes -- there routinely are more than that in the backlog. But we'll comment just solely on what's been announced.

(OPERATOR INSTRUCTIONS) Justin Hughes (ph), Philadelphia Financial.

Just a couple of quick questions. First of all, on the litigation -- I was actually thinking that you might be able to take down your litigation reserve quite a bit, because post the quarter, you had a settlement with this Raul F. L. Poupeau (ph) -- excuse me; I'm pronouncing that wrong -- and he was seeking like 74 million or something astronomical. And you guys settled that in October. So I was just surprised that you had an increase in litigation reserve. I was wondering if you could give us a little more color there. And what is the actual dollar amount of litigation reserve?

Just first, I should say that litigation year over year is down substantially comparing 2004 to 2003, which is a favorable trend for us, obviously. Quarter to quarter, we don't disclose specific matters that we might be reserving for and so forth. But you will find some lumpiness quarter to quarter. And we had a case where Q3 was extremely low and Q4 was higher. So you get a swing factor there.

But in general for the year, litigation was down pretty substantially. And that is reflected in the fact that the other expenses for the year were down close to $50 million.

Okay. Did the settlement with Mr. Poupeau impact you third quarter or fourth quarter?

We don't disclose specifically when we are allocating reserves for a specific legal matter.

Okay. And then second question, I was just wondering you haven't bought back any stock to date. But yet, your tangible book value declined quarter to quarter, which led to your increased return on tangible equity. Why was that?

I believe it was related to the -- we acquired a firm by the name of Vie Securities. The transaction --

Oh, that's right -- direct access.

Yes, -- no, I don't know if that -- I'm sorry; I don't think you have the correct name for it. It's called Vie Securities. That transaction closed in November of this year, and primarily was recorded on our balance sheet as goodwill and intangible.

Okay -- makes sense. Did they add anything to the revenues in the quarter?

No, they were just getting started up. When we first announced that acquisition, we expected minimal impact on the bottom line in either '04 or '05.

The close was actually at the very end of November -- late in the quarter.

Lauren Smith, KBW.

Just to circle back on Todd's question with respect to the equity institutional sales -- you do say in your -- I know you cited, Andrew, lower volumes. But it does in your press release higher trading losses. So could you perhaps help us get our arms around perhaps the magnitude of that, and you know, was it broadbase, 1 or 2 trades, and you know, have you heightened, do you think, your risk profile any?

Lauren, that comment -- perhaps it wasn't as clear -- was commenting versus the prior year.

Versus the sequential quarter. Year-over-year (multiple speakers) we're down.

Yes.

And Andrew was answering the question relative to the sequential quarter of why were flat.

The flat quarter-on-quarter is only because of trading volume being lower, or where -- (multiple speakers) I'm just sort of confused where --

Yes, yes -- the trading loss may be the best way to answer the question very directly. The trading loss was not unlike the rest -- the balance of year.

Year-over-year, it was due to losses --

So that's what I was starting to say. And it was unusually low in the fourth quarter of last year. So for the broader picture sequentially for the year, it's less a -- not on our wire (ph). Did we confuse you, Lauren?

(laughter) A little bit. Okay, that helps some.

The comment in the press release was year over year, where we had an unusually low trading residual in the fourth quarter of 2003. That was an outlier.

Okay. I mean, it helps some. I'm just still, quite frankly, a little confused how quarter-on-quarter with the rebound in the equity markets and the results that we've seen from everybody else -- you know, not direct comping with the bulge (ph) bracket, but even -- you know, Legg and Raymond James -- just surprised to see that just flat, quote-unquote (multiple speakers)

Maybe add another little piece of color on, because there's a number of moving pieces in that line item. But you're probably aware that the convertibles market this year is extremely different than the marketplace last year. New issuance buying (ph) is down, and secondary trading is down pretty dramatically, as well. And we have a good convertibles business. We've talked about that previously in the year and last year, as well. And our volumes in convertibles were down pretty substantially, both for the year and for the quarter. (multiple speakers) That's part of the impacting the revenues you're seeing there, as well.

Okay. On the tax rate, it was a little bit lower. Is there anything one-time-ish, or are there things that you were able to do to sort of substantially lower that rate going forward?

Yes, it actually was a one-time event. We contributed some appreciated stock to our foundation to fund future charitable contributions. And there's a tax advantage to that. So we had a little bit lower tax rate this year because of that. And that was recognized in the fourth quarter.

You make a charitable contribution every year. So should we think about fourth quarter sort of consistently being lower, then?

The tax advantage was due to the fact that we had appreciated stock that was distributed from one of our private equity partnership. That is not going to happen regularly.

Okay.

So it shouldn't be anticipated.

Okay. And looking at marketing and business development expenses jumped pretty meaningfully quarter on quarter. Certainly I'd imagine some of that is seasonality factor, because you had relatively active equity underwriting business.

Is any part of that -- or should we be thinking about higher run rate maybe in the early part of '05 as, you know, brand build -- still something you're still focusing on?

As you said -- you guessed correctly. It was really just timing. So again, I'd look at our full-year view of marketing and business development -- obviously, understanding that that's a fairly variable expense that rises and falls with levels of -- in particular, equity underwriting.

Okay. (multiple speakers) And just lastly, on the Vie transaction, you paid 15 million, correct? Is that right, just to refresh my memory?

It was actually 15 million in cash and $1 million of loan forgiveness.

Okay. And so then when we look at the delta of -- I guess it's 3, 3.2 million of goodwill, that's all Vie?

I believe that's probably an average. The actual purchase price was 15 million of cash and 1 million of debt forgiveness. So I'm guessing the 3.2 million you're referring to is from the average for the quarter.

Yes. I'm just looking at this table that you provided us.

(multiple speakers) Yes, yes.

Chuck Screshi (ph), Atlas Capital.

Just one quick clarification on Lauren's last question regarding your tax rate. How should we model your tax rate going forward?

Yes; we had a one-time favorable event in fourth quarter of 2004.

Right.

And so it probably would make sense to exclude that from your model.

All right, but you didn't quantify it. Should we (multiple speakers)

I'm sorry; we don't give any kinds of earnings guidance, nor give specific estimates for any line item within the financial statement.

Well, I'm just asking -- the 3 previous quarters, you had a tax rate modestly higher than 37 percent. Is that how we should be thinking about your tax rate?

That would be reasonable. Yes, that would be a reasonable estimate.

So the impact in the fourth quarter was about 2 cents.

Yes.

Jeffrey Smith (ph), Evergreen Investments.

Could you tell me what the cash balance was on the balance sheet at the end of the year?

We don't disclose any balance sheet items in the earnings release. But you can look for that when we file our 10-K coming up shortly here. That will have a full balance sheet with all the balances.

And just looking into '05, do you expect any significant changes in working capital or capital expenditures?

Not at this point; no.

Jonathan Casteleyn, Wachovia Securities.

Yes, just 1 quick further question on the private client group. The margins dipped down about 100 basis points. I'm just wondering -- is that because of the allocation of the legal expenses to that silo (ph), or is that just additional operating cost there?

That was driven by litigation costs; yes.

Okay. So the bulk of the delta in the non-comp was allocated to private client?

That's correct.

At this time, there are no further questions. I would like to turn the call over to our Chairman and CEO, Andrew Duff, for any closing remarks.

Thank you all for joining us. We very much appreciate your interest in the Firm, and look forward to talking to you about our progress in 2005. Thank you.

Thank you for participating in today's teleconference. You may now disconnect.