PIPER JAFFRAY COMPANIES (Form: 10-K, Received: 02/28/2014 14:30:03)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2013

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 Incorporation or Organization)		(IRS Employer Identification No.)
800 Nicollet Mall, Suite 1000 Minneapolis, Minnesota		55402
(Address of Principal Executive Offices)		(Zip Code)
	(612) 303-6000
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class		Name of Each Exchange On Which Registered
Common Stock, par value $0.01 per share		The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No þ

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 R No £

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). Yes R No £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

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.

Large accelerated filer £ Accelerated filer R Non-accelerated filer £ Smaller reporting company £

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

The aggregate market value of the 16,068,113 shares of the Registrant’s Common Stock, par value $0.01 per share, held by non-affiliates based upon the last sale price, as reported on the New York Stock Exchange, of the Common Stock on June 30, 2013 was approximately $508 million.

As of February 19, 2014 , the registrant had 16,171,560 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the Registrant’s Proxy Statement for its 2014 Annual Meeting of Shareholders to be held on May 7, 2014 .

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PART I
ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	8
ITEM 1B.	UNRESOLVED STAFF COMMENTS	19
ITEM 2.	PROPERTIES	19
ITEM 3.	LEGAL PROCEEDINGS	20
ITEM 4.	MINE SAFETY DISCLOSURES	20

PART II
ITEM 5.	MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	21
ITEM 6.	SELECTED FINANCIAL DATA	23
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	55
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION	56
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	115
ITEM 9A.	CONTROLS AND PROCEDURES	115
ITEM 9B.	OTHER INFORMATION	115

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	115
ITEM 11.	EXECUTIVE COMPENSATION	115
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS	115
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	116
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	116

PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	116
	SIGNATURES	119

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PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K contains forward-looking statements. 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 this Form 10-K. 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 “Risk Factors” in Item 1A, as well as those factors discussed under “External Factors Impacting Our Business” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K and in our subsequent reports filed with the Securities and Exchange Commission (“SEC”). Our SEC reports are available at our Web site at www.piperjaffray.com and at the SEC’s 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.

ITEM 1. BUSINESS.

Overview

Piper Jaffray Companies is an investment bank and asset management firm, serving the needs of corporations, private equity groups, public entities, non-profit entities and institutional investors in the U.S. and internationally. Founded in 1895, Piper Jaffray provides a broad set of products and services, including equity and debt capital markets products; public finance services; financial advisory services; equity and fixed income institutional brokerage; equity and fixed income research; and asset management services. Our headquarters are located in Minneapolis, Minnesota and we have offices across the United States and international locations in London, Hong Kong and Zurich. We market our investment banking and institutional securities business under a single name – Piper Jaffray – which gives us a consistent brand across this business. Our traditional asset management business is marketed under Advisory Research, Inc.

Prior to 1998, Piper Jaffray was an independent public company. U.S. Bancorp acquired the Piper Jaffray business in 1998 and operated it through various subsidiaries and divisions. At the end of 2003, U.S. Bancorp facilitated a tax-free distribution of our common stock to all U.S. Bancorp shareholders, causing Piper Jaffray to become an independent public company again.

Our Businesses

We operate through two reportable business segments, Capital Markets and Asset Management. We believe that the mix of activities across our business segments helps to provide diversification in our business model.

Capital Markets

The Capital Markets segment provides investment banking and institutional sales, trading and research services for various equity and fixed income products. This segment also includes the results from our two alternative asset management funds and our principal investments.

•

Investment Banking – We raise capital through equity financings and provide advisory services, primarily relating to mergers and acquisitions, for our corporate clients. We operate in the following focus industries: business services, clean technologies, consumer and retail, healthcare, industrials, and technology, media and telecommunications, primarily focusing on middle-market clients. For our government and non-profit clients, we underwrite debt issuances and provide financial advisory and interest rate risk management services. Our public finance investment banking capabilities focus on state and local governments, cultural and social service non-profit entities, and the healthcare, education, senior living and hospitality sectors.

•

Equity and Fixed Income Institutional Brokerage – We offer both equity and fixed income advisory and trade execution services for institutional investors and government and non-profit entities. Integral to our capital markets efforts, we have equity sales and trading relationships with institutional investors in the United States and Europe that invest in our core sectors. Our research analysts provide investment ideas and support to our trading clients on approximately 600 companies. Our fixed income sales and trading professionals have expertise in municipal, corporate, mortgage, agency, treasury and structured

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product securities and cover a range of institutional investors. We engage in trading activities for both customer facilitation and strategic trading purposes. Our strategic trading activities (i.e. proprietary trading) are dedicated solely to investing firm capital, and principally focus on investments in municipal bonds, mortgage-backed securities and equity securities.


•	Principal Investments – We engage in merchant banking activities, which involve equity or debt investments in late stage private companies. Additionally, we have investments in private equity and venture capital funds and other firm investments.


•	Alternative Asset Management Funds – As certain of our strategic trading and merchant banking efforts have matured and an investment process has been developed, we have created alternative asset management funds in municipal securities and merchant banking in order to invest firm capital as well as to seek capital from outside investors.

In 2013, we completed the acquisitions of Seattle-Northwest Securities Corporation ("Seattle-Northwest"), a Seattle-based investment bank and broker dealer focused on public finance in the Northwest region of the U.S., and Edgeview Partners, L.P. ("Edgeview"), a middle-market advisory firm specializing in mergers and acquisitions. For more information on our acquisitions of Seattle-Northwest and Edgeview, see Note 4 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Asset Management

The Asset Management segment includes our traditional asset management business and our seed investments in registered funds and private funds or partnerships that we manage. Our traditional asset management business offers specialized investment management solutions for institutions, private clients and investment advisors. We manage value-oriented domestic and international equity securities and energy infrastructure assets through open-end and closed-end funds. We also provide customized solutions to our clients. In many cases, we offer both diversified and more concentrated versions of our products, generally through separately managed accounts.

•

Value Equity – We take a value-driven approach to managing assets in the domestic and international equity markets. These investment strategies have an investment philosophy that centers on fundamental security selection across industries and regions with a focus on analyzing, among other things, a company's financial position, liquidity and profitability in light of its valuation. By focusing on securities with attractive net asset values, we seek to generate competitive long-term returns while minimizing investment risk.

•

Master Limited Partnerships ("MLPs") – We also manage MLPs focused on the energy sector. These strategies focus on growth, yet seek to limit exposure to riskier securities by placing greater importance on characteristics which support stable distributions and are representative of higher quality MLPs, including less volatile businesses, strategic assets, cleaner balance sheets and proven management teams. Prior to 2012, the MLP business was part of Fiduciary Asset Management, LLC ("FAMCO"), previously a division of our asset management segment that primarily managed fixed income strategies. In the first quarter of 2012, we reorganized our FAMCO and Advisory Research, Inc. ("ARI") reporting units, which resulted in the MLP business becoming part of ARI.

As of December 31, 2013 , total assets under management ("AUM") were $11.2 billion , of which approximately 59 percent was invested in equities and 41 percent in MLPs. As of the same date, approximately 7 percent of our AUM was invested in international investment strategies and 93 percent was invested in domestic investment strategies. Approximately 83 percent of our AUM as of December 31, 2013 was managed on behalf of institutional clients, including foundations, endowments, pension funds and corporations, and through sub-advisory relationships, mutual fund sponsors and registered advisors, and approximately 17 percent of our AUM was managed on behalf of individual client relationships, which are principally high net worth individuals.

Discontinued Operations

In 2012, we shut down our Hong Kong capital markets business and ceased operations as of September 30, 2012. Additionally, we sold FAMCO, an asset management subsidiary, in the second quarter of 2013. For further information on our discontinued operations, see Note 5 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

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Financial Information about Geographic Areas

For financial information concerning our geographic regions for each of the years ended December 31, 2013 , 2012 , and 2011 , respectively, see Note 26 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Competition

Our business is subject to intense competition driven by large Wall Street and international firms operating independently or as part of a large commercial banking institution. We also compete with regional broker dealers, boutique and niche-specialty firms, asset management firms and alternative trading systems that effect securities transactions through various electronic media. Competition is based on a variety of factors, including price, quality of advice and service, reputation, product selection, transaction execution, financial resources and investment performance. Many of our large competitors have greater financial resources than we have and may have more flexibility to offer a broader set of products and services than we can.

In addition, there is significant competition within the securities industry for obtaining and retaining the services of qualified employees. Our business is a human capital business and the performance of our business is dependent upon the skills, expertise and performance of our employees. Therefore, our ability to compete effectively is dependent upon attracting and retaining qualified individuals who are motivated to serve the best interests of our clients, thereby serving the best interests of our company. Attracting and retaining employees depends, among other things, on our company’s culture, management, work environment, geographic locations and compensation.

Employees

As of February 19, 2014 , we had approximately 1,053 employees, of whom approximately 654 were registered with the Financial Industry Regulatory Authority (“FINRA”).

Regulation

As a participant in the financial services industry, our business is regulated by U.S. federal and state regulatory agencies, self-regulatory organizations (“SROs”) and securities exchanges, and by foreign governmental agencies, financial regulatory bodies and securities exchanges. We are subject to complex and extensive regulation of most aspects of our business, including the manner in which securities transactions are effected, net capital requirements, recordkeeping and reporting procedures, relationships and conflicts with customers, the handling of cash and margin accounts, conduct, experience and training requirements for certain employees, and the manner in which we prevent and detect money-laundering and bribery activities. The regulatory framework of the financial services industry is designed primarily to safeguard the integrity of the capital markets and to protect customers, not creditors or shareholders.

The laws, rules and regulations comprising this regulatory framework can (and do) change frequently, as can the interpretation and enforcement of existing laws, rules and regulations. Recent conditions in the global financial markets and economy, including the 2008 financial crisis, caused legislators and regulators to increase the examination, enforcement and rule-making activity directed toward the financial services industry, which we expect to continue in the coming years. In 2010, the federal government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Dodd-Frank significantly restructures and intensifies regulation in the financial services industry, with provisions that include, among other things, the creation of a new systemic risk oversight body, expansion of the authority of existing regulators, increased regulation of and restrictions on OTC derivatives markets and transactions, broadening of the reporting and regulation of executive compensation, expansion of the standards for market participants in dealing with clients and customers, and regulation of fiduciary duties owed by municipal advisors or conduit borrowers of municipal securities. In addition, a section of Dodd-Frank referred to as the "Volcker Rule" provides for a limitation on proprietary trading and investments by certain bank holding companies. We are not a bank holding company and, as a result, the Volcker Rule does not apply to us. Even though portions of Dodd-Frank do not apply to us (e.g. the Volcker Rule), Dodd-Frank as a whole and the intensified regulatory environment, will likely alter certain business practices and change the competitive landscape of the financial services industry, which may have an adverse effect on our business, financial condition and results of operations.

Our U.S. broker dealer subsidiary (Piper Jaffray & Co.) is registered as a securities broker dealer with the SEC and is a member of various SROs and securities exchanges. In July of 2007, the National Association of Securities Dealers and the member regulation, enforcement and arbitration functions of the New York Stock Exchange (“NYSE”) consolidated to form FINRA, which now serves

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as the primary SRO of Piper Jaffray & Co., although the NYSE continues to have oversight over NYSE-related market activities. FINRA regulates many aspects of our U.S. broker dealer business, including registration, education and conduct of our employees, examinations, rulemaking, enforcement of these rules and the federal securities laws, trade reporting and the administration of dispute resolution between investors and registered firms. We have agreed to abide by the rules of FINRA (as well as those of the NYSE and other SROs), and FINRA has the power to expel, fine and otherwise discipline Piper Jaffray & Co. and its officers, directors and employees. Among the rules that apply to Piper Jaffray & Co. are the uniform net capital rule of the SEC (Rule 15c3-1) and the net capital rule of FINRA. Both rules set a minimum level of net capital a broker dealer must maintain and also require that a portion of the broker dealer's assets be relatively liquid. Under the FINRA rule, FINRA may prohibit a member firm from expanding its business or paying cash dividends if resulting net capital falls below FINRA requirements. In addition, Piper Jaffray & Co. is subject to certain notification requirements related to withdrawals of excess net capital. As a result of these rules, our ability to make withdrawals of capital from Piper Jaffray & Co. may be limited. In addition, Piper Jaffray & Co. is licensed as a broker dealer in each of the 50 states, requiring us to comply with applicable laws, rules and regulations of each state. Any state may revoke a license to conduct a securities business and fine or otherwise discipline broker dealers and their officers, directors and employees.

We also operate an entity that is licensed and regulated by the U.K. Financial Conduct Authority. This entity is registered under the laws of England and Wales is authorized and regulated by the U.K. Financial Conduct Authority. While we ceased operations related to our Hong Kong capital markets business as of September 30, 2012, we expect to maintain a more limited presence in the Hong Kong region to facilitate our U.S. advisory business. Accordingly, we have applied for a regulatory license to be registered with and subject to the Hong Kong Securities and Futures Commission. The U.K. Financial Conduct Authority and the Hong Kong Securities and Futures Commission regulate these entities (in their respective jurisdictions) in areas of capital adequacy, customer protection and business conduct, among others.

Entities in the jurisdictions identified above are also subject to anti-money laundering regulations. Piper Jaffray & Co., our U.S. broker-dealer subsidiary, is subject to the USA PATRIOT Act of 2001, which contains anti-money laundering and financial transparency laws and mandates the implementation of various regulations requiring us to implement standards for verifying client identification at account opening, monitoring client transactions and reporting suspicious activity. Our entities in Hong Kong and the United Kingdom are subject to similar anti-money laundering laws and regulations. We are also subject to the U.S. Foreign Corrupt Practices Act as well as other anti-bribery laws in the jurisdictions in which we operate. These laws generally prohibit companies and their intermediaries from engaging in bribery or making other improper payments to foreign officials for the purpose of obtaining or retaining business or gaining an unfair business advantage.

We maintain asset management subsidiaries that are registered as investment advisers with the SEC and subject to regulation and oversight by the SEC. These entities are ARI, Piper Jaffray Investment Management LLC ("PJIM"), and PJC Capital Partners LLC. As registered investment advisors, these entities are subject to requirements that relate to, among other things, fiduciary duties to clients, maintaining an effective compliance program, solicitation agreements, conflicts of interest, recordkeeping and reporting requirements, disclosure requirements, limitations on agency cross and principal transactions between advisor and advisory clients, as well as general anti-fraud prohibitions. Certain investment funds that we manage are registered investment companies under the Investment Company Act, as amended. Those funds and entities that serve as the funds' investment advisors are subject to the Investment Company Act and the rules and regulations of the SEC, which regulate the relationship between a registered investment company and its investment advisor and prohibit or severely restrict principal transactions or joint transactions, among other requirements. ARI is also authorized by the Irish Financial Services Regulatory Authority as an investment advisor in Ireland and cleared by the Luxembourg Commission de Surviellance du Secteur Financier as a manager to Luxembourg funds. ARI has established a Tokyo office which is a Representative Office of a Foreign Investment Advisor subject to Japanese laws and regulations. PJIM is registered with the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”) as a commodities pool operator. The registrations with the CFTC and NFA allow PJIM to enter into derivative instruments (e.g, interest rate swaps and credit default swap index contracts) to hedge risks associated with certain security positions of funds managed by PJIM.

Certain of our businesses also are subject to compliance with laws and regulations of U.S. federal and state governments, non-U.S. governments, their respective agencies and/or various self-regulatory organizations or exchanges governing the privacy of client information. Any failure with respect to our practices, procedures and controls in any of these areas could subject us to regulatory consequences, including fines, and potentially other significant liabilities.

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Executive Officers

Information regarding our executive officers and their ages as of February 19, 2014 , are as follows:



Name	Age	Position(s)
Andrew S. Duff	56	Chairman and Chief Executive Officer
Chad R. Abraham	45	Co-Head of Global Investment Banking and Capital Markets
Christopher D. Crawshaw	47	Head of Asset Management
Frank E. Fairman	56	Head of Public Finance
John W. Geelan	38	General Counsel and Secretary
Jeff P. Klinefelter	46	Global Head of Equities
R. Scott LaRue	53	Co-Head of Global Investment Banking and Capital Markets
Debbra L. Schoneman	45	Chief Financial Officer
M. Brad Winges	45	Head of Fixed Income Services

Andrew S. Duff is our chairman and chief executive officer. Mr. Duff became chairman and chief executive officer of Piper Jaffray Companies following completion of our spin-off from U.S. Bancorp on December 31, 2003. He also has served as chairman of our broker dealer subsidiary since 2003, as chief executive officer of our broker dealer subsidiary since 2000, and as president of our broker dealer subsidiary since 1996. He has been with Piper Jaffray since 1980. Prior to the spin-off from U.S. Bancorp, Mr. Duff also was a vice chairman of U.S. Bancorp from 1999 through 2003.

Chad R. Abraham is our co-head of global investment banking and capital markets, a position he has held since October 2010. Prior to his current role, he served as head of equity capital markets since November 2005. Mr. Abraham joined Piper Jaffray in 1991.

Christopher D. Crawshaw is our head of asset management. He has served in this role since January 2014. Mr. Crawshaw joined Piper Jaffray from Advisory Research, Inc., a Chicago-based asset management firm that we acquired in 2010, where he had been a managing director since 2004, having joined the company in 2001. Mr. Crawshaw was named president of Advisory Research in 2012.

Frank E. Fairman is head of our public finance services business, a position he has held since July 2005. Prior to that, he served as head of the firm's public finance investment banking group from 1991 to 2005, as well as the head of the firm's municipal derivative business from 2002 to 2005. He has been with Piper Jaffray since 1983.

John W. Geelan is our general counsel and secretary. He served as assistant general counsel and assistant secretary from November 2007 until becoming general counsel in January 2013. Mr. Geelan joined Piper Jaffray in 2005.

Jeff P. Klinefelter is the global head of our equities business, a position he has held since July 2012. From May 2010 until July 2012, he served as head of equity research. Mr. Klinefelter joined Piper Jaffray in 1997 as a research analyst.

R. Scott LaRue is our co-head of global investment banking and capital markets, a position he has held since October 2010. He had previously served as global co-head of consumer investment banking since February 2010, after having served as co-head of consumer investment banking since August 2004. He has been with Piper Jaffray since 2003.

Debbra L. Schoneman is our chief financial officer. Ms. Schoneman joined Piper Jaffray in 1990 and has held her current position since May 2008. She previously served as treasurer from August 2006 until May 2008. Prior to that, she served as finance director of our corporate and institutional services business from July 2002 until July 2004 when the role was expanded to include our public finance services division.

M. Brad Winges is head of our fixed income services business, a position he has held since January 2009. Mr. Winges joined Piper Jaffray in 1991 and served as head of public finance services sales and trading from June 2005 until obtaining his current position. Prior to that, he served as head of municipal sales and trading from June 2003 until June 2005.

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Additional Information

Our principal executive offices are located at 800 Nicollet Mall, Suite 1000, Minneapolis, Minnesota 55402, and our general telephone number is (612) 303-6000. We maintain an Internet Web site at http://www.piperjaffray.com. The information contained on and connected to our Web site is not incorporated into this report. We make available free of charge on or through our Web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all other reports we file with the SEC, as soon as reasonably practicable after we electronically file these reports with, or furnish them to, the SEC. “Piper Jaffray,” the “Company,” “registrant,” “we,” “us” and “our” refer to Piper Jaffray Companies and our subsidiaries. The Piper Jaffray logo and the other trademarks, tradenames and service marks of Piper Jaffray mentioned in this report, including Piper Jaffray ^® , are the property of Piper Jaffray.

ITEM 1A. RISK FACTORS.

Developments in market and economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability and cause volatility in our results of operations.

Economic and market conditions have had, and will continue to have, a direct and material impact on our results of operations and financial condition because performance in the financial services industry is heavily influenced by the overall strength of economic conditions and financial market activity. For example:

•

Interest rates, which had been at or near historical lows in 2012, rose significantly in 2013 as investors anticipated that the Federal Reserve would taper its quantitative easing program based on a stronger U.S. economy. At times in 2013, the rise in interest rates was rapid and severe, which led to widening credit spreads and a volatile trading environment. This environment negatively impacted our fixed income institutional business in 2013 as it reduced client activity and the value of our fixed income inventory positions, both those held for facilitating client activity and our own proprietary trading. Our interest rate hedging strategies were not able to fully mitigate these inventory losses. Also, our public finance investment banking business underwrote significantly fewer debt refinancing issuances as interest rates increased. We expect interest rates to continue to rise in 2014 and a rapid or severe increase may negatively impact our fixed income institutional business similar to 2013. The impact from a rapid or severe rise in interest rates and any attendant volatility on the value of our fixed income inventory positions may not be fully mitigated by our interest rate hedging strategies, as we generally do not hedge all of our interest rate risk and volatility may reduce the correlation (i.e., effectiveness) between certain hedging vehicles and the securities inventory we are attempting to hedge. Interest rate increases in 2014, both gradual and more severe, would continue to negatively impact the volume of debt refinancing issuances in our public finance business.

•

Our equities investment banking revenue, in the form of underwriting, placement and financial advisory fees is directly related to global macroeconomic conditions and corresponding financial market activity. As an example, a significant component of our investment banking revenues are derived from initial public offerings of middle-market companies in growth sectors, and activity in this area is highly correlated to the macroeconomic environment. Even though equity markets were strong, volatility generally remained low, and the U.S. economy continued to show signs of improvement in 2013, growth has been uneven across various sectors. In addition, the U.S. and global economic recovery as a whole remains vulnerable to the possible risks posed by certain economic conditions or exogenous shocks, which could include, among other things, tepid job and consumer spending growth, the impact from the Federal Reserve's tapering of its quantitative easing program, a decline in the U.S. labor force participation rate, significant cuts to federal spending, concerns about deficit levels, taxes and U.S. debt ratings, a resurgence of the European sovereign debt crisis, and the continued potential for a deterioration in global economic conditions as a result of a significant downturn in one or more major economic regions. If these factors were to worsen or if an exogenous shock were to materialize, it could lead to equity market declines and volatility, which would likely have a significant negative impact on our results of operations.


•	An unsustainable economic recovery would likely result in a decline in the financial markets, reducing asset valuations and adversely impacting our asset management business. A reduction in asset values would negatively impact this business by reducing the value of assets under management, and as a result, the revenues generated from this business.

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It is difficult to predict the market conditions for 2014, which are dependent in large part upon the pace and sustainability of the global economic recovery. Our smaller scale compared to many of our competitors and the cyclical nature of the economy and this industry leads to volatility in our financial results, including our operating margins, compensation ratios and revenue and expense levels. Our financial performance may be limited by the fixed nature of certain expenses, the impact from unanticipated losses or expenses during the year, and the inability to scale back costs in a timeframe to match decreases in revenue-related changes in market and economic conditions. As a result, our financial results may vary significantly from quarter-to-quarter and year-to-year.

Our proprietary trading and principal investments expose us to risk of loss.

We engage in a variety of activities in which we commit or invest our own capital, including proprietary trading and principal investing. During 2013, our proprietary trading activities (which we also refer to as "strategic trading" in this report) related to municipal bonds, non-agency mortgage bonds, and equities constituted a considerable portion of our institutional brokerage revenues, and were a meaningful contributor to our overall financial results. Fixed-income proprietary trading activities — particularly with respect to non-agency mortgage bonds — comprise a meaningful percentage of our Level III assets within our securities inventory. Level III assets have little or no pricing observability, and may be less liquid than other securities that we hold in our securities inventory. In addition to proprietary trading, we engage in principal investing, having established alternative asset management funds for municipal securities and merchant banking. We have invested firm capital in these funds alongside capital raised from outside investors, and intend to continue to develop these alternative asset management strategies. Additionally, we have principal investments in equity and debt instruments of private companies, and in private equity and venture capital funds, among other firm investments.

Our results from these activities may vary significantly from quarter to quarter, especially as it relates to proprietary trading activity. We may incur significant losses from our proprietary activities due to fixed income or equity market fluctuations and volatility from quarter to quarter. In addition, we may engage in hedging transactions that if not successful, could result in losses. With respect to principal investing, our ability to withdraw our capital from these funds may be limited, increasing the risk of loss for these investments. Also, our merchant banking activity involves investments in late stage private companies, and we may be unable to realize our investment objectives by sale or other disposition at attractive prices.

Developments in specific sectors of the global economy have in the past adversely affected, and may in the future adversely affect, our business and profitability.

Our results for a particular period may be disproportionately impacted by declines in specific sectors of the global economy, or for certain products within the financial services industry, due to our business mix and focus areas. For example:

•

Our equity investment banking business focuses on specific sectors, specifically business and financial services, clean technology and renewables, consumer, healthcare, industrial growth, and technology, media and telecommunications. Volatility or uncertainty in the business environment for these sectors, including but not limited to challenging market conditions for these sectors that are disproportionately worse than those impacting the economy and markets generally or downturns in these sectors that are independent of general economic and market conditions, may adversely affect our business. Further, we may not participate or may participate to a lesser degree than other firms in sectors that experience significant activity, such as depository financial institutions, energy and mining, and industrials, and our operating results may not correlate with the results of other firms which participate in these sectors.

•

Our fixed income institutional business derives its revenue from sales and trading activity in the municipal market and from products within the taxable market, including structured mortgages, hybrid preferreds and government agency products. Our operating results for our fixed income institutional business may not correlate with the results of other firms or the fixed income market generally because we do not participate in significant segments of the fixed income markets such as credit default swaps, and currencies and commodities.

•

Similar to our fixed income institutional business, our public finance investment banking business depends heavily upon conditions in the municipal market. Our ability to effect investment banking transactions in the state and local government sectors has been, and may continue to be, challenged by concerns over debt levels for municipal issuers and fiscal budgets. Our public finance business focuses on investment banking activity in sectors that include state and local government, higher education, housing, healthcare, and hospitality sectors, with an emphasis on transactions with a par value of $500 million or less. Challenging market conditions for these sectors that are disproportionately worse than those impacting the broader economy or municipal markets generally may adversely impact our business. Lastly, our fixed income institutional business and our public finance business could be materially adversely affected by the enactment, or the threat of enactment, of any

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legislation that would alter the financing alternatives available to municipalities through the elimination or reduction of tax-exempt bonds.


•	Our equities institutional brokerage business depends upon trading activity to generate revenue in the form of client commissions, and the level of this activity may vary based on economic and market conditions. In times of increased market uncertainty, we may experience reduced customer activity as investors remain cautious.

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A significant portion of our asset management revenues are derived from actively-managed equity products, and this type of investment product has experienced asset outflows in recent years. Although equity markets performed well in 2013 and most equity products experienced asset inflows during the year, equity market uncertainty, the increased prevalence of lower-cost passively-managed funds, and other negative events impacting investor confidence could cause the negative trend for actively-managed equity products to continue. Outflows for this investment product negatively affect results of operations for this business, as revenues are closely tied to assets under management.

Our stock price may fluctuate as a result of several factors, including but not limited to, changes in our revenues, operating results, tangible book value and return on equity.

We have experienced, and expect to experience in the future, fluctuations in the market price of our common stock due to factors that relate to the nature of our business, including but not limited to changes in our revenues, operating results, tangible book value, and return on equity. Our business, by its nature, does not produce steady and predictable earnings on a quarterly basis, which causes fluctuations in our stock price that may be significant. Other factors that have affected, and may further affect, our stock price include changes in or news related to economic or market events or conditions, changes in market conditions in the financial services industry, including developments in regulation affecting our business, failure to meet the expectations of market analysts, changes in recommendations or outlooks by market analysts, and aggressive short selling similar to that experienced in the financial industry in 2008.

The volume of anticipated investment banking transactions may differ from actual results.

The completion of anticipated investment banking transactions in our pipeline is uncertain and partially beyond our control, and our investment banking revenue is typically earned only upon the successful completion of a transaction. In most cases, we receive little or no payment for investment banking engagements that do not result in the successful completion of a transaction. For example, a client's acquisition transaction may be delayed or terminated because of a failure to agree upon final terms with the counterparty, failure to obtain necessary regulatory consents or board or stockholder approvals, failure to secure necessary financing, adverse market conditions or unexpected financial or other problems in the client's or counterparty's business. If parties fail to complete a transaction on which we are advising or an offering in which we are participating, we earn little or no revenue from the transaction and may have incurred significant expenses (for example, travel and legal expenses) associated with the transaction. Accordingly, our business is highly dependent on market conditions as well as the decisions and actions of our clients and interested third parties, and the number of engagements we have at any given time (and any characterization or description of our deal pipelines) is subject to change and may not necessarily result in future revenues.

Financing and advisory services engagements are singular in nature and do not generally provide for subsequent engagements.

Even though we work to represent our clients at every stage of their lifecycle, we are typically retained on a short-term, engagement-by-engagement basis in connection with specific capital markets or mergers and acquisitions transactions. In particular, our revenues related to acquisition and disposition transactions tend to be highly volatile and unpredictable (or “lumpy”) from quarter to quarter due to the one-time nature of the transaction and the size of the fee. As a result, high activity levels in any period are not necessarily indicative of continued high levels of activity in any subsequent period. If we are unable to generate a substantial number of new engagements and generate fees from the successful completion of those transactions, our business and results of operations will likely be adversely affected.

Asset management revenue may vary based on investment performance and market and economic factors.

We have grown our asset management business in recent years, including with the acquisition of ARI in 2010, which has increased the risks associated with this business relative to our overall operations. Assets under management are a significant driver of this business, as revenues are primarily derived from management fees paid on the assets under management. Our ability to maintain or increase assets under management is subject to a number of factors, including investors' perception of our past performance, market or economic conditions, competition from other fund managers and our ability to negotiate terms with major investors.

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Investment performance is one of the most important factors in retaining existing clients and competing for new asset management business. Poor investment performance and other competitive factors could reduce our revenues and impair our growth in many ways: existing clients may withdraw funds from our asset management business in favor of better performing products or a different investment style or focus; our capital investments in our investment funds or the seed capital we have committed to new asset management products may diminish in value or may be lost; and our key employees in the business may depart, whether to join a competitor or otherwise.

To the extent our investment performance is perceived to be poor in either relative or absolute terms, our asset management revenues will likely be reduced and our ability to attract new funds will likely be impaired. Even when market conditions are generally favorable, our investment performance may be adversely affected by our investment style and the particular investments that we make. Further, as the size and number of investment funds, including exchange-traded funds, hedge funds and private equity funds increases, it is possible that it will become increasingly difficult for us to attract new assets under management or price competition may mean that we are unable to maintain our current fee structures.

An inability to readily divest trading positions may result in financial losses to our business.

Timely divestiture of our trading positions, including equity, fixed income and other securities positions, can be impaired by decreased trading volume, increased price volatility, rapid changes in interest rates, concentrated trading positions, limitations on the ability to divest positions in highly specialized or structured transactions and changes in industry and government regulations. This is true both for customer transactions that we facilitate as well as proprietary trading positions that we maintain. While we hold a security, we are vulnerable to valuation fluctuations and may experience financial losses to the extent the value of the security decreases and we are unable to timely divest or hedge our trading position in that security. The value may decline as a result of many factors, including issuer-specific, market or geopolitical events. In addition, in times of market uncertainty, the inability to transfer inventory positions may have an impact on our liquidity as funding sources generally decline and we are unable to pledge the underlying security as collateral. Our liquidity may also be impacted if we choose to facilitate liquidity for specific products and voluntarily increase our inventory positions in order to do so, exposing ourselves to greater market risk and potential financial losses from the reduction in value of illiquid positions.

In addition, reliance on revenues from hedge funds and hedge fund advisors, which are less regulated than many investment company and advisor clients, may expose us to greater risk of financial loss from unsettled trades than is the case with other types of institutional investors. Concentration of risk may result in losses to us even when economic and market conditions are generally favorable for others in our industry.

Our businesses, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets.

The amount and duration of our credit exposures has been volatile over the past several years. This exposes us to the increased risk that third parties who owe us money, securities or other assets will not perform their obligations. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. Deterioration in the credit quality of securities or obligations we hold could result in losses and adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity purposes. A significant downgrade in the credit ratings of our counterparties could also have a negative impact on our results. Default rates, downgrades and disputes with counterparties as to the valuation of collateral tend to increase in times of market stress and illiquidity. Although we review credit exposures to specific clients and counterparties and to specific industries that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect or foresee. Also, concerns about, or a default by, one institution generally leads to losses, significant liquidity problems, or defaults by other institutions, which in turn adversely affects our business.

Particular activities or products within our business have exposed us to increasing credit risk, including inventory positions, interest rate swap contracts with customer credit exposure, merchant banking debt investments, counterparty risk with two major financial institutions related to customer interest rate swap contracts without customer credit exposure, investment banking and advisory fee receivables, customer margin accounts, and trading counterparty activities related to settlement and similar activities. With respect to interest rate swap contracts with customer credit exposure, we have credit exposure with six counterparties totaling $22.0 million at December 31, 2013 as part of our matched-book interest rate swap program. In the event of a termination of the contract, the counterparty would owe us the applicable amount of the credit exposure, and we would owe that amount to our hedging counterparty. If our counterparty is unable to make its payment to us, we would still be obligated to pay our hedging counterparty, resulting in credit losses. With respect to merchant banking investments, we have one debt investment totaling $11.6 million as of December 31, 2013 . Non-performance by our counterparties, clients and others, including with respect to our inventory

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positions, interest rate swap contracts with customer credit exposures and our merchant banking debt investments could result in losses, potentially material, and thus have a significant adverse effect on our business and results of operations.

An inability to access capital readily or on terms favorable to us could impair our ability to fund operations and could jeopardize our financial condition and results of operations.

Liquidity, or ready access to funds, is essential to our business. Several large financial institutions failed or merged with others during the credit crisis following significant declines in asset values in securities held by these institutions, and, during 2011, a financial institution failed due to liquidity issues related to the European sovereign debt crisis. To fund our business, we rely on commercial paper and bank financing as well as other funding sources such as the repurchase markets. Our bank financing includes uncommitted credit lines, which could become unavailable to us on relatively short notice. In an effort to mitigate this funding risk, we renewed a $250 million credit facility for the fifth consecutive year in 2013, and also issued $125 million of unsecured variable rate notes at the end of 2012, refinancing a three-year secured credit facility. The notes consist of two classes, with $50 million maturing in May 2014 and $75 million maturing in November 2015. In order to further diversify our short-term funding needs, we also continue to maintain our $300 million and $150 million commercial paper programs, and initiated a third commercial program in the amount of $100 million during 2013 .

Our access to funding sources, particularly uncommitted funding sources, could be hindered by many factors, and many of these factors we cannot control, such as economic downturns, the disruption of financial markets, the failure or consolidation of other financial institutions, negative news about the financial industry generally or us specifically. We could experience disruptions with our credit facilities in the future, including the loss of liquidity sources and/or increased borrowing costs, if lenders or investors develop a negative perception of our short- or long-term financial prospects, which could result from decreased business activity. Our liquidity also could be impacted by the activities resulting in concentration of risk, including proprietary activities from long-term investments and/or investments in specific markets or products without liquidity. Our access to funds may be impaired if regulatory authorities take significant action against us, or if we discover that one of our employees has engaged in serious unauthorized or illegal activity.

In the future, we may need to incur debt or issue equity in order to fund our working capital requirements, as well as to execute our growth initiatives that may include acquisitions and other investments. Similarly, our access to funding sources may be contingent upon terms and conditions that may limit or restrict our business activities and growth initiatives. For example, the institutional notes noted above include covenants that, among other things, limit our leverage ratio and require maintenance of certain levels tangible net worth, regulatory net capital, and operating cash flow to fixed charges.

Lastly, we currently do not have a credit rating, which could adversely affect our liquidity and competitive position by increasing our borrowing costs and limiting access to sources of liquidity that require a credit rating as a condition to providing funds.

Concentration of risk increases the potential for significant losses.

Concentration of risk increases the potential for significant losses in our sales and trading, proprietary trading, merchant banking and underwriting businesses. We have committed capital to these businesses, and we may take substantial positions in particular types of securities and/or issuers. This concentration of risk may cause us to suffer losses even when economic and market conditions are generally favorable for our competitors. Further, disruptions in the credit markets can make it difficult to hedge exposures effectively and economically. We also experience concentration of risk in our role as remarketing agent and broker dealer for certain types of municipal securities, including in our role as remarketing agent for approximately $3.3 billion of variable rate demand notes. In an effort to facilitate liquidity, we may (but are not required to) increase our inventory positions in securities, exposing ourselves to greater concentration of risk and potential financial losses from the reduction in value of illiquid positions. Further, inventory positions that benefit from a liquidity provider, such as certain types of variable rate demand notes, may be adversely affected by an event that results in termination of the liquidity provider's obligation, such as an insolvency or ratings downgrade of the monoline insurer.

Our underwriting and market-making activities may place our capital at risk.

We may incur losses and be subject to reputational harm to the extent that, for any reason, we are unable to sell securities we purchased as an underwriter at the anticipated price levels. As an underwriter, we also are subject to heightened standards regarding liability for material misstatements or omissions in prospectuses and other offering documents relating to offerings we underwrite. Further, even though underwriting agreements with issuing companies typically include a right to indemnification in favor of the underwriter for these offerings to cover potential liability from any material misstatements or omissions, indemnification may be unavailable or insufficient in certain circumstances, for example if the issuing company has become insolvent. These underwriting-

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related risks may be greater with respect to our now-discontinued business in Asia because the Asian capital markets are generally less developed than those of the U.S. and many Asia-based issuer companies are less mature than may be the case in the U.S. and may have a higher risk profile. Additionally, indemnification and other contractual obligations of Asia-based companies may offer less protection to underwriters than they do for U.S. companies; Asia-based companies may have no assets in the U.S. upon which collection could be made, and a legal judgment obtained in the U.S. (for example related to an indemnification obligation) may be unenforceable in Asia.

As a market maker, we may own large positions in specific securities, and these undiversified holdings concentrate the risk of market fluctuations and may result in greater losses than would be the case if our holdings were more diversified.

Our technology systems, including outsourced systems, are critical components of our operations, and failure of those systems or other aspects of our operations infrastructure may disrupt our business, cause financial loss and constrain our growth.

We typically transact thousands of securities trades on a daily basis across multiple markets. Our data and transaction processing, custody, financial, accounting and other technology and operating systems are essential to this task. A system malfunction (due to hardware failure, capacity overload, security incident, data corruption, etc.) or mistake made relating to the processing of transactions could result in financial loss, liability to clients, regulatory intervention, reputational damage and constraints on our ability to grow. We outsource a substantial portion of our critical data processing activities, including trade processing and back office data processing. For example, we have entered into contracts with Broadridge Financial Solutions, Inc. pursuant to which Broadridge handles our trade and back office processing, and Unisys Corporation, pursuant to which Unisys supports our data center and helpdesk needs. We also contract with third parties for market data services, which constantly broadcast news, quotes, analytics and other relevant information to our employees. We contract with other vendors to produce and mail our customer statements and to provide other services. In the event that any of these service providers fails to adequately perform such services or the relationship between that service provider and us is terminated, we may experience a significant disruption in our operations, including our ability to timely and accurately process transactions or maintain complete and accurate records of those transactions.

Adapting or developing our technology systems to meet new regulatory requirements, client needs, geographic expansion and industry demands also is critical for our business. Introduction of new technologies present new challenges on a regular basis. We have an ongoing need to upgrade and improve our various technology systems, including our data and transaction processing, financial, accounting, risk management and trading systems. This need could present operational issues or require significant capital spending. It also may require us to make additional investments in technology systems and may require us to reevaluate the current value and/or expected useful lives of our technology systems, which could negatively impact our results of operations.

Secure processing, storage and transmission of confidential and other information in our internal and outsourced computer systems and networks also is critically important to our business. We take protective measures and endeavor to modify them as circumstances warrant. However, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, inadvertent, erroneous or intercepted transmission of information (including by e-mail), and other events that could have an information security impact. If one or more of such events occur, this potentially could jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients', our counterparties' or third parties' operations. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

A disruption in the infrastructure that supports our business due to fire, natural disaster, health emergency (for example, a disease pandemic), power or communication failure, act of terrorism or war may affect our ability to service and interact with our clients. If we are not able to implement contingency plans effectively, any such disruption could harm our results of operations.

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Legislative and regulatory proposals could significantly curtail the revenue from certain products that we currently provide.

Currently, federal law allows investors in debt issuances by government and non-profit entities to exclude the bond interest for federal income tax purposes, resulting in lower interest expense for the issuer as compared to a taxable financing. In recent years, federal lawmakers have presented various proposals to limit or eliminate the tax-exempt status of this bond interest, and further negotiations in 2014 regarding the budget deficit and federal spending cuts may also include similar proposals. Our public finance investment banking business receives significant revenues as a result of underwriting activity in connection with debt issuances by government and non-profit clients, primarily on a tax-exempt basis. Also, a significant percentage of our securities inventory — both positions held for client activity and our own proprietary trading positions — consist of municipal securities. Any reduction or elimination of tax-exempt bond interest could negatively impact the value of the municipal securities we hold in our securities inventory as well as our public finance investment banking business more generally, which would negatively impact the results of operations for these businesses.

Another proposal to address current debt and deficit levels is the levying of a sales tax on financial transactions, similar to that currently in place in certain European countries and proposed in region more broadly. Referred to as a “transactions tax” or “financial transactions tax,” this proposal would tax trading and other financial services activity in an effort to increase tax receipts. These proposals, which have been introduced both at the federal and state level, propose various tax rates for different types of transactions, encompassing activities within investment banking, institutional brokerage, and asset management. One such proposal, introduced in the U.S. House of Representatives in 2011, proposed various tax rates for different types of transactions, including a 0.25% tax on equity transactions. A similar tax was proposed in the state of Minnesota in early 2013 that would expand the sales tax base to include brokerage and investment consulting, which may include the activities noted above. This type of transaction tax would erode commission revenue, and also have a negative impact on our investment banking and asset management activities by increasing the costs associated with these businesses.

We have experienced volume declines and pricing pressures in our institutional sales and trading business, which may impair our revenues and profitability.

In recent years, we have experienced volume declines and pricing pressures within our institutional sales and trading business. In the fixed income market, regulatory requirements have resulted in greater price transparency, leading to increased price competition and decreased trading margins in certain instances. In the equity market, volumes have declined and institutional clients increasingly limit the number of trading partners with whom they conduct business. The increased use of electronic and direct market access trading has caused additional downward competitive pressure on trading margins, and the trend toward using alternative trading systems continues to grow. These market dynamics may result in decreased trading revenue, reduce our participation in the trading markets and our ability to access market information, and lead to the creation of new and stronger competitors. Institutional clients also have pressured financial services firms to alter “soft dollar” practices under which brokerage firms bundle the cost of trade execution with research products and services. Some institutions are entering into arrangements that separate (or “unbundle”) payments for research products or services from sales commissions. These arrangements have increased the competitive pressures on sales commissions and have affected the value our clients place on high-quality research. Additional pressure on sales and trading revenue may impair the profitability of our business. Moreover, our inability to reach agreement regarding the terms of unbundling arrangements with institutional clients who are actively seeking such arrangements could result in the loss of those clients, which would likely reduce our institutional commissions. We believe that price competition and pricing pressures in these and other areas will continue as institutional investors continue to reduce the amounts they are willing to pay, including by reducing the number of brokerage firms they use, and some of our competitors seek to obtain market share by reducing fees, commissions or margins.

Our ability to attract, develop and retain highly skilled and productive employees is critical to the success of our business.

Historically, the market for qualified employees within the financial services industry has been marked by intense competition, and the performance of our business may suffer to the extent we are unable to attract and retain employees effectively, particularly given the relatively small size of our company and our employee base compared to some of our competitors and the geographic locations in which we operate. The primary sources of revenue in each of our business lines are commissions and fees earned on advisory and underwriting transactions and customer accounts managed by our employees, who have historically been recruited by other firms and in certain cases are able to take their client relationships with them when they change firms. Some specialized areas of our business are operated by a relatively small number of employees, the loss of any of whom could jeopardize the continuation of that business following the employee's departure.

Further, recruiting and retention success often depends on the ability to deliver competitive compensation, and we may be at a disadvantage to some competitors given our size and financial resources. Our inability or unwillingness to meet compensation

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needs or demands may result in the loss of some of our professionals or the inability to recruit additional professionals at compensation levels that are within our target range for compensation and benefits expense. Our ability to retain and recruit also may be hindered if we limit our aggregate annual compensation and benefits expense as a percentage of annual net revenues.

Our exposure to legal liability is significant, and could lead to substantial damages.

We face significant legal risks in our businesses. These risks include potential liability under securities laws and regulations in connection with our capital markets, asset management and other businesses. The volume and amount of damages claimed in litigation, arbitrations, regulatory enforcement actions and other adversarial proceedings against financial services firms have increased in recent years. Our experience has been that adversarial proceedings against financial services firms typically increase during and following a market downturn. We also are subject to claims from disputes with our employees and our former employees under various circumstances. Risks associated with legal liability often are difficult to assess or quantify and their existence and magnitude can remain unknown for significant periods of time, making the amount of legal reserves related to these legal liabilities difficult to determine and subject to future revision. Legal or regulatory matters involving our directors, officers or employees in their individual capacities also may create exposure for us because we may be obligated or may choose to indemnify the affected individuals against liabilities and expenses they incur in connection with such matters to the extent permitted under applicable law. In addition, like other financial services companies, we may face the possibility of employee fraud or misconduct. The precautions we take to prevent and detect this activity may not be effective in all cases and there can be no assurance that we will be able to deter or prevent fraud or misconduct. Exposures from and expenses incurred related to any of the foregoing actions or proceedings could have a negative impact on our results of operations and financial condition. In addition, future results of operations could be adversely affected if reserves relating to these legal liabilities are required to be increased or legal proceedings are resolved in excess of established reserves.

Our business is subject to extensive regulation in the jurisdictions in which we operate, and a significant regulatory action against our company may have a material adverse financial effect or cause significant reputational harm to our company.

As a participant in the financial services industry, we are subject to complex and extensive regulation of many aspects of our business by U.S. federal and state regulatory agencies, self-regulatory organizations (including securities exchanges) and by foreign governmental agencies, regulatory bodies and securities exchanges. Specifically, our operating subsidiaries include broker dealer and related securities entities organized in the United States and the United Kingdom, and we have applied for a regulatory license in Hong Kong Special Administrative Region of the People's Republic of China (“PRC”) as we expect to maintain a more limited presence in the region to facilitate our U.S. advisory business following the cessation of operations in 2012. Each of these entities is registered or licensed (or has applied to be licensed) with the applicable local securities regulator and is subject to all of the applicable rules and regulations promulgated by those authorities. In addition, our asset management subsidiaries, ARI, PJIM, and PJC Capital Partners LLC are registered as investment advisers with the SEC and subject to the regulation and oversight by the SEC.

Generally, the requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect customers and other third parties who deal with us. These requirements are not designed to protect our shareholders. Consequently, broker dealer regulations often serve to limit our activities, through net capital, customer protection and market conduct requirements and restrictions on the businesses in which we may operate or invest. We also must comply with asset management regulations, including requirements related to fiduciary duties to clients, recordkeeping and reporting and customer disclosures. Compliance with many of these regulations entails a number of risks, particularly in areas where applicable regulations may be newer or unclear. In addition, regulatory authorities in all jurisdictions in which we conduct business may intervene in our business and we and our employees could be fined or otherwise disciplined for violations or prohibited from engaging in some of our business activities.

The laws, rules and regulations comprising this regulatory framework can (and do) change frequently, as can the interpretation and enforcement of existing laws, rules and regulations. Recent conditions in the global financial markets and economy, including the 2008 financial crisis, caused legislators and regulators to increase the examination, enforcement and rule-making activity directed toward the financial services industry, which we expect to continue in the coming years. In 2010, the federal government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Dodd-Frank significantly restructures and intensifies regulation in the financial services industry, with provisions that include, among other things, the creation of a new systemic risk oversight body, expansion of the authority of existing regulators, increased regulation of and restrictions on OTC derivatives markets and transactions, broadening of the reporting and regulation of executive compensation, expansion of the standards for market participants in dealing with clients and customers, and regulation of fiduciary duties owed by municipal advisors or conduit borrowers of municipal securities. The intensified regulatory environment will likely alter certain business practices and change the competitive landscape of the financial services industry, which may have an adverse effect on our business, financial condition and results of operations.

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Our business also subjects us to the complex income tax laws of the jurisdictions in which we have business operations, and these tax laws may be subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. We must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes. We are subject to contingent tax risk that could adversely affect our results of operations, to the extent that our interpretations of tax laws are disputed upon examination or audit, and are settled in amounts in excess of established reserves for such contingencies.

The effort to combat money laundering also has become a high priority in governmental policy with respect to financial institutions. The obligation of financial institutions, including ourselves, to identify their customers, watch for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information with other financial institutions, has required the implementation and maintenance of internal practices, procedures and controls which have increased, and may continue to increase, our costs. Any failure with respect to our programs in this area could subject us to serious regulatory consequences, including substantial fines, and potentially other liabilities. In addition, our international operations require compliance with anti-bribery laws, including the Foreign Corrupt Practices Act and the U.K. Bribery Act 2010. These laws generally prohibit companies and their intermediaries from engaging in bribery or making other improper payments to foreign officials for the purpose of obtaining or retaining business or gaining an unfair business advantage. While our employees and agents are required to comply with these laws, we cannot ensure that our internal control policies and procedures will always protect us from intentional, reckless or negligent acts committed by our employees or agents, which acts could subject our company to fines or other regulatory consequences.

Risk management processes may not fully mitigate exposure to the various risks that we face, including market risk, liquidity risk and credit risk.

We refine our risk management techniques, strategies and assessment methods on an ongoing basis. However, risk management techniques and strategies, both ours and those available to the market generally, may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk. For example, we might fail to identify or anticipate particular risks that our systems are capable of identifying, or the systems that we use, and that are used within the industry generally, may not be capable of identifying certain risks. Some of our strategies for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to quantify our risk exposure. Any failures in our risk management techniques and strategies to accurately quantify our risk exposure could limit our ability to manage risks. In addition, any risk management failures could cause our losses to be significantly greater than the historical measures indicate. Further, our quantified modeling does not take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses.

Use of derivative instruments as part of our risk management techniques may not effectively hedge the risks associated with activities in certain of our businesses.

We use interest rate swaps, interest rate locks, credit default swap index contracts and option contracts as a means to manage risk in certain inventory positions and to facilitate customer transactions. With respect to risk management, we enter into derivative contracts to hedge interest rate and market value risks associated with our security positions, including fixed income inventory positions we hold both for facilitating client activity as well as for our own proprietary trading operations. The instruments use interest rates based upon either the Municipal Market Data (“MMD”) index, LIBOR or SIFMA index. We also enter into credit default swap index contracts to hedge risks associated with our taxable fixed income securities, and option contracts to hedge market value risk associated with convertible securities and asset-backed securities. Generally, we do not hedge all of our interest rate risk. In addition, these hedging strategies may not work in all market environments and as a result may not be effective in mitigating interest rate and market value credit risk, especially when market volatility reduces the correlation between a hedging vehicle and the securities inventory being hedged.

With respect to customer transactions, our fixed income business provides swaps and other interest rate hedging products to public finance clients, which we in turn hedge through a counterparty. There are risks inherent in our use of these products, including counterparty exposure and basis risk. Counterparty exposure refers to the risk that the amount of collateral in our possession on any given day may not be sufficient to fully cover the current value of the swaps if a counterparty were to suddenly default. Basis risk refers to risks associated with swaps where changes in the value of the swaps may not exactly mirror changes in the value of the cash flows they are hedging. It is possible that we may incur losses from our exposure to derivative and interest rate hedging products and the increased use of these products in the future. For example, if the derivative instruments that we use to hedge the risks associated with interest rate swap contracts with public finance clients where we have retained the credit risk are terminated

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as a result of a client credit event, we may incur losses if we make a payment to our hedging counterparty without recovering any amounts from our client.

The use of estimates and valuations in measuring fair value involve significant estimation and judgment by management.

We make various estimates that affect reported amounts and disclosures. Broadly, those estimates are used in measuring fair value of certain financial instruments, accounting for goodwill and intangible assets, establishing provisions for potential losses that may arise from litigation, and regulatory proceedings and tax examinations. Estimates are based on available information and judgment. Therefore, actual results could differ from our estimates and that difference could have a material effect on our consolidated financial statements.

Certain financial instruments, including financial instruments and other inventory positions owned, and financial instruments and other inventory positions sold but not yet purchased, are recorded at fair value, and 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. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments' complexity. Difficult market environments, such as those experienced in 2008, may cause financial instruments to become substantially more illiquid and difficult to value, increasing the use of valuation models. Our future results of operations and financial condition may be adversely affected by the valuation adjustments that we apply to these financial instruments.

We may make strategic acquisitions and minority investments, engage in joint ventures or divest or exit existing businesses, which could cause us to incur unforeseen expenses and have disruptive effects on our business but may not yield the benefits we expect.

We may grow in part through corporate development activities that may include acquisitions, joint ventures and minority investment stakes. For example, we expanded our existing asset management business in March 2010 with the acquisition of ARI, a Chicago-based asset management firm, and we added to our public finance and fixed income sales and trading and corporate advisory businesses with our acquisitions of Seattle-Northwest Securities Corporation and Edgeview Partners, L.P. in July 2013. There are a number of risks associated with corporate development activities. Costs or difficulties relating to a transaction, including integration of products, employees, technology systems, accounting systems and management controls, may be difficult to predict accurately and be greater than expected causing our estimates to differ from actual results. We may be unable to retain key personnel after the transaction, and the transaction may impair relationships with customers and business partners. We may incur unforeseen liabilities of an acquired company that could impose significant and unanticipated legal costs on us. Also, our share price could decline after we announce or complete a transaction if investors view the transaction as too costly or unlikely to improve our competitive position. Longer-term, these activities require increased investment in management personnel, financial and management systems and controls and facilities, which, in the absence of continued revenue growth, would cause our operating margins to decline. More generally, any difficulties that we experience could disrupt our ongoing business, increase our expenses and adversely affect our operating results and financial condition. We also may be unable to achieve anticipated benefits and synergies from the transaction as fully as expected or within the expected time frame. Divestitures or elimination of existing businesses or products could have similar effects. For example, we shut down our Hong Kong capital markets business in 2012, and realized a pre-tax loss on the investment in our Hong Kong subsidiaries.

We enter into off-balance sheet arrangements that may be required to be consolidated on our financial statements based on future events outside of our control, including changes in complex accounting standards.

In the normal course of our business, we periodically create or transact with entities that are investment vehicles organized as limited partnerships or limited liability companies, established for the purpose of investing in equity or debt securities of public and private companies or various partnership entities. Certain of these entities have been identified as variable interest entities (“VIEs”). We are required to consolidate onto our consolidated statement of financial condition all VIEs for which we are considered to be the primary beneficiary as defined under applicable accounting standards. The assessment of whether the accounting criteria for consolidation are met requires management to exercise significant judgment. If certain events occur that require us to re-assess our initial determination of non-consolidation or if our judgment of non-consolidation is in error, we could be required to consolidate the assets and liabilities of a VIE onto our consolidated statement of financial condition and recognize its future gains or losses in our consolidated statement of operations. For reasons outside of our control, including changes in existing accounting standards, or interpretations of those standards, the risk of consolidation of these VIEs could increase. Further consolidation would affect the size of our consolidated statement of financial condition.

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The financial services industry and the markets in which we operate are subject to systemic risk that could adversely affect our business and results.

Participants in the financial services industry and markets increasingly are closely interrelated as a result of credit, trading, clearing, technology and other relationships between them. A significant adverse development with one participant (such as a bankruptcy or default) may spread to others and lead to significant concentrated or market-wide problems (such as defaults, liquidity problems or losses) for other participants, including us. This systemic risk was evident during 2008 following the demise of Bear Stearns and Lehman Brothers, and the resulting events (sometimes described as “contagion”) had a negative impact on the remaining industry participants, including us. Further, the control and risk management infrastructure of the markets in which we operate often is outpaced by financial innovation and growth in new types of securities, transactions and markets. Systemic risk is inherently difficult to assess and quantify, and its form and magnitude can remain unknown for significant periods of time.

We may suffer losses if our reputation is harmed.

Our ability to attract and retain customers and employees may be diminished to the extent our reputation is damaged. If we fail, or are perceived to fail, to address various issues that may give rise to reputational risk, we could harm our business prospects. These issues include, but are not limited to, appropriately dealing with market dynamics, potential conflicts of interest, legal and regulatory requirements, ethical issues, customer privacy, record-keeping, sales and trading practices, and the proper identification of the legal, reputational, credit, liquidity and market risks inherent in our products and services. Failure to appropriately address these issues could give rise to loss of existing or future business, financial loss, and legal or regulatory liability, including complaints, claims and enforcement proceedings against us, which could, in turn, subject us to fines, judgments and other penalties.

Regulatory capital requirements may limit our ability to expand or maintain our present levels of business or impair our ability to meet our financial obligations.

We are subject to the SEC's uniform net capital rule (Rule 15c3-1) and the net capital rule of FINRA, which may limit our ability to make withdrawals of capital from Piper Jaffray & Co., our U.S. broker dealer subsidiary. The uniform net capital rule sets the minimum level of net capital a broker dealer must maintain and also requires that a portion of its assets be relatively liquid. FINRA may prohibit a member firm from expanding its business or paying cash dividends if resulting net capital falls below its requirements. Underwriting commitments require a charge against net capital and, accordingly, our ability to make underwriting commitments may be limited by the requirement that we must at all times be in compliance with the applicable net capital regulations.

As Piper Jaffray Companies is a holding company, it depends on dividends, distributions and other payments from our subsidiaries to fund its obligations, including any share repurchases that we may make. The regulatory restrictions described above may impede access to funds our holding company needs to make payments on any such obligations.

We may not be able to compete successfully with other companies in the financial services industry who often have significantly greater resources than we do.

The financial services industry remains extremely competitive, and our revenues and profitability will suffer if we are unable to compete effectively. An inability to effectively compete will also have a negative impact on our ability to achieve our strategic priorities, which include growth for our public finance, fixed income sales, asset management, and corporate advisory businesses. We compete generally on the basis of such factors as quality of advice and service, reputation, price, product selection, transaction execution and financial resources. Pricing and other competitive pressures in investment banking, including trends toward multiple book runners, co-managers, and multiple financial advisors handling transactions, have continued and could adversely affect our revenues. The trend toward multiple book runners has also been accompanied by an increasing disparity in the relative economics between or among book runners, with the senior book runner(s) receiving a large percentage of the economics.

We remain at a competitive disadvantage given our relatively small size compared to some of our competitors. Large financial services firms have a larger capital base, greater access to capital and greater resources than we have, affording them greater capacity for risk and potential for innovation, an extended geographic reach and flexibility to offer a broader set of products. For example, these firms have used their resources and larger capital base to take advantage of growth in international markets and to support their investment banking business by offering credit products to corporate clients, which is a significant competitive advantage. With respect to our fixed income institutional and public finance investment banking businesses, it is more difficult for us to diversify and differentiate our product set, and our fixed income business mix currently is concentrated in the municipal market and to a lesser extent corporate credits and structured mortgage products, potentially with less opportunity for growth than

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other firms which have grown their fixed income businesses by investing in, developing and offering non-traditional products (e.g., credit default swaps, interest rate products and currencies and commodities).

The business operations that we conduct outside of the United States subject us to unique risks.

To the extent we conduct business outside the United States, for example in Asia and Europe, we are subject to risks including, without limitation, the risk that we will be unable to provide effective operational support to these business activities, the risk of non-compliance with foreign laws and regulations, and the general economic and political conditions in countries where we conduct business, which may differ significantly from those in the United States. In 2012, we shut down our Hong Kong capital markets business following a sustained period of operating losses, though we have applied for a regulatory license in Hong Kong to maintain a presence in the region to facilitate advisory engagements. With respect to our Asia-based capital markets activity, we facilitated underwritten capital-raising transactions for Asia-based issuers, which may have exposed us to greater underwriting risk in our capital markets business as compared to the U.S., as noted above.

Provisions in our certificate of incorporation and bylaws and of Delaware law may prevent or delay an acquisition of our company, which could decrease the market value of our common stock.

Our certificate of incorporation and bylaws and Delaware law contain provisions that are intended to deter abusive takeover tactics by making them unacceptably expensive to the raider and to encourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include limitations on our shareholders' ability to act by written consent and to call special meetings. Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15 percent or more of our outstanding common stock. We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal, and are not intended to make our company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of our company and our shareholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

As of February 19, 2014 , we conducted our operations through 45 principal offices in 28 states and in London, Hong Kong and Zurich. All of our offices are leased. Our principal executive office is located at 800 Nicollet Mall, Suite 1000, Minneapolis, Minnesota and, as of February 19, 2014 , comprises approximately 240,000 square feet of leased space (approximately 90,000 square feet of this space is sublet to others). Our existing sublease arrangement with U.S. Bancorp for our headquarters at 800 Nicollet Mall expires in May 2014, and our new lease agreement for approximately 124,000 square feet of office space at the same location commences on June 1, 2014. This new lease at 800 Nicollet Mall expires on November 30, 2025, and includes an option to terminate the lease early effective January 31, 2022.

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ITEM 3. LEGAL PROCEEDINGS.

Due to the nature of our business, we are involved in a variety of legal proceedings (including, but not limited to, those described below). These proceedings include litigation, arbitration and regulatory proceedings, which may arise from, among other things, underwriting or other transactional activity, client account activity, employment matters, regulatory examinations of our businesses and investigations of securities industry practices by governmental agencies and self-regulatory organizations. The securities industry is highly regulated, and the regulatory scrutiny applied to securities firms is intense, resulting in a significant number of regulatory investigations and enforcement actions and uncertainty regarding the likely outcome of these matters.

Litigation-related expenses include amounts we reserve and/or pay out as legal and regulatory settlements, awards or judgments, and fines. Parties who initiate litigation and arbitration proceedings against us may seek substantial or indeterminate damages, and regulatory investigations can result in substantial fines being imposed on us. We reserve for contingencies related to legal proceedings at the time and to the extent we determine the amount to be probable and reasonably estimable. However, it is inherently difficult to predict accurately the timing and outcome of legal proceedings, including the amounts of any settlements, judgments or fines. We assess each proceeding based on its particular facts, our outside advisors' and our past experience with similar matters, and expectations regarding the current legal and regulatory environment and other external developments that might affect the outcome of a particular proceeding or type of proceeding. Subject to the foregoing and except for the legal proceeding described below, we believe, based on our current knowledge, after appropriate consultation with outside legal counsel and taking into account our established reserves, that pending legal actions, investigations and regulatory proceedings, will be resolved with no material adverse effect on our consolidated financial condition, results of operations or cash flows. However, there can be no assurance that our assessments will reflect the ultimate outcome of pending proceedings, and the outcome of any particular matter may be material to our operating results for any particular period, depending, in part, on the operating results for that period and the amount of established reserves. We generally have denied, or believe that we have meritorious defenses and will deny, liability in all significant cases currently pending against us, and we intend to vigorously defend such actions.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is listed on the New York Stock Exchange under the symbol “PJC.” The following table contains historical quarterly price information for the years ended December 31, 2013 and 2012 . On February 19, 2014 , the last reported sale price of our common stock was $39.77 .



	2013 Fiscal Year				2012 Fiscal Year
	High		Low		High		Low
First Quarter	$	41.97	$	32.95	$	27.20	$	21.03
Second Quarter	36.26		30.50		27.46		20.53
Third Quarter	36.14		30.99		27.81		19.56
Fourth Quarter	39.55		32.33		32.13		25.33

Shareholders

We had 16,870 shareholders of record and approximately 30,259 beneficial owners of our common stock as of February 19, 2014 .

Dividends

We do not currently pay cash dividends on our common stock. Our board of directors is free to change our dividend policy at any time. Restrictions on our U.S. broker dealer subsidiary’s ability to pay dividends are described in Note 27 to the consolidated financial statements.

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 December 31, 2013 .



				Total Number of Shares	Approximate Dollar
				Purchased as Part of	Value of Shares Yet to be
	Total Number of	Average Price		Publicly Announced	Purchased Under the
Period	Shares Purchased	Paid per Share		Plans or Programs	Plans or Programs (1)
Month #1
(October 1, 2013 to October 31, 2013)	36,568	$	32.43	36,568	$	39	million
Month #2
(November 1, 2013 to November 30, 2013)	8,991	$	35.62	—	$	39	million
Month #3
(December 1, 2013 to December 31, 2013)	243	$	37.44	—	$	39	million
Total	45,802	$	33.08	36,568	$	39	million


(1)	On August 24, 2012, we announced that our board of directors had authorized the repurchase of up to $100.0 million of common stock through September 30, 2014. This share repurchase authorization became effective on October 1, 2012.

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.

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Stock Performance Graph

The following graph compares the performance of an investment in our common stock from December 31, 2008 through December 31, 2013 , with the S&P 500 Index and the S&P 500 Diversified Financials Index. The graph assumes $100 was invested on December 31, 2008 , in each of our common stock, the S&P 500 Index and the S&P 500 Diversified Financials Index and that all dividends were reinvested on the date of payment without payment of any commissions. Dollar amounts in the graph are rounded to the nearest whole dollar. The performance shown in the graph represents past performance and should not be considered an indication of future performance.

FIVE YEAR TOTAL RETURN FOR PIPER JAFFRAY COMPANIES COMMON STOCK,

THE S&P 500 INDEX AND THE S&P DIVERSIFIED FINANCIALS INDEX



Company/Index	12/31/2008	12/31/2009	12/31/2010	12/31/2011	12/31/2012	12/31/2013
Piper Jaffray Companies	100	127.29	88.05	50.80	80.81	99.47
S&P 500 Index	100	126.46	145.51	148.59	172.37	228.19
S&P 500 Diversified Financials	100	130.39	137.01	95.86	135.49	191.57

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ITEM 6. SELECTED FINANCIAL DATA.

The following table presents our selected consolidated financial data in accordance with U.S. generally accepted accounting principles for the periods and dates indicated. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto.



	For the year ended December 31,
(Dollars and shares in thousands, except per share data)	2013			2012			2011				2010			2009
Revenues:
Investment banking	$	248,563		$	232,958		$	202,513			$	239,630		$	197,951
Institutional brokerage	146,648			166,642			135,358				161,698			218,058
Asset management	83,045			65,699			63,307				55,948			5,122
Interest	50,409			37,845			43,447				40,474			30,528
Investment income	21,566			4,903			8,178				5,371			(1,027		)

Total revenues	550,231			508,047			452,803				503,121			450,632

Interest expense	25,036			19,095			20,720				23,187			9,716

Net revenues	525,195			488,952			432,083				479,934			440,916

Non-interest expenses:
Compensation and benefits	322,464			296,882			265,015				280,047			257,842
Restructuring and integration costs	4,689			3,642			—				10,699			3,541
Goodwill impairment	—			—			120,298				—			—
Other	122,429			119,417			126,959				135,371			119,444

Total non-interest expenses	449,582			419,941			512,272				426,117			380,827

Income/(loss) from continuing operations before income tax expense/(benefit)	75,613			69,011			(80,189		)		53,817			60,089

Income tax expense	20,390			19,470			9,120				32,163			26,706

Net income/(loss) from continuing operations	55,223			49,541			(89,309		)		21,654			33,383

Discontinued operations:
Income/(loss) from discontinued operations, net of tax	(4,739		)	(5,807		)	(11,248		)		2,276			(3,187		)

Net income/(loss)	50,484			43,734			(100,557		)		23,930			30,196

Net income/(loss) applicable to noncontrolling interests	5,394			2,466			1,463				(432		)	(173		)

Net income/(loss) applicable to Piper Jaffray Companies	$	45,090		$	41,268		$	(102,020	)		$	24,362		$	30,369

Net income/(loss) applicable to Piper Jaffray Companies' common shareholders	$	40,596		$	35,335		$	(102,020	)	⁽¹⁾	$	18,929		$	24,888

Continued on next page

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	For the year ended December 31,
(Dollars and shares in thousands, except per share data)	2013			2012			2011				2010		2009
Amounts applicable to Piper Jaffray Companies
Net income/(loss) from continuing operations	$	49,829		$	47,075		$	(90,772	)		$	22,086	$	33,556
Net income/(loss) from discontinued operations	(4,739		)	(5,807		)	(11,248		)		2,276		(3,187		)
Net income/(loss) applicable to Piper Jaffray Companies	$	45,090		$	41,268		$	(102,020	)		$	24,362	$	30,369

Earnings/(loss) per basic common share
Income/(loss) from continuing operations	$	2.98		$	2.58		$	(5.79	)		$	1.12	$	1.72
Income/(loss) from discontinued operations	(0.28		)	(0.32		)	(0.72		)		0.12		(0.16		)
Earnings/(loss) per basic common share	$	2.70		$	2.26		$	(6.51	)		$	1.23	$	1.56

Earnings/(loss) per diluted common share
Income/(loss) from continuing operations	$	2.98		$	2.58		$	(5.79	)		$	1.12	$	1.72
Income/(loss) from discontinued operations	(0.28		)	(0.32		)	(0.72		)		0.11		(0.16		)
Earnings/(loss) per diluted common share	$	2.70		$	2.26		$	(6.51	)	⁽²⁾	$	1.23	$	1.55

Weighted average number of common shares
Basic	15,046			15,615			15,672				15,348		15,952
Diluted	15,061			15,616			15,672			⁽²⁾	15,378		16,007

Other data
Total assets	$	2,318,157		$	2,087,733		$	1,655,721			$	2,033,787	$	1,703,330
Long-term debt	$	125,000		$	125,000		$	115,000			$	125,000	$	—
Total common shareholders' equity	$	734,676		$	733,292		$	718,391			$	813,312	$	778,616
Total shareholders' equity	$	882,072		$	790,175		$	750,600			$	818,101	$	782,319
Total employees ⁽³⁾	1,026			907			919				922		934


(1)	No allocation of income was made due to loss position.


(2)	Earnings per diluted common share is calculated using the basic weighted average number of common shares outstanding for periods in which a loss is incurred.


(3)	Number of employees reflect continuing operations.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following information should be read in conjunction with the accompanying audited 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, 2013 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, 2013, 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.

Explanation of Non-GAAP Financial Measures

We have included financial measures that are not prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). These non-GAAP financial measures include adjustments to exclude (1) revenues and expenses related to noncontrolling interests, (2) amortization of intangible assets related to acquisitions, (3) compensation from acquisition-related agreements, (4) restructuring and acquisition integration costs and (5) a goodwill impairment charge recognized in 2011. These adjustments affect the following financial measures: net revenues, non-compensation expenses, net income applicable to Piper Jaffray Companies, earnings per diluted common share, segment net revenues, segment operating expenses, segment pre-tax operating income and segment pre-tax operating margin. Management believes that presenting these results and measures on an adjusted basis in conjunction with U.S. GAAP measures provides the most meaningful basis for comparison of its operating results across periods.

Executive Overview

Our continuing operations are principally engaged in 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 and Europe. We operate through two reportable business segments:

Capital Markets – The Capital Markets segment provides institutional sales, trading and research services and investment banking services. Institutional sales, trading and research services focus on the trading of equity and fixed income products with institutions, government and non-profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales activities, net interest revenues on trading securities held in inventory, and profits and losses from trading these securities. Investment banking services include management of and participation in underwritings, merger and acquisition services and public finance activities. Revenues are generated through the receipt of advisory and financing fees. Also, we generate revenue through strategic trading activities, which focus on proprietary investments in municipal bonds, mortgage-backed securities, equity securities and merchant banking activities, which involve equity or debt investments in late stage private companies. As certain of these efforts have matured and an investment process has been developed, we have created alternative asset management funds in merchant banking and municipal securities in order to invest firm capital as well as to seek capital from outside investors. We receive management and performance fees for managing these funds.

As part of our strategy to grow our public finance business, on July 12, 2013 , we completed the acquisition of Seattle-Northwest Securities Corporation ("Seattle-Northwest"), a Seattle-based investment bank and broker dealer focused on public finance in the Northwest region of the U.S.

On July 16, 2013 , we completed the purchase of Edgeview Partners, L.P. ("Edgeview"), a middle-market advisory firm specializing in mergers and acquisitions. The acquisition further strengthens our mergers and acquisitions position in the middle market and adds resources dedicated to the private equity community.

For more information on our acquisitions of Seattle-Northwest and Edgeview, see Note 4 of our consolidated financial statements. We incurred $4.3 million of restructuring, integration and transaction costs in the year ended December 31, 2013 related to these acquisitions.

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Asset Management – The Asset Management segment provides traditional asset management services by taking a value-driven approach to managing assets in domestic and international equity markets. Additionally, the asset management segment manages master limited partnerships (“MLPs”) focused on the energy sector for institutions and individuals. Revenues are generated in the form of management and performance fees. Revenues are also generated through investments in the partnerships and funds that we manage.

Discontinued Operations – Our discontinued operations for all periods presented include the operating results of our Hong Kong capital markets business and Fiduciary Asset Management, LLC ("FAMCO"), an asset management subsidiary. As of September 30, 2012, we ceased operations related to our Hong Kong capital markets business. As a result of discontinuing this business, we realized net cash proceeds of approximately $19.1 million, due principally to a U.S. tax benefit for the realized loss on the investment in our Hong Kong subsidiaries. We sold FAMCO in the second quarter of 2013. FAMCO was classified as held for sale as of December 31, 2012. See Note 5 to our consolidated financial statements for further discussion of our discontinued operations.

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Results for the year ended December 31, 2013

For the year ended December 31, 2013 , net income applicable to Piper Jaffray Companies, including continuing and discontinued operations, was $45.1 million , or $2.70 per diluted common share. Net income applicable to Piper Jaffray Companies from continuing operations in 2013 was $49.8 million , or $2.98 per diluted common share, compared with $47.1 million , or $2.58 per diluted common share, for the prior-year period. The current period results of operations include a $4.0 million , or $0.24 per diluted common share, tax benefit from reversing the full amount of our U.K. subsidiary's deferred tax asset valuation allowance. In 2013 , we generated a return on average common shareholders' equity of 6.2 percent , compared with 5.7 percent for 2012 . Net revenues from continuing operations for the year ended December 31, 2013 were $525.2 million , up 7.4 percent from $489.0 million in the year-ago period. In 2013 , we recorded increased revenues from our equity-related businesses, asset management services and merchant banking activities, offset in part by lower advisory services and fixed income institutional brokerage revenues. For the year ended December 31, 2013 , non-compensation expenses from continuing operations were $127.1 million , up from $123.1 million in 2012 .

For the year ended December 31, 2013 , adjusted net income applicable to Piper Jaffray Companies from continuing operations was $59.5 million ⁽¹⁾ , or $3.56 ⁽¹⁾ per diluted common share, compared with $54.3 million ⁽¹⁾ , or $2.98 ⁽¹⁾ per diluted common share, for the prior-year period. Adjusted net revenues for the year ended December 31, 2013 were $516.4 million ⁽¹⁾ , an increase of 6.5 percent from $484.8 million ⁽¹⁾ reported in the year-ago period. For the year ended December 31, 2013 , adjusted non-compensation expenses were $111.0 million ⁽¹⁾ , essentially flat compared to $110.8 million ⁽¹⁾ for the year ended December 31, 2012 .


(1)	Reconciliation of U.S. GAAP to adjusted non-GAAP financial information



	Year Ended December 31,
(Dollars in thousands)	2013			2012
Net revenues:
Net revenues – U.S. GAAP basis	$	525,195		$	488,952
Adjustments:
Revenue related to noncontrolling interests	(8,794		)	(4,174		)
Adjusted net revenues	$	516,401		$	484,778

Non-compensation expenses:
Non-compensation expenses – U.S. GAAP basis	$	127,118		$	123,059
Adjustments:
Non-compensation expenses related to noncontrolling interests	(3,400		)	(1,708		)
Restructuring and integration costs	(4,689		)	(3,642		)
Amortization of intangible assets related to acquisitions	(7,993		)	(6,944		)
Adjusted non-compensation expenses	$	111,036		$	110,765

Net income from continuing operations applicable to Piper Jaffray Companies:
Net income from continuing operations applicable to Piper Jaffray Companies - U.S. GAAP basis	$	49,829		$	47,075
Adjustments:
Compensation from acquisition-related agreements	1,774			785
Restructuring and integration costs	2,865			2,225
Amortization of intangible assets related to acquisitions	5,079			4,243
Adjusted net income from continuing operations applicable to Piper Jaffray Companies	$	59,547		$	54,328

Earnings per diluted common share from continuing operations:
U.S. GAAP basis	$	2.98		$	2.58
Adjustments:
Compensation from acquisition-related agreements	0.11			0.04
Restructuring and integration costs	0.17			0.12
Amortization of intangible assets related to acquisitions	0.30			0.23
Non-U.S. GAAP basis, as adjusted	$	3.56		$	2.98

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Market Data

The following table provides a summary of relevant market data over the past three years.



										2013		2012
Year Ended December 31,	2013			2012			2011			v2012		v2011
Dow Jones Industrials Average (a)	16,577			13,104			12,218			26.5	%	7.3	%
NASDAQ (a)	4,177			3,020			2,605			38.3	%	15.9	%
NYSE Average Daily Number of Shares Traded
(millions of shares)	1,034			1,146			1,552			(9.8	)%	(26.2	)%
NASDAQ Average Daily Number of Shares Traded
(millions of shares)	1,762			1,741			2,042			1.2	%	(14.7	)%
Mergers and Acquisitions
(number of transactions in U.S.) (b)	9,146			8,400			8,539			8.9	%	(1.6	)%
Public Equity Offerings
(number of transactions in U.S.) (c) (e)	1,125			748			663			50.4	%	12.8	%
Initial Public Offerings
(number of transactions in U.S.) (c)	221			139			138			59.0	%	0.7	%
Managed Municipal Underwritings
(number of transactions in U.S.) (d)	11,321			13,115			10,574			(13.7	)%	24.0	%
Managed Municipal Underwritings
(value of transactions in billions in U.S.) (d)	$	331.0		$	379.6		$	287.7		(12.8	)%	31.9	%
10-Year Treasuries Average Rate	2.35		%	1.72		%	2.79		%	36.6	%	(38.4	)%
3-Month Treasuries Average Rate	0.06		%	0.07		%	0.05		%	(14.3	)%	40.0	%


(a)	Data provided is at period end.


(b)	Source: Securities Data Corporation.


(c)	Source: Dealogic (offerings with reported market value greater than $20 million).


(d)	Source: Thomson Financial.


(e)	Number of transactions includes convertible offerings.

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.

Factors that differentiate our business within the financial services industry may also 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 recent years and following the credit crisis of 2008, legislators and regulators increased their focus on the regulation of the financial services industry, resulting in fundamental changes to the manner in which the industry is regulated and increased regulation in a number of areas. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in 2010 bringing sweeping change to financial services regulation in the U.S. Changes in the regulatory environment in which we operate could affect our business and the competitive environment, potentially adversely.

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Outlook for 2014

In 2014, we expect continuing improvement in U.S. economic growth, modest appreciation in the equity markets and gradually increasing U.S. interest rates as the U.S. economy continues to improve by building on momentum that emerged in the second half of 2013. We believe that the interest rate environment has largely factored in the Federal Reserve's intention to taper bond purchases under its quantitative easing program, and interest rates generally will move in response to the rate of economic growth going forward. We are cognizant, however, that quantitative easing may have influenced capital flows into certain asset classes. We will monitor the potential impact on our markets as these capital flows normalize in the absence of quantitative easing.

Rising interest rates and mixed financial market conditions in 2013 resulted in varied financial results across our debt financing and fixed income institutional brokerage businesses. Our fixed income institutional brokerage business reported stronger financial results in the second half of 2013 after overcoming turbulent conditions earlier in the year. Rising interest rates negatively impacted our debt financing revenues as public finance issuances decreased as debt refinancing activity became less attractive. We anticipate that interest rates will continue to increase gradually throughout 2014, which could impact our debt financing and fixed income institutional brokerage revenues. We expect less favorable public finance underwriting conditions in 2014 as the demand for refinancing activity subsides in a rising interest rate environment and new issuance activity is not expected to entirely offset this decline. Our public finance underwriting business is expected to benefit from increased market share and our fixed income institutional sales and trading activities is expected to benefit from the expansion of our middle market sales force. We will continue to manage our inventories and hedging strategies to mitigate market volatility and our exposure to rising interest rates.

The equity markets experienced significant appreciation in 2013 and volatility remained low. Each of our equity-related businesses benefited from these favorable market conditions. We believe that the equity markets will continue to appreciate in 2014, but at more modest levels that may include a period of market correction. Conditions should continue to be accommodative for our equity-related businesses, however, a period of market correction may be disruptive to our capital raising, while our trading business should benefit from higher volatility. In 2014, we expect to reap the full-year benefits of the investments we made in 2013.

Asset management revenues will continue to be dependent upon equity valuations and our investment performance, which can impact the amount of client inflows and outflows of assets under management.

Results of Operations

To provide comparative information of our operating results for the periods presented, a discussion of adjusted segment results follows the discussion of our total consolidated U.S. GAAP results. Our adjusted segment results exclude certain revenue and expenses required under U.S. GAAP. See the sections titled "Explanation of Non-GAAP Financial Measures" and "Segment Performance from Continuing Operations" in Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion and reconciliations.

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Financial Summary

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



														As a Percentage of
														Net Revenues for the
	Year Ended December 31,													Year Ended December 31,
										2013		2012
(Dollars in thousands)	2013			2012			2011			v2012		v2011		2013		2012		2011
Revenues:
Investment banking	$	248,563		$	232,958		$	202,513		6.7	%	15.0	%	47.3	%	47.6	%	46.9	%
Institutional brokerage	146,648			166,642			135,358			(12.0	)	23.1		27.9		34.1		31.3
Asset management	83,045			65,699			63,307			26.4		3.8		15.8		13.4		14.7
Interest	50,409			37,845			43,447			33.2		(12.9	)	9.6		7.7		10.1
Investment income	21,566			4,903			8,178			339.9		(40.0	)	4.1		1.0		1.9
Total revenues	550,231			508,047			452,803			8.3		12.2		104.8		103.9		104.8

Interest expense	25,036			19,095			20,720			31.1		(7.8	)	4.8		3.9		4.8

Net revenues	525,195			488,952			432,083			7.4		13.2		100.0		100.0		100.0

Non-interest expenses:
Compensation and benefits	322,464			296,882			265,015			8.6		12.0		61.4		60.7		61.3
Occupancy and equipment	25,493			26,454			28,430			(3.6	)	(7.0	)	4.9		5.4		6.6
Communications	21,431			20,543			22,121			4.3		(7.1	)	4.1		4.2		5.1
Floor brokerage and clearance	8,270			8,054			8,925			2.7		(9.8	)	1.6		1.6		2.1
Marketing and business development	21,603			19,908			22,640			8.5		(12.1	)	4.1		4.1		5.2
Outside services	32,982			27,998			27,570			17.8		1.6		6.3		5.7		6.4
Restructuring and integration costs	4,689			3,642			—			28.7		N/M		0.9		0.7		—
Goodwill impairment	—			—			120,298			N/M		N/M		—		—		27.8
Intangible asset amortization expense	7,993			6,944			7,256			15.1		(4.3	)	1.5		1.4		1.7
Other operating expenses	4,657			9,516			10,017			(51.1	)	(5.0	)	0.9		1.9		2.3
Total non-interest expenses	449,582			419,941			512,272			7.1		(18.0	)	85.6		85.9		118.6

Income/(loss) from continuing operations before income tax expense	75,613			69,011			(80,189		)	9.6		N/M		14.4		14.1		(18.6	)

Income tax expense	20,390			19,470			9,120			4.7		113.5		3.9		4.0		2.1

Income/(loss) from continuing operations	55,223			49,541			(89,309		)	11.5		N/M		10.5		10.1		(20.8	)

Discontinued operations:
Loss from discontinued operations, net of tax	(4,739		)	(5,807		)	(11,248		)	(18.4	)	(48.4	)	(0.9	)	(1.2	)	(2.6	)

Net income/(loss)	50,484			43,734			(100,557		)	15.4		N/M		9.6		8.9		(23.3	)

Net income applicable to noncontrolling interests	5,394			2,466			1,463			118.7		68.6	%	1.0		0.5		0.3

Net income/(loss) applicable to Piper Jaffray Companies	$	45,090		$	41,268		$	(102,020	)	9.3	%	N/M		8.6	%	8.4	%	(23.6	)%

N/M — Not meaningful

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For the year ended December 31, 2013 , we recorded net income applicable to Piper Jaffray Companies, including continuing and discontinued operations, of $45.1 million . The current period results of operations include a $4.0 million tax benefit from reversing the full amount of our U.K. subsidiary's deferred tax asset valuation allowance. Net revenues from continuing operations for the year ended December 31, 2013 were $525.2 million , a 7.4 percent increase compared to $489.0 million in the year-ago period. In 2013 , investment banking revenues were $248.6 million , compared with $233.0 million in the prior-year period due to higher equity financing revenues, offset in part by a decline in advisory revenues. For the year ended December 31, 2013 , institutional brokerage revenues decreased 12.0 percent to $146.6 million , compared with $166.6 million in 2012 . The decline was driven by lower fixed income strategic trading results in 2013 . In 2013 , asset management fees increased 26.4 percent to $83.0 million , compared with $65.7 million in 2012 , due to higher management fees from increased assets under management and higher performance fees earned in the fourth quarter of 2013. In 2013 , net interest income increased 35.3 percent to $25.4 million , compared with $18.8 million in 2012. The increase was primarily the result of higher net interest income attributable to noncontrolling interests from our municipal bond fund, as well as higher inventory balances in mortgage-backed and municipal securities. For the year ended December 31, 2013 , investment income was $21.6 million , compared with $4.9 million in the prior-year period as we recorded higher investment gains associated with our merchant banking and firm investments. Non-interest expenses from continuing operations were $449.6 million for the year ended December 31, 2013 , an increase of 7.1 percent compared to $419.9 million in the prior year, primarily resulting from higher compensation expenses due to an increased revenue base.

For the year ended December 31, 2012, we recorded net income applicable to Piper Jaffray Companies, including continuing and discontinued operations, of $41.3 million . Net revenues from continuing operations for the year ended December 31, 2012 were $489.0 million , a 13.2 percent increase from 2011. In 2012, investment banking revenues were $233.0 million , compared with $202.5 million in 2011, due to higher public finance and advisory services revenues. For the year ended December 31, 2012, institutional brokerage revenues increased 23.1 percent to $166.6 million , compared with $135.4 million in 2011, driven by strong fixed income strategic trading revenues. In 2012, asset management fees were $65.7 million , up modestly compared with 2011. Net interest income in 2012 decreased 17.5 percent to $18.8 million , compared with $22.7 million in 2011. The decrease was primarily the result of a strategic decision to further diversify from overnight funding sources to short term funding sources with extended terms. These short term funding sources with extended terms typically have higher interest costs than overnight financing obtained from repurchase obligations. The change in net interest income is also partly attributable to a decline of our average long inventory balances. For the year ended December 31, 2012, investment income was $4.9 million , compared with $8.2 million in 2011 as we recorded higher investment gains associated with our merchant banking investments in 2011. In 2012, non-interest expenses from continuing operations were $419.9 million , compared with $392.0 million in 2011, which excludes the pre-tax goodwill impairment charge of $120.3 million . This increase was driven by increased variable compensation due to improved operating performance.

Consolidated Non-Interest Expenses from Continuing Operations

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, income associated with the forfeiture of stock-based compensation 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, has a greater impact on our cash position and liquidity than is reflected on our consolidated statements of operations.

For the year ended December 31, 2013 , compensation and benefits expenses increased 8.6 percent to $322.5 million from $296.9 million in 2012 . Compensation and benefits expenses as a percentage of net revenues increased from 60.7 percent in 2012 to 61.4 percent in 2013 , primarily attributable to changes in our mix of business, as we recorded significantly higher fixed income strategic trading revenues in 2012, which have a lower compensation payout.

For the year ended December 31, 2012, compensation and benefits expenses increased 12.0 percent to $296.9 million from $265.0 million in 2011, due to increased variable compensation expense driven by higher net revenues and operating profits. Compensation and benefits expenses as a percentage of net revenues was 60.7 percent in 2012 , compared with 61.3 percent in 2011. The lower compensation ratio in 2012 was driven by increased revenues and our mix of business as we recorded significantly higher fixed income strategic trading revenues in 2012.

Occupancy and Equipment – For the year ended December 31, 2013 , occupancy and equipment expenses decreased 3.6 percent to $25.5 million , compared with $26.5 million in the corresponding period of 2012 . The decrease was primarily the result of prior investments in technology and equipment becoming fully depreciated and lower occupancy costs associated with our headquarters

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office space, offset in part by incremental occupancy expense from our acquisitions of Seattle-Northwest and Edgeview during the third quarter of 2013 .

For the year ended December 31, 2012, occupancy and equipment expenses decreased 7.0 percent to $26.5 million , compared with $28.4 million in 2011. The decrease was primarily due to cost saving initiatives.

Communications – Communication expenses include costs for telecommunication and data communication, primarily consisting of expenses for obtaining third-party market data information. For the year ended December 31, 2013 , communication expenses increased 4.3 percent to $21.4 million , compared with $20.5 million for the year ended December 31, 2012 . The increase resulted from higher market data service expenses.

For the year ended December 31, 2012, communication expenses decreased 7.1 percent to $20.5 million , compared with $22.1 million in 2011. The decrease was primarily attributable to lower market data service expenses.

Floor Brokerage and Clearance – For the year ended December 31, 2013 , floor brokerage and clearance expenses increased slightly to $8.3 million , compared with $8.1 million million in the year ended December 31, 2012 .

For the year ended December 31, 2012, floor brokerage and clearance expenses decreased 9.8 percent to $8.1 million , compared with $8.9 million in 2011. The decline was due to lower trading fees resulting from lower U.S. equity client volumes.

Marketing and Business Development – Marketing and business development expenses include travel and entertainment and promotional and advertising costs. In 2013 , marketing and business development expenses increased 8.5 percent to $21.6 million , compared with $19.9 million in the year ended December 31, 2012 , due to higher travel expenses resulting from increased equity underwriting activity.

In 2012, marketing and business development expenses decreased 12.1 percent to $19.9 million, compared with $22.6 million in 2011. In 2011, we recorded higher travel expenses from write-offs related to equity investment banking deals that were never completed due to volatility in the capital markets.

Outside Services – Outside services expenses include securities processing expenses, outsourced technology functions, outside legal fees, fund expenses associated with our consolidated alternative asset management funds and other professional fees. Outside services expenses increased 17.8 percent to $33.0 million in 2013 , compared with $28.0 million in the corresponding period of 2012 , due to higher computer consulting and fund expenses.

In 2012, outside services expenses were $28.0 million , essentially flat compared with 2011.

Restructuring and Integration Costs – During the year ended December 31, 2013 , we recorded restructuring, integration and transaction costs of $4.7 million primarily related to the acquisitions of Seattle-Northwest and Edgeview. For the year ended December 31, 2012 , we recorded a restructuring charge of $3.6 million , which consisted of $2.4 million of employee severance costs and $1.2 million for the reduction of leased office space.

Goodwill Impairment — In 2011, we recorded a non-cash goodwill impairment charge of $120.3 million related to our Capital Markets reporting unit. The charge primarily related to the goodwill originating from our 1998 acquisition by U.S. Bancorp, which was retained by us when we spun off as a separate public company on December 31, 2003.

Intangible Asset Amortization Expense – Intangible asset amortization expense includes the amortization of definite-lived intangible assets consisting of customer relationships and non-competition agreements. For the year ended December 31, 2013 , intangible asset amortization expense was $8.0 million , compared with $6.9 million in the corresponding period of 2012 . The increase was attributable to incremental intangible asset amortization expense related to the acquisitions of Seattle-Northwest and Edgeview.

In 2012, intangible asset amortization expense was $6.9 million , compared with $7.3 million in 2011.

Other Operating Expenses – Other operating expenses include insurance costs, 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. Other operating expenses decreased 51.1 percent to $4.7 million in 2013 , compared with $9.5 million in 2012 . In 2013 , we received insurance proceeds for the reimbursement of prior legal settlements.

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Other operating expenses decreased 5.0 percent to $9.5 million in 2012, compared with $10.0 million in 2011, due primarily to a business tax refund received in 2012.

Income Taxes – For the year ended December 31, 2013 , our provision for income taxes was $20.4 million equating to an effective tax rate, excluding noncontrolling interests, of 29.0 percent . In 2013, we recorded a tax benefit for the full reversal of our U.K subsidiary's deferred tax asset valuation allowance of $4.0 million as we achieved three years of profitability and expect future taxable profits.

For the year ended December 31, 2012, our provision for income taxes was $19.5 million , equating to an effective tax rate, excluding noncontrolling interests, of 29.3 percent . In 2012, we recorded a tax benefit for the reversal of previously accrued uncertain state income tax positions of $7.4 million , net of federal tax, partially offset by a $4.6 million write-off of deferred tax assets related to equity grants that either were forfeited or vested at share prices lower than the grant date share price.

In 2011, our provision for income taxes was $9.1 million . In 2011, we incurred a pre-tax loss due to the $120.3 million goodwill impairment charge. Excluding the goodwill impairment charge, the substantial majority of which had no tax impact, we recorded pre-tax income from continuing operations of $40.1 million , which resulted in an effective tax rate for 2011 of 23.6 percent . Income tax expense in 2011 included a $1.1 million partial reversal of our U.K. subsidiary’s deferred tax asset valuation allowance.

Segment Performance from Continuing Operations

We measure financial performance by business segment. Our two reportable segments are Capital Markets and Asset Management. We determined these segments based upon the nature of the financial products and services provided to customers and our management organization. Segment pre-tax operating income and segment pre-tax operating margin are used to evaluate and measure segment performance by our management team in deciding how to allocate resources and in assessing performance in relation to our competitors. Revenues and expenses directly associated with each respective segment are included in determining segment operating results. Revenues and expenses that are not directly attributable to a particular segment are allocated based upon our allocation methodologies, generally based on each segment’s respective net revenues, use of shared resources, headcount or other relevant measures.

Throughout this section, we have presented segment results on both a U.S. GAAP and non-GAAP basis. Management believes that presenting adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin in conjunction with the U.S. GAAP measures provides a more meaningful basis for comparison of its operating results and underlying trends between periods.

Adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin exclude (1) revenues and expenses related to noncontrolling interests, (2) amortization of intangible assets related to acquisitions, (3) compensation from acquisition-related agreements, (4) restructuring and integration costs, and (5) a goodwill impairment charge recognized in 2011. For U.S. GAAP purposes, these items are included in each of their respective line items on the consolidated statements of operations.

Adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin present the segments' results of operations excluding the impact resulting from the consolidation of noncontrolling interests in alternative asset management funds and private equity investment vehicles. Consolidation of these funds results in the inclusion of the proportionate share of the income or loss attributable to the equity interests in consolidated funds that are not attributable, either directly or indirectly, to us (i.e. noncontrolling interests). This proportionate share is reflected in net income/(loss) applicable to noncontrolling interests in the accompanying consolidated statements of operations, and has no effect on the overall financial performance of the segments, as ultimately, this income or loss is not income or loss for the segments themselves. Included in adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin is the actual proportionate share of the income or loss attributable to us as an investor in such funds. Adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin also exclude amortization of intangible assets and compensation from acquisition-related agreements resulting from our ARI, Seattle-Northwest and Edgeview acquisitions. The restructuring and integration costs excluded from adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin represent charges that resulted from severance benefits, vacating redundant office space and contract termination costs. The goodwill impairment charge recognized in 2011 primarily pertained to goodwill created from the 1998 acquisition of Piper Jaffray Companies Inc. by U.S. Bancorp, which was retained by us when we spun-off from U.S. Bancorp on December 31, 2003.

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Capita l Markets

The following table sets forth the Capital Markets adjusted segment financial results from continuing operations and adjustments necessary to reconcile to our consolidated U.S. GAAP pre-tax operating income and pre-tax operating margin for the periods presented:



	Year Ended December 31,
	2013											2012
				Adjustments ⁽¹⁾											Adjustments ⁽¹⁾
	Total			Noncontrolling		Other			U.S.			Total			Noncontrolling		Other			U.S.
(Dollars in thousands)	Adjusted			Interests		Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP
Investment banking
Financing
Equities	$	100,224		$	—	$	—		$	100,224		$	73,180		$	—	$	—		$	73,180
Debt	74,284			—		—			74,284			74,102			—		—			74,102
Advisory services	74,420			—		—			74,420			86,165			—		—			86,165
Total investment banking	248,928			—		—			248,928			233,447			—		—			233,447

Institutional sales and trading
Equities	91,169			—		—			91,169			75,723			—		—			75,723
Fixed income	76,275			—		—			76,275			111,492			—		—			111,492
Total institutional sales and trading	167,444			—		—			167,444			187,215			—		—			187,215

Total management and performance fees	3,891			—		—			3,891			1,678			—		—			1,678

Investment income	21,610			8,794		—			30,404			5,666			4,174		—			9,840

Long-term financing expenses	(7,420		)	—		—			(7,420		)	(7,982		)	—		—			(7,982		)

Net revenues	434,453			8,794		—			443,247			420,024			4,174		—			424,198

Operating expenses	382,157			3,400		7,674			393,231			366,408			1,708		3,512			371,628

Segment pre-tax operating income	$	52,296		$	5,394	$	(7,674	)	$	50,016		$	53,616		$	2,466	$	(3,512	)	$	52,570

Segment pre-tax operating margin	12.0		%						11.3		%	12.8		%						12.4		%


(1)	The following is a summary of the adjustments needed to reconcile our consolidated U.S. GAAP pre-tax operating income and pre-tax operating margin to the adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin:

Noncontrolling interests – The impacts of consolidating noncontrolling interests in our alternative asset management funds and private equity investment vehicles are not included in adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin.

Other Adjustments – The following table sets forth the items not included in adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin for the periods presented:



	Year Ended December 31,
(Dollars in thousands)	2013		2012
Compensation from acquisition-related agreements	$	1,620	$	—
Restructuring and integration costs	4,705		3,512
Amortization of intangible assets related to acquisitions	1,349		—
	$	7,674	$	3,512

Capital Markets adjusted net revenues increased 3.4 percent to $434.5 million for the year ended December 31, 2013 , compared with $420.0 million in the prior-year period.

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Investment banking revenues comprise all of 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.

In 2013 , investment banking revenues increased 6.6 percent to $248.9 million compared with $233.4 million in the corresponding period of the prior year, due to higher equity financing revenues, offset in part by a decline in advisory services revenues. For the year ended December 31, 2013 , equity financing revenues were $100.2 million , up 37.0 percent compared with $73.2 million in the prior-year period as strong gains in the equity markets resulted in robust conditions for equity capital raising. During 2013 , we completed 92 equity financings, raising $19.9 billion for our clients, compared with 67 equity financings, raising $9.1 billion for our clients (excluding the $16.0 billion of capital raised from the Facebook initial public offering, on which we had a small co-manager position) in the comparable year-ago period. Debt financing revenues for the year ended December 31, 2013 were $74.3 million , essentially flat compared with the prior year . During 2013 , we completed 413 negotiated public finance issues with a total par value of $7.9 billion , compared with 444 negotiated public finance issues with a total par value of $7.3 billion during the prior-year period. A decrease in the number of completed negotiated public finance issues from 2012 was offset by increased revenue per transaction in 2013 . Additionally, our market share gains and industry sector strengths offset weak refunding activity in the second half of 2013 . In 2013 , our par value from negotiated debt issuances increased 7.9 percent , compared to a 17.1 percent decline for the industry. For the year ended December 31, 2013 , advisory services revenues decreased 13.6 percent to $74.4 million due to lower U.S. advisory services revenue from fewer completed transactions. In 2012 , sellers were motivated to complete transactions due to anticipated tax increases in 2013 . Although this resulted in reduced activity through mid-year 2013 , as we r ebuilt our advisory pipeline, we experienced increasing demand through the second half of 2013 . We completed 31 transactions with an aggregate enterprise value of $2.9 billion in 2013 , compared with 40 transactions with an aggregate enterprise value of $10.2 billion in 2012 .

Institutional sales and trading revenues comprise all of the revenues generated through trading activities, which consist of facilitating customer trades, executing competitive municipal underwritings and our strategic trading activities in municipal bonds, mortgage-backed securities and equity securities. 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 year ended December 31, 2013 , institutional brokerage revenues decreased 10.6 percent to $167.4 million , compared with $187.2 million in the prior-year period, as a decline in fixed income institutional brokerage revenues was offset in part by higher equity institutional brokerage revenues. Equity institutional brokerage revenues increased 20.4 percent to $91.2 million in 2013 , compared with $75.7 million in the corresponding period of 2012 , reflecting the favorable equity markets and improved trading performance. Our improved trading performance resulted from successfully executing a set of client-focused product strategies which we began implementing in 2012, and more effective deployment of capital within this business. We generated revenues from our equity strategic trading activities, which we began in the second half of 2013 to leverage our intellectual capital and to diversify our strategic trading efforts. For the year ended December 31, 2013 , fixed income institutional brokerage revenues were $76.3 million , compared with $111.5 million in the prior-year period. The decrease primarily resulted from lower revenues from our strategic trading activities, primarily related to non-agency mortgage-backed securities. In addition, we experienced trading losses in the second quarter of 2013 on inventory positions due to the volatile trading environment caused by the rapid rise in interest rates and widening of credit spreads.

Management and performance fees include the performance and management fees generated from our municipal bond and merchant banking funds. For the year ended December 31, 2013 , management and performance fees were $3.9 million , compared with $1.7 million in the prior-year period, due to increased management fees from our municipal bond fund driven by higher AUM from net client inflows and a full year of management fees generated from our merchant banking fund.

Adjusted investment income includes realized and unrealized gains and losses on our merchant banking and other firm investments. Also, it includes realized and unrealized gains and losses on our investment in the municipal bond funds that we manage. For the year ended December 31, 2013 , adjusted investment income was $21.6 million , compared to $5.7 million in the corresponding period of 2012 . The significant increase from 2012 was driven by larger gains on our merchant banking investments. Merchant banking investments made before 2010 are accounted for on a cost basis, which can result, and in this case did result, in significant realized gains in the period of a liquidity event for these investments.

Lo ng-term financing expenses represent interest paid on our variable rate senior notes and syndicated bank facility. For the year ended December 31, 2013 , long-term financing expenses decreased 7.0 percent to $7.4 million , compared to $8.0 million in the

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prior-year period. The decrease was due to additional costs recognized in the fourth quarter of 2012 upon prepayment of the syndicated bank facility.

Capital Markets adjusted segment pre-tax operating margin for the year ended December 31, 2013 decreased slightly to 12.0 percent , compared with 12.8 percent for the corresponding period of 2012 .



	Year Ended December 31,
	2012											2011
				Adjustments ⁽¹⁾											Adjustments ⁽¹⁾
	Total			Noncontrolling		Other			U.S.			Total			Noncontrolling		Other			U.S.
(Dollars in thousands)	Adjusted			Interests		Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP
Investment banking
Financing
Equities	$	73,180		$	—	$	—		$	73,180		$	74,161		$	—	$	—		$	74,161
Debt	74,102			—		—			74,102			54,565			—		—			54,565
Advisory services	86,165			—		—			86,165			74,373			—		—			74,373
Total investment banking	233,447			—		—			233,447			203,099			—		—			203,099

Institutional sales and trading
Equities	75,723			—		—			75,723			86,175			—		—			86,175
Fixed income	111,492			—		—			111,492			75,589			—		—			75,589
Total institutional sales and trading	187,215			—		—			187,215			161,764			—		—			161,764

Total management and performance fees	1,678			—		—			1,678			243			—		—			243

Investment income	5,666			4,174		—			9,840			9,267			1,785		—			11,052

Long-term financing expenses	(7,982		)	—		—			(7,982		)	(7,067		)	—		—			(7,067		)

Net revenues	420,024			4,174		—			424,198			367,306			1,785		—			369,091

Operating expenses	366,408			1,708		3,512			371,628			343,714			322		120,298			464,334

Segment pre-tax operating income	$	53,616		$	2,466	$	(3,512	)	$	52,570		$	23,592		$	1,463	$	(120,298	)	$	(95,243	)

Segment pre-tax operating margin	12.8		%						12.4		%	6.4		%						N/M

(1)

Other Adjustments – For the year ended December 31, 2012, restructuring and integration costs of $3.5 million are not included in adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin. For the year ended December 31, 2011, adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin exclude a goodwill impairment charge of $120.3 million .

Capital Markets adjusted net revenues increased 14.4 percent to $420.0 million for the year ended December 31, 2012, compared with $367.3 million for the year ended December 31, 2011.

In 2012, investment banking revenues increased 14.9 percent to $233.4 million compared with $203.1 million in the prior year, du e to an increase in debt financing and advisory services revenues. For the year ended December 31, 2012, equity financing revenues were $73.2 million , essentially flat compared with the prior year. In 2012, we continued to experience sluggish equity capital markets activity due to uncertain economic conditions. During 2012, we completed 67 equity financings, raising $9.1 billion for our clients (excluding the $16.0 billion of capital raised from the Facebook initial public offering, on which we had a small co-manager position), compared with 60 equity financings, raising $12.9 billion in 2011. Debt financing revenues in 2012 increased 35.8 percent to $74.1 million , compared with $54.6 million in 2011, due to an increase in public finance revenues. In 2012, historically low interest rates created client refinancing opportunities, which resulted in a 33.6 percent increase in our par value from negotiated debt issuances. In addition, 2011 municipal underwriting activity was at historic lows following a robust 2010 municipal financing year driven by the taxable Build America Bonds. In 2012, we completed 444 negotiated public finance issues

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with a total par value of $7.3 billion , compared with 410 negotiated public finance issues with a total par value of $5.5 billion in 2011. Additionally, in 2012 we grew our public finance economic market share. For the year ended December 31, 2012, advisory services revenues increased 15.9 percent to $86.2 million due to higher U.S. advisory services revenue. This increase was attributable to more conducive equity capital markets in the U.S., an increased internal focus on this product and motivated sellers anticipating tax increases for 2013. We completed 40 transactions with an aggregate enterprise value of $10.2 billion during 2012, compared with 38 transactions with an aggregate enterprise value of $5.2 billion in 2011.

In 2012, institutional brokerage revenues increased 15.7 percent to $187.2 million , compared with $161.8 million in 2011, driven by strong fixed income trading revenues. Equity institutional brokerage revenues decreased to $75.7 million in 2012, compared with $86.2 million in 2011. The decrease was attributable to lower U.S. equity client volumes resulting from the uncertainty in the equity markets in 2012. For the year ended December 31, 2012, fixed income institutional brokerage revenues increased to $111.5 million , compared with $75.6 million in 2011. The increase was principally driven by our non-agency mortgage-backed security strategic trading activities. Additionally, in 2012 we experienced more favorable fixed income market conditions that resulted in higher customer activity and increased taxable fixed income sales and trading revenues.

Management and performance fees were $1.7 million for the year ended December 31, 2012, compared to $0.2 million for 2011. The increase was primarily due to the recognition of a full year of management and performance fees generated from our municipal bond fund, which commenced operations mid-year in 2011.

For the year ended December 31, 2012, adjusted investment income was $5.7 million , compared with $9.3 million in the prior year. In 2012, we recorded lower gains on our merchant banking investments.

Long-term financing expenses increased 12.9 percent to $8.0 million for the year ended December 31, 2012, compared with $7.1 million in the prior-year period. The increase resulted from additional costs recognized in the fourth quarter of 2012 upon repayment of our syndicated bank facility.

Capital Markets adjusted segment pre-tax operating margin for 2012 was 12.8 percent , compared with 6.4 percent for 2011. The inc rease compared to 2011 was due to operating leverage from higher net revenues and a lower compensation ratio due to our mix of business, as we recorded significantly higher fixed income strategic trading revenues in 2012, which have a lower compensation payout.

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Asset Management

The following table sets forth the Asset Management segment financial results from continuing operations and adjustments necessary to reconcile to our consolidated U.S. GAAP pre-tax operating income and pre-tax operating margin for the periods presented:



	Year Ended December 31,
	2013											2012
				Adjustments ⁽¹⁾											Adjustments ⁽¹⁾
	Total			Noncontrolling		Other			U.S.			Total			Noncontrolling		Other			U.S.
(Dollars in thousands)	Adjusted			Interests		Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP
Management fees
Value equity	$	50,066		$	—	$	—		$	50,066		$	48,636		$	—	$	—		$	48,636
MLP	21,248			—		—			21,248			14,600			—		—			14,600
Total management fees	71,314			—		—			71,314			63,236			—		—			63,236

Performance fees
Value equity	7,620								7,620			785			—		—			785
MLP	220								220			—			—		—			—
Total performance fees	7,840			—		—			7,840			785			—		—			785

Total management and performance fees	79,154			—		—			79,154			64,021			—		—			64,021

Investment income	2,794			—		—			2,794			733			—		—			733

Total net revenues	81,948			—		—			81,948			64,754			—		—			64,754

Operating expenses	48,439			—		7,912			56,351			39,955			—		8,358			48,313

Segment pre-tax operating income	$	33,509		$	—	$	(7,912	)	$	25,597		$	24,799		$	—	$	(8,358	)	$	16,441

Segment pre-tax operating margin	40.9		%						31.2		%	38.3		%						25.4		%


(1)	Other Adjustments – The following table sets forth the items not included in adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin for the periods presented:



	Year Ended December 31,
(Dollars in thousands)	2013			2012
Compensation from acquisition-related agreements	$	1,284		$	1,284
Restructuring and integration costs	(16		)	130
Amortization of intangible assets related to acquisitions	6,644			6,944
	$	7,912		$	8,358

Management and performance fee revenues comprise the revenues generated through management and investment advisory services performed for separately managed accounts, registered funds and partnerships. Fluctuations in financial markets and client asset inflows and outflows have a direct effect on management and performance fee revenues. Management fees are generally based on the level of assets under management (“AUM”) measured monthly or quarterly, and an increase or reduction in assets under management, due to market price fluctuations or net client asset flows, will result in a corresponding increase or decrease in management fees. Fees vary with the type of assets managed and the vehicle in which they are managed. Performance fees are earned when the investment return on assets under management exceeds certain benchmark targets or other performance targets over a specified measurement period. The level of performance fees earned can vary significantly from period to period and these fees may not necessarily be correlated to changes in total assets under management. The majority of performance fees, if earned, are generally recorded in the fourth quarter of the applicable year or upon withdrawal of client assets. At December 31, 2013 , approximately two percent of our AUM was eligible to earn performance fees.

For the year ended December 31, 2013 , management fees were $71.3 million , an increase of 12.8 percent , compared with $63.2 million in the prior-year period, due primarily to increased AUM and management fees from our MLP product offerings. In 2013 , management fees related to our value equity strategies were $50.1 million , up 2.9 percent compared to the corresponding period of 2012 . The impact of increased AUM in 2013 from market appreciation was offset by a lower average effective revenue yield (total management fees as a percentage of our average AUM). The average effective revenue yield for our value equity strategies was 80 basis points for the year ended December 31, 2013 , compared to 81 basis points in the corresponding period of the prior-

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year. Management fees from our MLP and energy infrastructure strategies increased 45.5 percent in 2013 to $21.2 million , compared with $14.6 million in 2012 , due to increased average AUM and a higher average effective revenue yield. The average effective revenue yield for our MLP strategies was 53 basis points for the year ended December 31, 2013 , compared to 49 basis points for the year ended December 31, 2012 .

For the year ended December 31, 2013 , performance fees were $7.8 million , compared to $0.8 million in the prior-year period. The performance fees recorded in 2013 resulted from certain funds exceeding their performance targets over a specified measurement period. The performance fees recorded during 2012 were the result of certain funds exceeding their performance targets at the time of client asset withdrawals.

Investment income includes gains and losses from our investments in registered funds and private funds or partnerships that we manage. For the year ended December 31, 2013 , investment income was $2.8 million compared with $0.7 million for the prior-year period.

A djusted segment pre-tax operating margin for the year ended December 31, 2013 was 40.9 percent , compared to 38.3 percent for the year ended December 31, 2012 . The increase resulted from improved operating results driven by higher net revenues.



	Year Ended December 31,
	2012											2011
				Adjustments ⁽¹⁾											Adjustments ⁽¹⁾
	Total			Noncontrolling		Other			U.S.			Total			Noncontrolling		Other			U.S.
(Dollars in thousands)	Adjusted			Interests		Adjustments			GAAP			Adjusted			Interests		Adjustments			GAAP
Management fees
Value equity	$	48,636		$	—	$	—		$	48,636		$	50,565		$	—	$	—		$	50,565
MLP	14,600			—		—			14,600			10,254			—		—			10,254
Total management fees	63,236			—		—			63,236			60,819			—		—			60,819

Performance fees
Value equity	785			—		—			785			2,092			—		—			2,092
MLP	—			—		—			—			153			—		—			153
Total performance fees	785			—		—			785			2,245			—		—			2,245

Total management and performance fees	64,021			—		—			64,021			63,064			—		—			63,064

Investment income/(loss)	733			—		—			733			(72		)	—		—			(72		)

Total net revenues	64,754			—		—			64,754			62,992			—		—			62,992

Operating expenses	39,955			—		8,358			48,313			39,398			—		8,540			47,938

Segment pre-tax operating income	$	24,799		$	—	$	(8,358	)	$	16,441		$	23,594		$	—	$	(8,540	)	$	15,054

Segment pre-tax operating margin	38.3		%						25.4		%	37.5		%						23.9		%


(1)	Other Adjustments – The following table sets forth the items not included in adjusted segment pre-tax operating income and adjusted segment pre-tax operating margin for the periods presented:



	Year Ended December 31,
(Dollars in thousands)	2012		2011
Compensation from acquisition-related agreements	$	1,284	$	1,284
Restructuring and integration costs	130		—
Amortization of intangible assets related to acquisitions	6,944		7,256
	$	8,358	$	8,540

For the year ended December 31, 2012, management fees were $63.2 million , an increase of 4.0 percent , compared with the prior year, as a decline in management fees from our value equity strategies were more than offset by increased management fees from our MLP product offerings. In 2012, management fees related to our value equity strategies decreased 3.8 percent to $48.6 million ,

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compared with $50.6 million in 2011, due to a lower average effective revenue yield. Our average effective revenue yield for value equity strategies was 81 basis points in 2012, compared with 84 basis points in the prior year. Management fees associated with our MLP strategy increased 42.4 percent in 2012 to $14.6 million , compared with $10.3 million in 2011, due to increases in our average effective revenue yield and average AUM. Our average effective revenue yield for the MLP strategy was 49 basis points in 2012, compared with 43 basis points in 2011.

For the year ended December 31, 2012, performance fees were $0.8 million , compared with $2.2 million in 2011. The performance fees recorded during 2012 and 2011 were the result of certain funds exceeding their performance targets at the time of client asset withdrawals.

For the year ended December 31, 2012, investment income was $0.7 million compared with a loss of $0.1 million for 2011.

Adjusted segment pre-tax operating margin for 2012 was 38.3 percent , compared to 37.5 percent for 2011.

The following table summarizes the changes in our AUM for the periods presented:



	Twelve Months Ended
	December 31,
(Dollars in millions)	2013			2012			2011
Value Equity
Beginning of period	$	5,865		$	5,805		$	6,449
Net outflows	(756		)	(515		)	(711		)
Net market appreciation	1,574			575			67
End of period	$	6,683		$	5,865		$	5,805

MLP
Beginning of period	$	3,186		$	2,751		$	1,567
Net inflows	498			338			912
Net market appreciation	865			97			272
End of period	$	4,549		$	3,186		$	2,751

Total
Beginning of period	$	9,051		$	8,556		$	8,016
Net inflows/(outflows)	(258		)	(177		)	201
Net market appreciation	2,439			672			339
End of period	$	11,232		$	9,051		$	8,556

Total AUM increased $2.2 billion to $11.2 billion in 2013 as the strong equity markets drove net market appreciation of $2.4 billion in 2013 . Value equity AUM was $6.7 billion at December 31, 2013 , compared to $5.9 billion at December 31, 2012 as net market appreciation of $1.6 billion was offset by net client outflows of $0.8 billion during the period, due to changes in client investment strategies away from the value equity platform. The value equity strategy has not attracted significant net new assets as investors are seeking greater upside potential in the strong equity markets. MLP AUM increased $1.4 billion to $4.5 billion in 2013 as we experienced both net market appreciation and net client inflows during this period.

For the year ended December 31, 2012, total AUM increased $0.5 billion to $9.1 billion . Value equity AUM was $5.9 billion at December 31, 2012, essentially flat compared to the prior year, as net market appreciation of $0.6 billion was offset by client outflows of $0.5 billion during 2012. In 2012, we experienced the broader market trend of AUM flowing out of equity products into fixed income or alternative assets. MLP AUM increased $0.4 billion to $3.2 billion in 2012 as we experienced net inflows of $0.3 billion and net market appreciation of $0.1 billion .

Discontinued Operations

Discontinued operations include the operating results of our Hong Kong capital markets business, which ceased operations as of Se ptember 30, 2012, and FAMCO, an asset management subsidiary we sold in the second quarter of 2013. The results of these businesses are presented as discontinued operations for all periods presented. For the year ended December 31, 2013 , we recorded a loss from discontinued operations, net of tax, of $4.7 million . The net loss from discontinued operations was $5.8 million in 2012 and $11.2 million in 2011.

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The results of discontinued operations for the Hong Kong capital markets business were as follows:



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011
Net revenues	$	—		$	6,635		$	15,996

Restructuring expenses	—			11,535			—
Other expenses	1,197			16,550			24,983
Total non-interest expenses	1,197			28,085			24,983

Loss from discontinued operations before income tax expense/(benefit)	(1,197		)	(21,450		)	(8,987		)

Income tax expense/(benefit)	(415		)	(21,069		)	1,927

Loss from discontinued operations, net of tax	$	(782	)	$	(381	)	$	(10,914	)

The $1.2 million of other expenses recorded in 2013 consisted of costs to liquidate our Hong Kong subsidiaries.

The $11.5 million of restructuring expenses recorded in 2012 consisted primarily of costs incurred for early termination of leased office space and severance benefits. Additionally, we recorded a $21.1 million U.S. tax benefit related to the realized loss on our Piper Jaffray Asia subsidiaries.

The results of discontinued operations for FAMCO were as follows:



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011
Net revenues	$	1,650		$	5,718		$	6,584

Goodwill impairment	—			5,508			—
Operating expenses	5,057			8,362			7,089
Total non-interest expenses	5,057			13,870			7,089

Loss from discontinued operations before income tax benefit	(3,407		)	(8,152		)	(505		)

Income tax benefit	(1,326		)	(2,726		)	(171		)

Loss from discontinued operations	(2,081		)	(5,426		)	(334		)

Loss on sale, net of tax	(1,876		)	—			—

Loss from discontinued operations, net of tax	$	(3,957	)	$	(5,426	)	$	(334	)

The loss from discontinued operations for the year ended December 31, 2013 primarily related to an indemnification obligation related to the sale of FAMCO.

The $5.5 million non-cash goodwill impairment charge recorded in 2012 represented the full value of goodwill attributable to the FAMCO reporting unit and pertained to goodwill created from our 2007 acquisition of FAMCO.

See Note 5 to our consolidated financial statements for further discussion of our discontinued operations.

Recent Accounting Pronouncements

Recent accounting pronouncements are set forth in Note 3 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, and are incorporated herein by reference.

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Critical Accounting Policies

Our accounting and reporting policies comply with 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 Part II, Item 8 of this Form 10-K. 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 of our investments recorded in other assets on our consolidated statements of financial condition consist of financial instruments recorded at fair value, either as required by accounting guidance or through the fair value election. 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 an orderly transaction between market participants. Based on the nature of our business and our role as a “dealer” in the securities industry or our role as a manager of alternative asset management funds, the fair values of our financial instruments are determined internally. Our processes are designed to ensure that the fair values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, unobservable inputs are developed based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations, and other security-specific information. Valuation adjustments related to illiquidity or counterparty credit risk are also considered. In estimating fair value, we may use information provided by third-party pricing vendors to corroborate internally-developed fair value estimates.

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.

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. In addition, even where we derive the value of a security based on information 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.

Depending upon the product and terms of the transaction, the fair value of our derivative contracts can be observed or priced using models based on the net present value of estimated future cash flows. Our models generally incorporate inputs that we believe are representative of inputs other market participants would use to determine fair value of the same instruments, including contractual terms, yield curves, discount rates and measures of volatility. The valuation models and underlying assumptions are monitored

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over the life of the derivative product. If there are any changes necessary in the underlying inputs, the model is updated for those new inputs.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 820, "Fair Value Measurement," 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. See Note 7 to our consolidated financial statements for additional discussion of our assets and liabilities in the fair value hierarchy.

We employ specific control processes to determine the reasonableness of the fair value of our financial instruments. Our processes are designed to ensure that the internally estimated fair values are accurately recorded and that the data inputs and the valuation techniques used are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. Individuals outside of the trading departments perform independent pricing verification reviews as of each reporting date. We have established parameters which set forth when securities are independently verified. The selection parameters are generally based upon the type of security, the level of estimation risk of a security, the materiality of the security to our financial statements, changes in fair value from period to period, and other specific facts and circumstances of our security portfolio. In evaluating the initial internally-estimated fair values made by our traders, the nature and complexity of securities involved (e.g. term, coupon, collateral, and other key drivers of value), level of market activity for securities, and availability of market data are considered. The independent price verification procedures include, but are not limited to, analysis of trade data (both internal and external where available), corroboration to the valuation of positions with similar characteristics, risks and components, or comparison to an alternative pricing source, such as a discounted cash flow model. We have a valuation committee, comprised of members of senior management and risk management, that provides oversight and overall responsibility for the internal control processes and procedures related to fair value measurements.

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 December 31, 2013 , we had goodwill of $210.6 million . The goodwill balance consists of $13.8 million recorded in 2013 as a result of our acquisitions of Seattle-Northwest and Edgeview within our capital markets segment and the remaining $196.8 million relates to our asset management segment. At December 31, 2013 , we had intangible assets of $39.9 million , which includes $6.7 million of intangible assets acquired in 2013 related to our acquisitions of Seattle-Northwest and Edgeview.

Under FASB Accounting Standards Codification Topic 350, "Intangibles – Goodwill and Other," ("ASC 350") we are required to perform impairment tests of our goodwill and indefinite-life intangible assets annually and on an interim basis when circumstances exist that could indicate possible impairment. We have elected to test for goodwill impairment in the fourth quarter of each calendar year. See Note 14 to our consolidated financial statements for additional information on our goodwill impairment testing.

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. In addition to discounted cash flows, we consider public company comparables and multiples of recent mergers and acquisitions of similar businesses in our subsequent impairment analysis. Valuation multiples may be based on revenues, earnings before interest, taxes, depreciation and amortization (EBITDA), price-to-earnings or cash flows of comparable public companies and business segments. These multiples may be adjusted to consider competitive differences including size, operating leverage and other factors.

We completed our annual goodwill impairment testing as of October 31, 2013 , and concluded there was no goodwill impairment. We performed a qualitative assessment to test the goodwill in our capital markets reporting unit for impairment. The following relevant events and circumstances were evaluated in concluding that it was not more likely than not that this goodwill was impaired:

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macroeconomic conditions, industry and market considerations, overall financial performance and the timing of the Seattle-Northwest and Edgeview acquisitions.

In the first quarter of 2012, we reorganized our FAMCO and ARI reporting units, resulting in FAMCO's MLP business becoming part of ARI. In accordance with ASC 350, $44.6 million of the $50.1 million in goodwill attributable to our 2007 acquisition of FAMCO was reallocated to the ARI reporting unit.

In 2012, our annual goodwill impairment testing resulted in a non-cash goodwill impairment charge of $5.5 million related to our FAMCO reporting unit reported within discontinued operations. The amount represented the full value of goodwill attributable to the FAMCO reporting unit and pertained to goodwill created from our 2007 acquisition of FAMCO.

We also tested the intangible assets (indefinite and definite-lived) and concluded there was no impairment in 2013 .

Compensation Plans

Stock-Based Compensation Plans

As part of our compensation to employees and directors, we use stock-based compensation, consisting of restricted stock, restricted stock units and stock options. We account 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 on the consolidated statements of operations at grant date fair value. Compensation expense related to share-based awards which require future service are amortized over the service period of the award, net of estimated forfeitures. Share-based awards that do not require future service are recognized in the year in which the awards are deemed to be earned.

Deferred Compensation Plan

We established a deferred compensation plan in 2012 which allows eligible employees to elect to receive a portion of the incentive compensation they would otherwise receive in the form of restricted stock, instead in restricted mutual fund shares (“MFRS Awards”) of registered funds managed by our asset management business. We have also granted MFRS Awards to new employees as a recruiting tool.

See Note 24 to our consolidated financial statements for additional information about our stock-based and deferred compensation plans.

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 expected future tax consequences attributable to temporary 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 recognized 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. However, if our projections of future taxable profits do not materialize, we may conclude that a valuation allowance is necessary, which would impact our results of operations in that period. In the fourth quarter of 2013, we reversed the full amount of our U.K. subsidiary's deferred tax asset valuation allowance based upon achieving three years of profitability and projected future earnings. This resulted in a $4.0 million tax benefit to our results of operations.

In connection with the closure of our Hong Kong capital markets business, we realized a $21.1 million U.S. tax benefit due to a realized loss on the investment in our Hong Kong subsidiaries. The tax benefit was the excess of the tax basis of our investment in the subsidiaries over the financial statement carrying amount. We recorded the tax benefit within discontinued operations for the year ended December 31, 2012 .

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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. At December 31, 2013 , the excess tax benefits recorded as additional paid-in capital was not material. In the first quarter of 2014, approximately 102,000 options expired and 469,000 shares vested resulting in $0.1 million of income tax expense in the first quarter of 2014.

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 and, in turn, our results of operations. In 2012, we recorded the reversal of a previously accrued uncertain state income tax position of $7.4 million , net of federal income tax.

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 brokers, dealers and clearing organizations usually settle within a few days. As part of our liquidity strategy, we emphasize diversification of funding sources to the extent possible while considering tenor and cost. Our assets are financed by our cash flows from operations, equity capital, and our funding arrangements. The fluctuations in cash flows from financing activities are directly related to daily operating activities from our various businesses. One of our most important risk management disciplines is our ability to manage the size and composition of our balance sheet. While our asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our balance sheet reflect our overall risk tolerance, our ability to access stable funding sources and the amount of equity capital we hold.

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.

We currently do not pay cash dividends on our common stock.

In the third quarter of 2012, our board of directors approved a new share repurchase authorization of up to $100 million in common shares through September 30, 2014. During 2013 , related to this authorization we repurchased 1,719,662 shares, or 11.3 percent of our outstanding common stock, for an aggregate purchase price of $55.9 million . At December 31, 2013 , we had $39.5 million remaining under this authorization. We also purchase shares of common stock from restricted stock award recipients upon the award vesting as recipients sell shares to meet their employment tax obligations. During 2013 , we purchased 386,713 shares or $15.5 million of our common shares for this purpose.

Cash Flows

Cash and cash equivalents increased $18.3 million to $123.7 million at December 31, 2013 from December 31, 2012. Operating activities provided cash of $46.6 million primarily due to cash received from earnings and the increase in compensation related accruals. These increases were offset in part by cash used to fund reverse repurchase agreements as we increased hedging of our inventories, deployment of capital into other firm investments and an increase in fees receivable. Investing activities in 2013 used

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$30.0 million of cash, the majority of which related to our acquisitions of Seattle-Northwest and Edgeview. Cash of $1.4 million was provided through financing activities as increases in noncontrolling interest were offset by a net decrease in repurchase agreements and short-term financing that are used to fund inventory and $71.5 million of cash used to repurchase common stock.

Cash and cash equivalents increased $20.3 million to $105.4 million at December 31, 2012 from December 31, 2011. Operating activities used $211.8 million of cash due to an increase in operating assets, particularly our net financial instruments and other inventory positions owned. Inventory increased related to the expansion of our fixed income sales and trading efforts to support customer flow and increases related to our strategic trading portfolios. The increase is also attributable to the low level of inventory we maintained at the end of 2011 as we managed risk due to more volatile market conditions at that time. Partially offsetting these increases in operating assets were increases in operating liabilities, particularly related to accrued compensation, payables to brokers, dealers and clearing organizations and other liabilities and accrued expenses. Investing activities in 2012 used $2.1 million of cash for the purchase of fixed assets. Cash of $234.3 million was provided through financing activities; primarily an increase in short-term financing, offset in part by decreases in repurchase agreements. A significant portion of our funding needs are driven by the levels of long inventory positions. As we increased our levels of long inventory in 2012, it led to an increase in funding needs, particularly related to short-term financing. Additionally, we entered into a Note Purchase Agreement under which we issued unsecured variable rate senior notes in late 2012, which provided $125.0 million in financing that was used to repay our bank syndicated credit agreement which had $115.0 million outstanding as of December 31, 2011. Offsetting these increases to financing was $47.2 million used to repurchase common stock.

Cash and cash equivalents increased $34.8 million to $85.0 million at December 31, 2011 from December 31, 2010. Operating activities provided $205.3 million of cash. Late in 2011, to manage risk due to volatile market conditions, we reduced long inventory balances, which increased our cash position. This reduction in long inventory resulted in a decreased receivable related to unsettled inventory trades, which provided additional cash flow. The reduction in long inventory also allowed us to reduce our short inventory hedges, which resulted in a decrease of our securities purchased under agreements to resell, when compared to December 31, 2010. Partially offsetting these increases in cash was a decrease in operating liabilities, particularly related to accrued compensation and other liabilities and accrued expenses. Additionally, included in our net loss of $100.6 million was a non-cash goodwill charge of $120.3 million . Investing activities in 2011 used $7.7 million of cash for the purchase of fixed assets. Cash of $162.7 million was used through financing activities. A significant portion of our funding needs are driven by the levels of long inventory positions. As we lowered our levels of long inventory late in 2011, it led to a reduction in funding needs, particularly related to repurchase agreements.

Leverage

The following table presents total assets, adjusted assets, total shareholders’ equity and tangible shareholders’ equity with the resulting leverage ratios as of:



	December 31,			December 31,
(Dollars in thousands)	2013			2012
Total assets	$	2,318,157		$	2,087,733
Deduct: Goodwill and intangible assets	(250,564		)	(240,480		)
Deduct: Assets from noncontrolling interests	(317,558		)	(120,453		)
Adjusted assets	$	1,750,035		$	1,726,800

Total shareholders' equity	$	882,072		$	790,175
Deduct: Goodwill and intangible assets	(250,564		)	(240,480		)
Deduct: Noncontrolling interests	(147,396		)	(56,883		)
Tangible common shareholders' equity	$	484,112		$	492,812

Leverage ratio (1)	2.6			2.6

Adjusted leverage ratio (2)	3.6			3.5


(1)	Leverage ratio equals total assets divided by total shareholders’ equity.


(2)	Adjusted leverage ratio equals adjusted assets divided by tangible common shareholders’ equity.

Adjusted assets and tangible common shareholders’ equity are non-GAAP financial measures. A non-GAAP financial measure is a numeric measure of financial performance that includes adjustments to the most directly comparable measure calculated and presented in accordance with GAAP, or for which there is no specific GAAP measure. Goodwill and intangible assets are subtracted from total assets and total shareholders’ equity in determining adjusted assets and tangible common shareholders’ equity,

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respectively, as we believe that goodwill and intangible assets do not constitute operating assets which can be deployed in a liquid manner. Amounts attributed to noncontrolling interests are subtracted from total assets and total shareholders' equity in determining adjusted assets and tangible common shareholder's equity, respectively, as they represent assets and equity interests in consolidated entities that are not attributable, either directly or indirectly, to Piper Jaffray Companies. We view the resulting measure of adjusted leverage, also a non-GAAP financial measure, as a more relevant measure of financial risk when comparing financial services companies.

Funding and Capital Resources

The primary goal of our funding activities is to ensure adequate funding over a wide range of market conditions. Given the mix of our business activities, funding requirements are fulfilled through a diversified range of short-term and long-term financing. We attempt to ensure that the tenor of our borrowing liabilities equals or exceeds the expected holding period of the assets being financed. Our ability to support increases in total assets is largely a function of our ability to obtain funding from external sources. Access to these external sources, as well as the cost of that financing, is dependent upon various factors, including market conditions, the general availability of credit and credit ratings. We currently do not have a credit rating, which could adversely affect our liquidity and competitive position by increasing our financing costs and limiting access to sources of liquidity that require a credit rating as a condition to providing the funds.

Short-term financing

Our day-to-day funding and liquidity is obtained primarily through the use of commercial paper issuance, repurchase agreements, prime broker agreements, and bank lines of credit, and is typically collateralized by our securities inventory. These funding sources are critical to our ability to finance and hold inventory, which is a necessary part of our institutional brokerage and municipal bond funds businesses. The majority of our inventory is liquid and is therefore funded by overnight or short-term facilities. These short-term facilities (i.e., committed line and commercial paper) have been established to mitigate changes in the liquidity of our inventory based on changing market conditions. Our funding sources are also dependent on the types of inventory that our counterparties are willing to accept as collateral and the number of counterparties available. From time to time, the number of counterparties that will enter into municipal repurchase agreements can be limited based on market conditions. Currently, the majority of our bank lines, our commercial paper programs and our prime broker arrangement will accept municipal inventory as collateral, which helps mitigate this municipal repurchase agreement counterparty risk. We also have established arrangements to obtain financing by another broker dealer at the end of each business day related specifically to our convertible inventory. Funding is generally obtained at rates based upon the federal funds rate and/or the London Interbank Offer Rate.

Commercial Paper Program – Our U.S. broker dealer subsidiary, Piper Jaffray & Co, issues secured commercial paper to fund a portion of its securities inventory. This commercial paper is issued under three separate programs, CP Series A, CP Series II A and CP Series III A, and is secured by different inventory classes, which is reflected in the interest rate paid on the respective program. The programs can issue with maturities of 27 to 270 days. The following table provides information about our commercial paper programs at December 31, 2013 :



(Dollars in millions)	CP Series A		CP Series II A		CP Series III A
Maximum amount that may be issued	$	300.0	$	150.0	$	100.0
Amount outstanding	146.8		60.9		72.6

Weighted average maturity, in days	132		107		31

Prime Broker Arrangement – We have established an arrangement to obtain overnight financing by a single prime broker related to our alternative asset management funds in municipal securities. Financing under this arrangement is secured by certain securities, primarily municipal securities, and collateral limitations could reduce the amount of funding available under this arrangement. More specifically, this funding is at the discretion of the prime broker and could be denied subject to a notice period. At December 31, 2013 , we had $234.4 million of financing outstanding under this prime broker arrangement.

Committed Lines – Our committed line is a one-year $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 Piper Jaffray & Co., our U.S. broker dealer subsidiary, to maintain a minimum net capital of $120 million , and the unpaid principal amount of all advances under the facility will be due on December 27, 2014 . This credit facility has been in place since 2008 and we renewed the facility for another one-year term in the fourth quarter of 2013. At December 31, 2013 , we had no advances against this line of credit.

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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 $185 million with two 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 an uncommitted unsecured facility with one of these banks. All of these uncommitted lines are discretionary and are not a commitment by the bank to provide an advance under the line. More specifically, these lines are subject to approval by the respective bank each time an advance is requested and advances may be denied, which may be particularly true during times of market stress or market perceptions of our exposures. We manage our relationships with the banks that provide these uncommitted facilities in order to have appropriate levels of funding for our business. At December 31, 2013 , we had no advances against these lines of credit.

The following tables present the average balances outstanding for our various short-term funding sources by quarter for 2013 and 2012 , respectively.



	Average Balance for the Three Months Ended
(Dollars in millions)	Dec. 31, 2013		Sept. 30, 2013		June 30, 2013		Mar. 31, 2013
Funding source:
Repurchase agreements	$	17.2	$	11.2	$	130.3	$	66.2
Commercial paper	313.6		351.6		334.0		308.9
Prime broker arrangement	238.7		145.6		93.5		105.2
Short-term bank loans	1.3		1.8		11.8		5.1
Total	$	570.8	$	510.2	$	569.6	$	485.4



	Average Balance for the Three Months Ended
(Dollars in millions)	Dec. 31, 2012		Sept. 30, 2012		June 30, 2012		Mar. 31, 2012
Funding source:
Repurchase agreements	$	50.0	$	71.0	$	158.5	$	114.3
Commercial paper	307.2		278.5		238.8		201.2
Prime broker arrangement	180.0		154.7		32.1		5.8
Short-term bank loans	0.2		3.5		40.9		9.7
Total	$	537.4	$	507.7	$	470.3	$	331.0

The average funding in the fourth quarter of 2013 increased to $570.8 million , compared with $510.2 million during the third quarter of 2013 , due to an increase in average inventory balances in the fourth quarter of 2013 . The increased inventory balances relate primarily to our municipal alternative asset management fund which attracted additional capital from outside investors during the second half of 2013 .

The following tables present the maximum daily funding amount by quarter for 2013 and 2012 , respectively.



	For the Three Months Ended
(Dollars in millions)	Dec. 31, 2013		Sept. 30, 2013		June 30, 2013		Mar. 31, 2013
Maximum amount of daily funding	$	735.2	$	799.0	$	779.3	$	677.1



	For the Three Months Ended
(Dollars in millions)	Dec. 31, 2012		Sept. 30, 2012		June 30, 2012		Mar. 31, 2012
Maximum amount of daily funding	$	619.4	$	613.8	$	666.1	$	486.0

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Variable rate senior notes

On November 30, 2012 , we entered into a note purchase agreement (“Note Purchase Agreement”) under which we issued unsecured variable rate senior notes (“Notes”) in the amount of $125 million . The initial holders of the Notes are certain entities advised by Pacific Investment Management Company LLC (“PIMCO”). The Notes consist of two classes, Class A Notes and Class B Notes, with principal amounts of $50 million and $75 million , respectively. The unpaid principal amount of the Class A Notes and Class B Notes will be due on May 31, 2014 and November 30, 2015 , respectively. The proceeds from the Notes were used to repay the outstanding balance under the three-year bank syndicated credit agreement (“Credit Agreement”). The remaining proceeds are used for general corporate purposes.

The Note Purchase Agreement includes customary events of default, including failure to pay principal when due or failure to pay interest within five business days of when due, any representation or warranty in the Note Purchase Agreement proving untrue in any material respect when made by us, failure to comply with the covenants in the Note Purchase Agreement, failure to pay or another event of default under other material indebtedness in an amount exceeding $10 million , bankruptcy or insolvency or a change in control. If there is any event of default, the noteholders may exercise customary remedies, including declaring the entire principal and any accrued interest on the Notes to be due and payable.

The Note Purchase Agreement includes covenants that, among other things, require us to maintain a minimum consolidated tangible net worth and minimum regulatory net capital, limit our leverage ratio and require maintenance of a minimum ratio of operating cash flow to fixed charges. With respect to the net capital covenant, our U.S. broker dealer subsidiary is required to maintain minimum net capital of $120 million . At December 31, 2013 , we were in compliance with all covenants.

Three-year bank syndicated credit agreement

On December 29, 2010, we entered into a Credit Agreement comprised of a $100 million amortizing term loan and a $50 million revolving credit facility. The unpaid principal and interest on the Credit Agreement was paid off on November 30, 2012 from the proceeds of the Notes.

Contractual Obligations

In the normal course of business, we enter into various contractual obligations that may require future cash payments. The following table summarizes the contractual amounts at December 31, 2013 , in total and by remaining maturity. Excluded from the table are a number of obligations recorded on the consolidated statements of financial condition that generally are short-term in nature, including secured financing transactions, trading liabilities, short-term borrowings and other payables and accrued liabilities.

On May 30, 2012, we entered into a lease agreement for 124,000 square feet of office space for the Company’s headquarters. The term of the lease commences on June 1, 2014 , and expires on November 30, 2025 , and includes an option to terminate the lease early effective January 31, 2022 . Our contractual rental obligations for the full 11.5 year lease term are $24.5 million .



			2015		2017		2019 and
(Dollars in millions)	2014		- 2016		- 2018		thereafter		Total
Operating lease obligations	$	12.0	$	20.2	$	16.7	$	27.7	$	76.6
Purchase commitments	13.3		14.0		7.8		—		35.1
Investment commitments (a)	—		—		—		—		47.6
Loan commitments (b)	—		—		—		—		—
Variable rate senior notes	50.0		75.0		—		—		125.0


(a)	The investment commitments have no specified call dates; however, the investment period for these funds is through 2018. The timing of capital calls is based on market conditions and investment opportunities. Investment commitments of $36.3 million relate to a commitment to an affiliated merchant banking fund.


(b)	We may commit to merchant banking financing for our clients or make commitments to underwrite debt. We are unable to estimate the timing on the funding of these commitments and have no commitments outstanding at this time.

Purchase commitments include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. Purchase commitments with variable pricing provisions are included in the table based on the minimum contractual amounts. Certain purchase commitments contain termination or renewal provisions. The table reflects the minimum contractual amounts likely to be paid under these agreements assuming the contracts are not terminated.

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The amounts presented in the table above may not necessarily reflect our actual future cash funding requirements, because the actual timing of the future payments made may vary from the stated contractual obligation. In addition, due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits as of December 31, 2013 , we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority. Therefore, $0.2 million of unrecognized tax benefits have been excluded from the contractual obligation table above. See Note 28 to the consolidated financial statements for a discussion of income taxes.

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 rules. 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 December 31, 2013 , our net capital under the SEC’s uniform net capital rule was $165.6 million , and exceeded the minimum net capital required under the SEC rule by $164.6 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 Capital Markets revenue producing activities.

At December 31, 2013 Piper Jaffray Ltd., our broker dealer subsidiary registered in the United Kingdom, was subject to the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority pursuant to the Financial Services Act of 2012.

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 December 31, 2013 and 2012 :



	Expiration Per Period at December 31, 2013												Total Contractual Amount
							2017		2019				December 31,		December 31,
(Dollars in thousands)	2014		2015		2016		- 2018		- 2020		Later		2013		2012
Customer matched-book derivative contracts ^(1) (2)	$	30,000	$	69,332	$	65,237	$	40,950	$	123,926	$	4,981,484	$	5,310,929	$	5,569,096
Trading securities derivative contracts ⁽²⁾	198,500		—		—		—		—		—		198,500		244,250
Credit default swap index contracts ⁽²⁾	—		96,000		—		175,000		—		28,333		299,333		230,650
Equity derivative contracts ⁽²⁾	16,107		713		270		—		—		—		17,090		—
Private equity investment commitments ⁽³⁾	—		—		—		—		—		—		47,576		44,010

(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 is mitigated by collateral deposits. In addition, we have a limited number of counterparties (contractual amount of $200.3 million at December 31, 2013 ) who are not required to post collateral. The uncollateralized amounts, representing the fair value of the derivative contracts, expose us to the credit risk of these counterparties. At December 31, 2013 , we had $22.0 million of credit exposure with these counterparties, including $9.3 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 December 31, 2013 and December 31, 2012 , the net fair value of these derivative contracts approximated $30.4 million and $35.5 million , respectively.


(3)	The investment commitments have no specified call dates; however, the investment period for these funds is through 2018. The timing of capital calls is based on market conditions and investment opportunities.

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Derivatives

Derivatives’ notional or contract amounts are not reflected as assets or liabilities on our consolidated statements of financial condition. Rather, the 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. For a complete discussion of our activities related to derivative products, see Note 6 , “ Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased ,” in the notes to our consolidated financial statements.

Loan Commitments

We may commit to bridge loan financing for our clients or make commitments to underwrite corporate debt. We had no loan commitments outstanding at December 31, 2013 .

Private Equity and Other Principal Investments

A component of our private equity and principal investments, including investments made as part of our merchant banking activities, are made through investments in various legal entities, typically partnerships or limited liability companies, established for the purpose of investing in securities of private companies or municipal debt obligations. We commit capital or act as the managing partner of these entities. Some of these entities are deemed to be variable interest entities. For a complete discussion of our activities related to these types of entities, see Note 8 , “ Variable Interest Entities ,” to our consolidated financial statements.

We have committed capital to certain entities and these commitments generally have no specified call dates. We had $47.6 million of commitments outstanding at December 31, 2013 , of which $36.3 million related to a commitment to an affiliated merchant banking fund.

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, the cornerstone of our risk management process is daily communication among traders, trading department management and senior management concerning our inventory positions, including those associated with our strategic trading activities, 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 objectives 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 fair values of our financial instruments.

In addition to supporting daily risk management processes on the trading desks, our risk management functions support our financial risk committees and valuation committee. The financial risk committees oversee risk management practices, including defining acceptable risk tolerances and approving risk management policies.

Risk management techniques, processes and strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, and any risk management failures could expose us to material unanticipated losses.

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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 strategic trading 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 on our interest-earning assets (including client margin balances, investments, inventories, and resale agreements) and our funding sources (including client cash balances, short-term and bank syndicated financing, and repurchase agreements), which finance these assets. 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, MMD rate lock agreements and forward contracts. These interest rate swap contracts are recorded at fair value with the changes in fair value recognized in earnings. 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.

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. market on both listed and over-the-counter equity markets. Included in equity price risk is our exposure through strategic trading activities in equities, which we initiated in 2013. 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 within those limits.

Currency Risk — Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of financial instruments. A modest 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 (recorded to accumulated other comprehensive income within the shareholders’ equity section of our consolidated statements of financial condition and other comprehensive income within the consolidated statements of comprehensive income).

Value-at-Risk

Value-at-Risk (“VaR”) is the potential loss in value of our trading positions, excluding non-controlling interests, 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, asset-backed securities, and all associated economic hedges. These positions encompass both customer-related and strategic trading activities, which focus on proprietary investments in municipal bonds, mortgage-backed bonds and equity securities. 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 also 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 provide 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.

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The following table quantifies the model-based VaR simulated for each component of market risk for the periods presented, which are 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.



	December 31,			December 31,
(Dollars in thousands)	2013			2012
Interest Rate Risk	$	1,793		$	779
Equity Price Risk	788			911
Diversification Effect (1)	(765		)	(737		)
Total Value-at-Risk	$	1,816		$	953


(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 years ended December 31, 2013 and 2012 , respectively.



(Dollars in thousands)	High		Low		Average
For the Year Ended December 31, 2013
Interest Rate Risk	$	2,840	$	578	$	1,756
Equity Price Risk	2,434		64		1,056
Diversification Effect (1)					(944		)
Total Value-at-Risk	$	2,792	$	865	$	1,868



(Dollars in thousands)	High		Low		Average
For the Year Ended December 31, 2012
Interest Rate Risk	$	1,273	$	369	$	780
Equity Price Risk	2,664		170		995
Diversification Effect (1)					(716		)
Total Value-at-Risk	$	2,451	$	539	$	1,059


(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 exceeded our one-day VaR on one occasion during 2013 .

The aggregate VaR as of December 31, 2013 was higher than the reported VaR on December 31, 2012 . The increase in VaR is due to increased volatility during the measurement period and growth in trading efforts in asset classes that are accretive to overall VaR.

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 a security for substantially longer than we had planned. Our inventory positions, including those associated with strategic trading activities, subject us to potential financial losses from the reduction in value of illiquid positions.

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We are also exposed to liquidity risk in our day-to-day funding activities. We have a relatively low leverage ratio of 2.6 and adjusted leverage ratio of 3.6 as of December 31, 2013 . 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 our committed bank line, repurchase agreements, 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.

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 $3.3 billion of variable rate demand notes, the majority of which have a financial institution providing a liquidity guarantee. 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 gave rise to 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 potential failure of market participants. We manage this risk by imposing and monitoring position limits for each counterparty, monitoring trading counterparties, conducting credit reviews of financial counterparties, and conducting business through clearing organizations, which guarantee performance.

We have concentrated counterparty credit exposure with six non-publicly rated entities totaling $22.0 million at December 31, 2013 . This counterparty credit exposure is part of our matched-book derivative program, consisting primarily of interest rate swaps. One derivative counterparty represents 42.4 percent , or $9.3 million , of this exposure. Credit exposure associated with our derivative counterparties is driven by uncollateralized market movements in the fair value of the interest rate swap contracts and is monitored regularly by our financial risk committee. We attempt to minimize the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically by senior management.

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. is monitored daily. Our risk management functions have credit risk policies establishing appropriate credit limits and collateralization thresholds for our customers utilizing margin lending.

Merchant banking debt investments that have been funded are recorded in other assets at amortized cost on the consolidated statements of financial condition. At December 31, 2013 , we had one funded merchant banking debt investments totaling $11.6 million . Merchant banking investments are monitored regularly by a financial committee.

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 through review of counterparties and borrowers 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. We use credit default swap index contracts to mitigate this risk.

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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, a disruption of our businesses, 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.

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.

Other risks include political, regulatory and tax risks. These risks reflect the potential impact that changes in local and international laws and tax statutes have on the economics and viability of current or future transactions. In an effort to mitigate these risks, we review new and pending regulations and legislation. For example, policy discussions surrounding the debt and deficits of the federal government have resulted in various proposals to increase revenue, including through restructuring of the federal tax code, which could affect our business. Specifically, the American Jobs Act of 2011 and the Debt Reduction Act of 2011 proposed capping tax-exempt interest for higher-income taxpayers, and the Bipartisan Tax Fairness and Simplification Act, introduced in the U.S. Senate earlier in 2011, proposed the use of tax-credit bonds over tax-exempt bonds. Any of these proposals, or ones like them, could have a negative impact on our public finance business and the value of municipal securities inventory positions.

Effects of Inflation

Because our assets are 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information under the caption “Enterprise Risk Management” in Part II, Item 7 entitled, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” is incorporated herein by reference.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION.

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS



Management's Report on Internal Control Over Financial Reporting		57
Report of Independent Registered Public Accounting Firm		58
Report of Independent Registered Public Accounting Firm		59
Consolidated Financial Statements:
Consolidated Statements of Financial Condition		60
Consolidated Statements of Operations		61
Consolidated Statements of Comprehensive Income		63
Consolidated Statements of Changes in Shareholders' Equity		64
Consolidated Statements of Cash Flows		66
Notes to the Consolidated Financial Statements
Note 1	Organization and Basis of Presentation	68
Note 2	Summary of Significant Accounting Policies	69
Note 3	Recent Accounting Pronouncements	74
Note 4	Acquisition s	75
Note 5	Discontinued Operations	77
Note 6	Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased	78
Note 7	Fair Value of Financial Instruments	80
Note 8	Variable Interest Entities	88
Note 9	Receivables from and Payables to Brokers, Dealers and Clearing Organizations	88
Note 10	Receivables from and Payables to Customers	89
Note 11	Collateralized Securities Transactions	89
Note 12	Investments	90
Note 13	Other Assets	91
Note 14	Goodwill and Intangible Assets	91
Note 15	Fixed Assets	92
Note 16	Short-Term Financing	93
Note 17	Variable Rate Senior Notes	93
Note 18	Bank Syndicated Financing	94
Note 19	Contingencies , Commitments and Guarantees	94
Note 20	Restructuring	96
Note 21	Shareholders’ Equity	96
Note 22	Noncontrolling Interests	97
Note 23	Employee Benefit Plans	98
Note 24	Compensation Plans	99
Note 25	Earnings Per Share	104
Note 26	Segment Reporting	105
Note 27	Net Capital Requirements and Other Regulatory Matters	107
Note 28	Income Taxes	108
Note 29	Piper Jaffray Companies (Parent Company only)	110
Supplemental Information		113

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013 . In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (1992 framework). Based on its assessment and those criteria, management has concluded that we maintained effective internal control over financial reporting as of December 31, 2013 .

Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of Piper Jaffray Companies included in this Annual Report on Form 10-K, has issued an attestation report on internal control over financial reporting as of December 31, 2013 . Their report, which expresses an unqualified opinion on the effectiveness of Piper Jaffray Companies’ internal control over financial reporting as of December 31, 2013 , is included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Piper Jaffray Companies

We have audited Piper Jaffray Companies’ (the Company) internal control over financial reporting as of December 31, 2013 , based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Piper Jaffray Companies’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Piper Jaffray Companies maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013 , based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2013 consolidated financial statements of Piper Jaffray Companies and our report dated February 28, 2014 , expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

February 28, 2014

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Piper Jaffray Companies

We have audited the accompanying consolidated statements of financial condition of Piper Jaffray Companies (the Company) as of December 31, 2013 and 2012 , and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013 . These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Piper Jaffray Companies at December 31, 2013 and 2012 , and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013 , in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Piper Jaffray Companies’ internal control over financial reporting as of December 31, 2013 , based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 28, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

February 28, 2014

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Piper Jaffray Companies

Consolidated Statements of Financial Condition



	December 31,			December 31,
	2013			2012
(Amounts in thousands, except share data)
Assets
Cash and cash equivalents	$	123,683		$	105,371
Cash and cash equivalents segregated for regulatory purposes	43,012			31,007
Receivables:
Customers	11,633			13,795
Brokers, dealers and clearing organizations	127,113			148,117
Securities purchased under agreements to resell	167,875			145,433

Financial instruments and other inventory positions owned	406,513			384,789
Financial instruments and other inventory positions owned and pledged as collateral	957,515			826,806
Total financial instruments and other inventory positions owned	1,364,028			1,211,595

Fixed assets (net of accumulated depreciation and amortization of $62,311 and $61,032, respectively)	16,114			15,089
Goodwill	210,634			196,844
Intangible assets (net of accumulated amortization of $31,869 and $23,876, respectively)	39,930			41,258
Investments	112,043			85,772
Other assets	102,092			88,799
Assets held for sale	—			4,653
Total assets	$	2,318,157		$	2,087,733

Liabilities and Shareholders’ Equity
Short-term financing	$	514,711		$	477,014
Variable rate senior notes	125,000			125,000
Payables:
Customers	33,109			42,007
Brokers, dealers and clearing organizations	27,722			60,155
Securities sold under agreements to repurchase	4,397			50,000
Financial instruments and other inventory positions sold, but not yet purchased	512,833			357,201
Accrued compensation	159,928			132,124
Other liabilities and accrued expenses	58,385			53,193
Liabilities held for sale	—			864
Total liabilities	1,436,085			1,297,558

Shareholders’ equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at December 31, 2013 and December 31, 2012;
Shares issued: 19,537,127 at December 31, 2013 and 19,530,359 at December 31, 2012;
Shares outstanding: 14,383,418 at December 31, 2013 and 15,213,796 at December 31, 2012	195			195
Additional paid-in capital	740,321			754,566
Retained earnings	163,893			118,803
Less common stock held in treasury, at cost: 5,153,709 shares at December 31, 2013 and 4,316,563 shares at December 31, 2012	(170,629		)	(140,939		)
Accumulated other comprehensive income	896			667
Total common shareholders’ equity	734,676			733,292

Noncontrolling interests	147,396			56,883
Total shareholders’ equity	882,072			790,175

Total liabilities and shareholders’ equity	$	2,318,157		$	2,087,733

See Notes to the Consolidated Financial Statements

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Piper Jaffray Companies

Consolidated Statements of Operations



	Year Ended December 31,
(Amounts in thousands, except per share data)	2013			2012			2011
Revenues:
Investment banking	$	248,563		$	232,958		$	202,513
Institutional brokerage	146,648			166,642			135,358
Asset management	83,045			65,699			63,307
Interest	50,409			37,845			43,447
Investment income	21,566			4,903			8,178

Total revenues	550,231			508,047			452,803

Interest expense	25,036			19,095			20,720

Net revenues	525,195			488,952			432,083

Non-interest expenses:
Compensation and benefits	322,464			296,882			265,015
Occupancy and equipment	25,493			26,454			28,430
Communications	21,431			20,543			22,121
Floor brokerage and clearance	8,270			8,054			8,925
Marketing and business development	21,603			19,908			22,640
Outside services	32,982			27,998			27,570
Restructuring and integration costs	4,689			3,642			—
Goodwill impairment	—			—			120,298
Intangible asset amortization expense	7,993			6,944			7,256
Other operating expenses	4,657			9,516			10,017

Total non-interest expenses	449,582			419,941			512,272

Income/(loss) from continuing operations before income tax expense	75,613			69,011			(80,189		)

Income tax expense	20,390			19,470			9,120

Income/(loss) from continuing operations	55,223			49,541			(89,309		)

Discontinued operations:
Loss from discontinued operations, net of tax	(4,739		)	(5,807		)	(11,248		)

Net income/(loss)	50,484			43,734			(100,557		)

Net income applicable to noncontrolling interests	5,394			2,466			1,463

Net income/(loss) applicable to Piper Jaffray Companies	$	45,090		$	41,268		$	(102,020	)

Net income/(loss) applicable to Piper Jaffray Companies’ common shareholders	$	40,596		$	35,335		$	(102,020	)	⁽¹⁾

Continued on next page

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Piper Jaffray Companies

Consolidated Statements of Operations – Continued



	Year Ended December 31,
(Amounts in thousands, except per share data)	2013			2012			2011
Amounts applicable to Piper Jaffray Companies
Net income/(loss) from continuing operations	$	49,829		$	47,075		$	(90,772	)
Net loss from discontinued operations	(4,739		)	(5,807		)	(11,248		)
Net income/(loss) applicable to Piper Jaffray Companies	$	45,090		$	41,268		$	(102,020	)

Earnings/(loss) per basic common share
Income/(loss) from continuing operations	$	2.98		$	2.58		$	(5.79	)
Loss from discontinued operations	(0.28		)	(0.32		)	(0.72		)
Earnings/(loss) per basic common share	$	2.70		$	2.26		$	(6.51	)

Earnings/(loss) per diluted common share
Income/(loss) from continuing operations	$	2.98		$	2.58		$	(5.79	)
Loss from discontinued operations	(0.28		)	(0.32		)	(0.72		)
Earnings/(loss) per diluted common share	$	2.70		$	2.26		$	(6.51	)	⁽²⁾

Weighted average number of common shares outstanding
Basic	15,046			15,615			15,672
Diluted	15,061			15,616			15,672			⁽²⁾


(1)	No allocation of income was made due to loss position.


(2)	Earnings per diluted common share is calculated using the basic weighted average number of common shares outstanding for periods in which a loss is incurred.

See Notes to the Consolidated Financial Statements

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Piper Jaffray Companies

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
(Amounts in thousands)	2013			2012		2011
Net income/(loss)	$	50,484		$	43,734	$	(100,557	)

Other comprehensive income/(loss), net of tax:
Adjustment to unrecognized pension cost	(38		)	—		—
Foreign currency translation adjustment	267			62		(122		)

Total other comprehensive income/(loss), net of tax	229			62		(122		)

Comprehensive income/(loss)	50,713			43,796		(100,679		)

Comprehensive income applicable to noncontrolling interests	5,394			2,466		1,463

Comprehensive income/(loss) applicable to Piper Jaffray Companies	$	45,319		$	41,330	$	(102,142	)

See Notes to the Consolidated Financial Statements

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Piper Jaffray Companies

Consolidated Statements of Changes in Shareholders' Equity



														Accumulated			Total
	Common				Additional									Other			Common					Total
(Amounts in thousands,	Shares		Common		Paid-In			Retained			Treasury			Comprehensive			Shareholders'			Noncontrolling		Shareholders'
except share amounts)	Outstanding		Stock		Capital			Earnings			Stock			Income/(Loss)			Equity			Interests		Equity

Balance at December 31, 2010	14,652,665		$	195	$	836,152		$	179,555		$	(203,317	)	$	727		$	813,312		$	4,789	$	818,101

Net income/(loss)	—		—		—			(102,020		)	—			—			(102,020		)	1,463		(100,557		)
Amortization/issuance of restricted stock	—		—		29,459			—			—			—			29,459			—		29,459
Repurchase of common stock through share repurchase program	(293,829	)	—		—			—			(5,994		)	—			(5,994		)	—		(5,994		)
Issuance of treasury shares for restricted stock vestings and options exercised	1,796,239		—		(74,920		)	—			74,960			—			40			—		40
Repurchase of common stock for employee tax withholding	(509,671	)	—		—			—			(20,535		)	—			(20,535		)	—		(20,535		)
Issuance of treasury shares for 401k match	90,085		—		38			—			3,776			—			3,814			—		3,814
Shares reserved to meet deferred compensation obligations	14,699		—		437			—			—			—			437			—		437
Other comprehensive loss	—		—		—			—			—			(122		)	(122		)	—		(122		)
Fund capital contributions, net	—		—		—			—			—			—			—			25,957		25,957
Balance at December 31, 2011	15,750,188		$	195	$	791,166		$	77,535		$	(151,110	)	$	605		$	718,391		$	32,209	$	750,600

Net income	—		—		—			41,268			—			—			41,268			2,466		43,734
Amortization/issuance of restricted stock	—		—		16,681			—			—			—			16,681			—		16,681
Repurchase of common stock through share repurchase program	(1,645,458	)	—		—			—			(38,068		)	—			(38,068		)	—		(38,068		)
Issuance of treasury shares for restricted stock vestings	1,323,427		—		(50,776		)	—			50,776			—			—			—		—
Repurchase of common stock for employee tax withholding	(385,449	)	—		—			—			(9,096		)	—			(9,096		)	—		(9,096		)
Issuance of treasury shares for 401k match	165,241		—		(2,745		)	—			6,559			—			3,814			—		3,814
Shares reserved to meet deferred compensation obligations	5,847		—		240			—			—			—			240			—		240
Other comprehensive income	—		—		—			—			—			62			62			—		62
Fund capital contributions, net	—		—		—			—			—			—			—			22,208		22,208
Balance at December 31, 2012	15,213,796		$	195	$	754,566		$	118,803		$	(140,939	)	$	667		$	733,292		$	56,883	$	790,175

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Consolidated Statements of Changes in Shareholders' Equity – Continued



													Accumulated		Total
	Common				Additional								Other		Common					Total
(Amounts in thousands,	Shares		Common		Paid-In			Retained		Treasury			Comprehensive		Shareholders'			Noncontrolling		Shareholders'
except share amounts)	Outstanding		Stock		Capital			Earnings		Stock			Income/(Loss)		Equity			Interests		Equity
Net income	—		$	—	$	—		$	45,090	$	—		$	—	$	45,090		$	5,394	$	50,484
Amortization/issuance of restricted stock	—		—		23,528			—		—			—		23,528			—		23,528
Repurchase of common stock through share repurchase program	(1,719,662	)	—		—			—		(55,929		)	—		(55,929		)	—		(55,929		)
Issuance of treasury shares for restricted stock vestings	1,173,180		—		(38,636		)	—		38,636			—		—			—		—
Repurchase of common stock for employee tax withholding	(386,713	)	—		—			—		(15,533		)	—		(15,533		)	—		(15,533		)
Issuance of treasury shares for 401k match	96,049		—		803			—		3,136			—		3,939			—		3,939
Shares reserved to meet deferred compensation obligations	6,768		—		60			—		—			—		60			—		60
Other comprehensive income	—		—		—			—		—			229		229			—		229
Fund capital contributions, net	—		—		—			—		—			—		—			85,119		85,119
Balance at December 31, 2013	14,383,418		$	195	$	740,321		$	163,893	$	(170,629	)	$	896	$	734,676		$	147,396	$	882,072

See Notes to the Consolidated Financial Statements

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Consolidated Statements of Cash Flows



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011
Operating Activities:
Net income/(loss)	$	50,484		$	43,734		$	(100,557	)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization of fixed assets	5,714			7,005			7,338
Deferred income taxes	(2,630		)	11,458			17,100
Loss on sale of FAMCO	1,876			—			—
Loss on disposal of fixed assets	—			1,624			—
Share-based and deferred compensation	21,598			20,641			22,803
Goodwill impairment	—			5,508			120,298
Amortization of intangible assets	7,993			7,669			8,276
Amortization of forgivable loans	6,300			8,057			8,365
Decrease/(increase) in operating assets:
Cash and cash equivalents segregated for regulatory purposes	(12,005		)	(5,999		)	1,998
Receivables:
Customers	2,162			10,395			18,706
Brokers, dealers and clearing organizations	21,004			(23,452		)	66,655
Securities purchased under agreements to resell	(22,442		)	14,713			98,851
Net financial instruments and other inventory positions owned	4,685			(360,317		)	14,326
Investments	(26,271		)	(17,444		)	(8,239		)
Other assets	(3,867		)	(15,362		)	6,779
Increase/(decrease) in operating liabilities:
Payables:
Customers	(8,898		)	12,592			(22,826		)
Brokers, dealers and clearing organizations	(33,559		)	24,720			19,466
Securities sold under agreements to repurchase	4,397			—			(8,581		)
Accrued compensation	32,233			23,424			(27,225		)
Other liabilities and accrued expenses	(2,354		)	18,945			(38,685		)
Decrease in assets held for sale	605			435			438
Increase/(decrease) in liabilities held for sale	(465		)	(128		)	47

Net cash provided by/(used in) operating activities	46,560			(211,782		)	205,333

Investing Activities:
Business acquisitions, net of cash acquired	(24,726		)	—			(56		)
Sale of FAMCO	250			—			—
Purchases of fixed assets, net	(5,476		)	(2,131		)	(7,648		)

Net cash used in investing activities	(29,952		)	(2,131		)	(7,704		)

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Consolidated Statements of Cash Flows – Continued



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011

Financing Activities:
Increase/(decrease) in short-term financing	$	37,697		$	308,313		$	(29,940	)
Issuance/(repayment) of variable rate senior notes	—			125,000			—
Decrease in bank syndicated financing	—			(115,000		)	(10,000		)
Decrease in securities sold under agreements to repurchase	(50,000		)	(59,080		)	(122,219		)
Increase in noncontrolling interests	85,119			22,208			25,957
Repurchase of common stock	(71,462		)	(47,164		)	(26,529		)
Excess tax benefit from share-based compensation	47			—			—
Proceeds from stock option transactions	—			—			40

Net cash provided by/(used in) financing activities	1,401			234,277			(162,691		)

Currency adjustment:
Effect of exchange rate changes on cash	303			(17		)	(130		)

Net increase in cash and cash equivalents	18,312			20,347			34,808

Cash and cash equivalents at beginning of year	105,371			85,024			50,216

Cash and cash equivalents at end of year	$	123,683		$	105,371		$	85,024

Supplemental disclosure of cash flow information –
Cash paid/(received) during the year for:
Interest	$	23,487		$	22,129		$	25,700
Income taxes	$	745		$	(4,961	)	$	14,982

Non-cash financing activities –
Issuance of common stock for retirement plan obligations:
96,049 shares, 165,241 shares and 90,085 shares for the years ended December 31, 2013, 2012 and 2011, respectively	$	3,939		$	3,814		$	3,814

Issuance of restricted common stock for annual equity award:
431,582 shares, 487,181 shares and 592,697 shares for the years ended December 31, 2013, 2012 and 2011, respectively	$	17,699		$	11,244		$	25,095

See Notes to the Consolidated Financial Statements

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements

Note 1 Organization and Basis of Presentation

Organization

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 mergers and acquisitions services in Europe headquartered in London, England; Advisory Research, Inc. (“ARI”), which provides asset management services to separately managed accounts, closed-end and open-end funds and partnerships; Piper Jaffray Investment Group Inc., which consists of entities providing alternative asset management services; 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”) operate in two reporting segments: Capital Markets and Asset Management. A summary of the activities of each of the Company’s business segments is as follows:

Capital Markets

The Capital Markets segment provides institutional sales, trading and research services and investment banking services. Institutional sales, trading and research services focus on the trading of equity and fixed income products with institutions, government and non-profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales activities, net interest revenues on trading securities held in inventory, and profits and losses from trading these securities. Investment banking services include management of and participation in underwritings, merger and acquisition services and public finance activities. Revenues are generated through the receipt of advisory and financing fees. Also, the Company generates revenue through strategic trading activities, which focus on proprietary investments in municipal bonds, mortgage-backed securities, equity securities and merchant banking activities, which involve equity or debt investments in late stage private companies. As certain of these efforts have matured and an investment process has been developed, the Company has created alternative asset management funds in merchant banking and municipal securities in order to invest firm capital as well as to seek capital from outside investors. The Company receives management and performance fees for managing these funds.

As discussed in Note 5 , the Company discontinued its Hong Kong capital markets business in 2012.

Asset Management

The Asset Management segment provides traditional asset management services with product offerings in equity securities and master limited partnerships to institutions and individuals. Revenues are generated in the form of management and performance fees. Revenues are also generated through investments in the partnerships and funds that the Company manages.

As discussed in Note 5 , Fiduciary Asset Management, LLC (“FAMCO”) was sold on April 30, 2013.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries, and all other entities in which the Company has a controlling financial interest. Noncontrolling interests represent equity interests in consolidated entities that are not attributable, either directly or indirectly, to Piper Jaffray Companies. Noncontrolling interests include the minority equity holders’ proportionate share of the equity in a municipal bond fund, merchant banking fund and private equity investment vehicles. All material intercompany balances have been eliminated.

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates and assumptions are based on the best information available, actual results could differ from those estimates.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

Reclassifications

In 2013, the Company reclassified interest revenue and expense associated with its derivative contracts to investment banking or institutional brokerage revenues within the consolidated statements of operations to more accurately reflect the nature and intent of the derivative instrument. The Company reclassified $11.0 million and $12.0 million of interest revenue and $10.2 million and $10.9 million of interest expense for the years ended December 31, 2012 and 2011, respectively. This change had no effect on net revenues, net income, shareholders’ equity or cash flows for any of the periods presented.

In 2012, the Company reclassified the value of restricted stock forfeitures from other income to a reduction of compensation and benefits expense within the consolidated statements of operations to be consistent with the reporting of forfeitures for the Piper Jaffray Companies Mutual Fund Restricted Share Investment Plan and to more accurately reflect compensation expense. The reclassified amount within continuing operations was $3.3 million for the year ended December 31, 2011. This change had no effect on shareholders’ equity, net income or cash flows for the period presented.

Note 2 Summary of Significant Accounting Policies

Principles of Consolidation

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 the Company has 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 interests.

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, “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.” 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 fair value, if the fair value option was elected, or at cost.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with maturities of 90 days or less at the date of origination.

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Notes to the Consolidated Financial Statements – Continued

In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Piper Jaffray, as a registered broker dealer carrying customer accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its customers.

Customer Transactions

Customer securities transactions are recorded on a settlement date basis, while the related revenues and expenses are recorded on a trade date basis. Customer receivables and payables include amounts related to both cash and margin transactions. Securities owned by customers, including those that collateralize margin or other similar transactions, are not reflected on the consolidated statements of financial condition.

Receivables from and Payables to Brokers, Dealers and Clearing Organizations

Receivables from brokers, dealers and clearing organizations include receivables arising from unsettled securities transactions, deposits paid for securities borrowed, receivables from clearing organizations, deposits with clearing organizations and amounts receivable for securities not delivered to the purchaser by the settlement date (“securities failed to deliver”). Payables to brokers, dealers and clearing organizations include payables arising from unsettled securities transactions, payables to clearing organizations and amounts payable for securities not received from a seller by the settlement date (“securities failed to receive”). Unsettled securities transactions related to the Company's broker dealer operations are recorded at contract value on a net basis. Unsettled securities transactions related to the Company's consolidated investment company operations are recorded on a gross basis.

Collateralized Securities Transactions

Securities purchased under agreements to resell and securities sold under agreements to repurchase are carried at the contractual amounts at which the securities will be subsequently resold or repurchased, including accrued interest. It is the Company’s policy to take possession or control of securities purchased under agreements to resell at the time these agreements are entered into. The counterparties to these agreements typically are primary dealers of U.S. government securities and major financial institutions. Collateral is valued daily, and additional collateral is obtained from or refunded to counterparties when appropriate.

Securities borrowed and loaned result from transactions with other broker dealers or financial institutions and are recorded at the amount of cash collateral advanced or received. These amounts are included in receivables from and payables to brokers, dealers and clearing organizations on the consolidated statements of financial condition. Securities borrowed transactions require the Company to deposit cash or other collateral with the lender. Securities loaned transactions require the borrower to deposit cash with the Company. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary.

Interest is accrued on securities borrowed and loaned transactions and is included in (i) other assets or other liabilities and accrued expenses on the consolidated statements of financial condition and (ii) the respective interest income or interest expense amounts on the consolidated statements of operations.

Fair Value of Financial Instruments

Financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased on the 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 the consolidated statements of operations. Securities (both long and short) are recognized on a trade-date basis. Additionally, certain of the Company’s investments on the consolidated statements of financial condition are recorded at fair value, either as required by accounting guidance or through the fair value election.

Fair Value Hierarchy – FASB Accounting Standards Codification Topic 820, “Fair Value Measurement,” (“ASC 820”) provides a definition of fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect management’s assumptions that market participants would use in pricing the

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:

Level I – Quoted prices (unadjusted) are available in active markets for identical assets or liabilities as of the report date. A quoted price for an identical asset or liability in an active market provides the most reliable fair value measurement because it is directly observable to the market. The type of financial instruments included in Level I are highly liquid instruments with quoted prices such as equities listed in active markets, U.S. treasury bonds, money market securities and certain exchange traded firm investments and derivative instruments.

Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the report date. The nature of these financial instruments include instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Instruments which are generally included in this category are certain types of the following securities: non-exchange traded equities, U.S. government agency securities, corporate bonds, municipal securities, asset-backed securities, convertible securities and derivative instruments.

Level III – Instruments that have little to no pricing observability as of the report date. These financial instruments may not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Instruments included in this category generally include certain types of the following securities: asset-backed securities, municipal securities, firm investments, convertible securities, corporate bonds and derivative instruments.

Valuation of Financial Instruments – The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants at the measurement date (the exit price). Based on the nature of the Company’s business and its role as a “dealer” in the securities industry or its role as a manager of alternative asset management funds, the fair values of its financial instruments are determined internally. When available, the Company values financial instruments at observable market prices, observable market parameters, or broker or dealer prices (bid and ask prices). 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.

A substantial percentage of the fair value of the Company’s 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 involve some degree of judgment. Results from valuation models and other techniques in one period may not be indicative of future period fair value measurement.

For investments in illiquid or privately held securities that do not have readily determinable fair values, the determination of fair value requires the Company to estimate the value of the securities using the best information available. Among the factors considered by the Company 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. In addition, even where the Company derives the value of a security based on information from an independent source, certain assumptions may be required to determine the security’s fair value. For instance, the Company assumes that the size of positions in securities that the Company holds would not be large enough to affect the quoted price of the securities if the firm sells them, and that any such sale would happen in an orderly manner. The actual value realized upon disposition could be different from the currently estimated fair value.

The fair values related to derivative contract transactions are reported in financial instruments and other inventory positions owned and financial instruments and other inventory positions 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 reported on the consolidated

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Notes to the Consolidated Financial Statements – Continued

statements of operations. Depending upon the product and terms of the transaction, the fair value of the Company’s derivative contracts can be observed or priced using models based on the net present value of estimated future cash flows. The valuation models used require inputs including contractual terms, yield curves, discount rates and measures of volatility. The Company does not utilize “hedge accounting” as described within FASB Accounting Standards Codification Topic 815, “Derivatives and Hedging” (“ASC 815”).

Fixed Assets

Fixed assets include furniture and equipment, software and leasehold improvements. Furniture and equipment and software are depreciated using the straight-line method over estimated useful lives of three to ten years. Leasehold improvements are amortized over their estimated useful life or the life of the lease, whichever is shorter. The Company capitalizes certain costs incurred in connection with internal use software projects and amortizes the amount over the expected useful life of the asset, generally three to seven years.

Leases

The Company leases its corporate headquarters and other offices under various non-cancelable leases. The leases require payment of real estate taxes, insurance and common area maintenance, in addition to rent. The terms of the Company’s lease agreements generally range up to twelve years. Some of the leases contain renewal options, escalation clauses, rent-free holidays and operating cost adjustments.

For leases that contain escalation clauses or rent-free holidays, the Company recognizes the related rent expense on a straight-line basis from the date the Company takes possession of the property to the end of the initial lease term. The Company records any difference between the straight-line rent amounts and amounts payable under the leases as part of other liabilities and accrued expenses.

Cash or lease incentives received upon entering into certain leases are recognized on a straight-line basis as a reduction of rent expense from the date the Company takes possession of the property or receives the cash to the end of the initial lease term. The Company records the unamortized portion of lease incentives as part of other liabilities and accrued expenses.

Goodwill and Intangible Assets

Goodwill represents the fair value of the consideration transferred in excess of the fair value of identifiable net assets at the acquisition date. The recoverability of goodwill is evaluated annually, at a minimum, or on an interim basis if circumstances indicate a possible inability to realize the carrying amount. The Company has the option to first assess qualitative factors to determine whether the fair value of a reporting unit is less than its carrying amount. Further quantitative analysis is required if the Company determines that the fair value of a reporting unit is less than its carrying amount. The evaluation includes assessing the estimated fair value of the Company’s reporting units based on a discounted cash flow model using revenue and profit forecasts, the Company’s market capitalization, public market comparables and multiples of recent mergers and acquisitions of similar businesses, if available.

Intangible assets with determinable lives consist of asset management contractual relationships and capital markets customer relationships and non-competition agreements that are amortized over their estimated useful lives ranging from two to ten years. Indefinite-life intangible assets consist of the ARI trade name. It is not amortized and is evaluated annually, at a minimum, or on an interim basis if events or circumstances indicate a possible inability to realize the carrying amount.

Investments

The Company’s proprietary investments include investments in private companies and partnerships, registered mutual funds, warrants of public and private companies and private company debt. Equity investments in private companies are accounted for at fair value, if the fair value option was elected, or at cost. Investments in partnerships are accounted for under the equity method, which is generally the net asset value. Registered mutual funds are accounted for at fair value. Company-owned warrants with a cashless exercise option are valued at fair value, while warrants without a cashless exercise option are valued at cost. Private company debt investments are recorded at amortized cost, net of any unamortized premium or discount.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

Other Assets

Other assets include net deferred income tax assets, receivables and prepaid expenses. Receivables include fee receivables, accrued interest, income tax receivables and loans made to employees, typically in connection with their recruitment. Employee loans are forgiven based on continued employment and are amortized to compensation and benefits expense using the straight-line method over the respective terms of the loans, which generally range from two to five years.

Revenue Recognition

Investment Banking – Investment banking revenues, which include underwriting fees, management fees and advisory fees, are recorded when services for the transactions are completed under the terms of each engagement. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded. Investment banking revenues are presented net of related unreimbursed expenses. Expenses related to investment banking deals not completed are recognized as non-interest expenses on the consolidated statements of operations.

Institutional Brokerage – Institutional brokerage revenues include (i) commissions received from customers for the execution of brokerage transactions in listed and over-the-counter (OTC) equity, fixed income and convertible debt securities, which are recorded on a trade date basis, (ii) trading gains and losses and (iii) fees received by the Company for equity research. The Company permits institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. As the Company is not the primary obligor for these arrangements, expenses relating to soft dollars are netted against commission revenues.

Asset Management – Asset management fees include revenues the Company receives in connection with management and investment advisory services performed for separately managed accounts and various funds and partnerships. These fees are recognized in the period in which services are provided. Fees are defined in client contracts as either fixed or based on a percentage of portfolio assets under management and may include performance fees. Performance fees are earned when the investment return on assets under management exceeds certain benchmark targets or other performance targets over a specified measurement period (monthly, quarterly or annually). Performance fees, if earned, are generally recognized at the end of the specified measurement period, typically the fourth quarter of the applicable year, or upon client liquidation. Performance fees are recognized as of each reporting date for certain consolidated entities.

Interest Revenue and Expense – The Company nets interest expense within net revenues to mitigate the effects of fluctuations in interest rates on the Company’s consolidated statements of operations. The Company recognizes contractual interest on financial instruments owned and financial instruments sold, but not yet purchased (excluding derivative instruments), on an accrual basis as a component of interest revenue and expense. The Company accounts for interest related to its short-term and bank syndicated financings and its variable rate senior notes on an accrual basis with related interest recorded as interest expense. In addition, the Company recognizes interest revenue related to its securities borrowed and securities purchased under agreements to resell activities and interest expense related to its securities loaned and securities sold under agreements to repurchase activities on an accrual basis.

Investment Income – Investment income includes realized and unrealized gains and losses from the Company's merchant banking and other firm investments.

Stock-based Compensation

FASB Accounting Standards Codification Topic 718, “Compensation — Stock Compensation,” (“ASC 718”) requires all stock-based compensation to be expensed on the consolidated statements of operations based on the grant date fair value of the award. Compensation expense related to share-based awards that do not require future service are recognized in the year in which the awards were deemed to be earned. Share-based awards that require future service are amortized over the relevant service period net of estimated forfeitures.

Income Taxes

The Company files a consolidated U.S. federal income tax return, which includes all of its qualifying subsidiaries. The Company is also subject to income tax in various states and municipalities and those foreign jurisdictions in which we operate. Income taxes are provided for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax

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Notes to the Consolidated Financial Statements – Continued

consequences attributable to temporary differences between amounts reported for income tax purposes and financial statement purposes, 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 realization of deferred tax assets is assessed and a valuation allowance is recognized to the extent that it is more likely than not that any portion of a deferred tax asset will not be realized. Tax reserves for uncertain tax positions are recorded in accordance with FASB Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”).

Earnings Per Share

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. 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.

Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the earnings allocation in the earnings per share calculation under the two-class method. The Company grants restricted stock and restricted stock units as part of its share-based compensation program. Recipients of restricted stock are entitled to receive nonforfeitable dividends during the vesting period, and therefore meet the definition of a participating security. The Company's unvested restricted stock units are not participating securities as recipients are not eligible to receive nonforfeitable dividends.

Foreign Currency Translation

The Company consolidates foreign subsidiaries which have designated their local currency as their functional currency. Assets and liabilities of these foreign subsidiaries are translated at year-end rates of exchange. In accordance with FASB Accounting Standards Codification Topic 830, “Foreign Currency Matters,” gains or losses resulting from translating foreign currency financial statements are included in other comprehensive income. Gains or losses resulting from foreign currency transactions are included in net income.

Contingencies

The Company is involved in various pending and potential legal proceedings related to its business, including litigation, arbitration and regulatory proceedings. The Company establishes reserves for potential 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 the outcome and reserve amounts requires significant judgment on the part of management.

Note 3 Recent Accounting Pronouncements

Adoption of New Accounting Standards

Disclosures about Offsetting Assets and Liabilities

In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities,” (“ASU 2011-11”) amending FASB Accounting Standards Codification Topic 210, “Balance Sheet.” The amended guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. In January 2013, the FASB issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” (“ASU 2013-01”) to limit the scope of ASU 2011-11 to derivatives, repurchase agreements, and securities lending arrangements. ASU 2011-11 and ASU 2013-01 were effective for the Company as of January 1, 2013. The adoption of ASU 2011-11 and ASU 2013-01 did not impact the Company’s results of operations or financial position, but did impact the Company’s disclosures about the offsetting of certain assets and liabilities, and related arrangements.

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Indefinite-Lived Intangible Assets

In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” (“ASU 2012-02”) amending FASB Accounting Standards Codification Topic 350, “Intangibles - Goodwill and Other.” The amended guidance permits companies to first assess qualitative factors in determining whether the fair value of an indefinite-lived intangible asset is less than its carrying amount. ASU 2012-02 was effective for annual and interim indefinite-lived intangible asset impairment tests performed by the Company for the fiscal year beginning as of January 1, 2013. The adoption of ASU 2012-02 did not impact the Company's results of operations or financial position.

Future Adoption of New Accounting Standards

Investment Companies

In June 2013, the FASB issued ASU No. 2013-08, “Financial Services - Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements,” (“ASU 2013-08”) amending FASB Accounting Standards Codification Topic 946, “Financial Services - Investment Companies” (“ASC 946”). The amended guidance changes the approach to the investment company assessment in ASC 946, clarifies the characteristics of an investment company and requires new disclosures for investment company financial statements. ASU 2013-08 is effective for interim and annual periods beginning after December 15, 2013. The adoption of ASU 2013-08 is not expected to have an impact on the Company's results of operations, financial position or disclosures.

Note 4 Acquisitions

On July 12, 2013 , the Company completed the purchase of Seattle-Northwest Securities Corporation ("Seattle-Northwest"), a Seattle-based investment bank and broker dealer focused on public finance in the Northwest region of the U.S. The purchase was completed pursuant to the Agreement and Plan of Merger dated April 16, 2013 . The acquisition of Seattle-Northwest supports the Company's strategy to grow its public finance business.

On July 16, 2013 , the Company completed the purchase of Edgeview Partners, L.P. ("Edgeview"), a middle-market advisory firm specializing in mergers and acquisitions. The purchase was completed pursuant to the Unit Purchase Agreement dated June 17, 2013 . The acquisition of Edgeview further strengthens the Company's mergers and acquisitions position in the middle market and adds resources dedicated to the private equity community.

The Company paid $32.7 million in cash for Seattle-Northwest and Edgeview, which represented the fair values as of the respective acquisition dates. The Company also entered into acquisition-related compensation arrangements of $14.3 million which consisted of cash, restricted stock and restricted mutual fund shares ("MFRS Awards") of registered funds managed by the Company's asset management business. Compensation expense related to these arrangements will be amortized on a straight-line basis over the requisite service period of two to five years (a weighted average service period of 4.3 years ).

These acquisitions were accounted for pursuant to FASB Accounting Standards Codification Topic 805, "Business Combinations." Accordingly, the purchase price of each acquisition was allocated to the acquired assets and liabilities assumed based on their estimated fair values as of the respective acquisition dates. The excess of the purchase price over the net assets acquired was allocated between goodwill and intangible assets within the Capital Markets segment. The Company recorded $13.8 million of goodwill on the consolidated statements of financial condition, of which $9.1 million is expected to be deductible for income tax purposes. In management's opinion, the goodwill represents the reputation and expertise of Seattle-Northwest and Edgeview in their respective business lines.

Identifiable intangible assets purchased by the Company consisted of customer relationships and non-competition agreements with acquisition-date fair values estimated to be $6.0 million and $0.7 million , respectively. Transaction costs of $1.1 million were incurred for the year ended December 31, 2013 , and are included in restructuring and integration costs within continuing operations on the consolidated statements of operations.

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Notes to the Consolidated Financial Statements – Continued

In the fourth quarter of 2013, the Company recorded measurement period adjustments to reflect the final fair values of intangible assets and acquired leases. The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the respective dates of acquisition:



(Dollars in thousands)
Assets
Cash and cash equivalents	$	8,014
Financial instruments and other inventory positions owned	24,074
Fixed assets	1,247
Goodwill	13,790
Intangible assets	6,665
Other assets	8,922
Total assets acquired	62,712

Liabilities
Payables	1,126
Financial instruments and other inventory positions sold, but not yet purchased	22,588
Accrued compensation	1,469
Other liabilities and accrued expenses	4,789
Total liabilities assumed	29,972

Net assets acquired	$	32,740

Seattle-Northwest and Edgeview results of operations have been included in the Company's consolidated financial statements prospectively from their respective dates of acquisition. These acquisitions have been fully integrated with the Company's existing operations. Accordingly, post-acquisition revenues and net income are not discernible. The following unaudited pro forma financial data assumes the acquisitions had occurred at the beginning of the comparable prior periods presented. Pro forma results have been prepared by adjusting the Company's historical results from continuing operations to include Seattle-Northwest and Edgeview results of operations adjusted for the following changes: depreciation and amortization expenses were adjusted to account for acquisition-date fair value adjustments of fixed assets and intangible assets; compensation and benefits expenses were adjusted to reflect excess partner distributions as compensation expense; and the income tax effect of applying the Company's statutory tax rates to Seattle-Northwest and Edgeview results of operations. The consolidated Company's unaudited pro forma information presented does not necessarily reflect the results of operations that would have resulted had the acquisitions been completed at the beginning of the applicable periods presented, does not contemplate anticipated operational efficiencies of the combined entities, nor does it indicate the results of operations in future periods.



	Year Ended December 31,
(Dollars in thousands)	2013		2012		2011
Net revenues	$	541,304	$	535,694	$	458,831
Net income/(loss) from continuing operations applicable to Piper Jaffray Companies	$	48,568	$	50,413	$	(90,810	)

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Notes to the Consolidated Financial Statements – Continued

Note 5 Discontinued Operations

The Company's Hong Kong capital markets business ceased operations as of September 30, 2012. In accordance with the provisions of FASB Accounting Standards Codification Topic 205-20, “Discontinued Operations,” the results from this business, previously reported in the Capital Markets segment, have been classified as discontinued operations for all periods presented.

The components of discontinued operations for the Hong Kong capital markets business are as follows:



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011
Net revenues	$	—		$	6,635		$	15,996

Restructuring expenses	—			11,535			—
Other expenses	1,197			16,550			24,983
Total non-interest expenses	1,197			28,085			24,983

Loss from discontinued operations before income tax expense/(benefit)	(1,197		)	(21,450		)	(8,987		)

Income tax expense/(benefit)	(415		)	(21,069		)	1,927

Loss from discontinued operations, net of tax	$	(782	)	$	(381	)	$	(10,914	)

On April 30, 2013, the Company completed the sale of FAMCO for consideration of $4.0 million under a previously announced definitive agreement. The sale consideration of $4.0 million consisted of $0.3 million in cash and a $3.7 million note receivable from the buyer. FAMCO's results, previously reported in the Asset Management segment, have been presented as discontinued operations for all periods presented and the related assets and liabilities were classified as held for sale as of December 31, 2012 . The disposal group primarily consisted of intangible assets, other receivables and accrued compensation. As part of the sale, the Company indemnified the buyer against certain costs and obligations. As of December 31, 2013 , a $0.5 million remaining indemnification obligation was included within other liabilities and accrued expenses on the consolidated statements of financial condition. The potential amount of future payments that the Company could be required to make pursuant to the terms of the definitive sale agreement is not limited, however it is not expected to be material.

The components of discontinued operations for FAMCO are as follows:



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011
Net revenues	$	1,650		$	5,718		$	6,584

Goodwill impairment	—			5,508			—
Operating expenses	5,057			8,362			7,089
Total non-interest expenses	5,057			13,870			7,089

Loss from discontinued operations before income tax benefit	(3,407		)	(8,152		)	(505		)

Income tax benefit	(1,326		)	(2,726		)	(171		)

Loss from discontinued operations	(2,081		)	(5,426		)	(334		)

Loss on sale, net of tax	(1,876		)	—			—

Loss from discontinued operations, net of tax	$	(3,957	)	$	(5,426	)	$	(334	)

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Notes to the Consolidated Financial Statements – Continued

Note 6 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:



	December 31,			December 31,
(Dollars in thousands)	2013			2012
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities	$	54,097		$	16,478
Convertible securities	80,784			44,978
Fixed income securities	10,102			33,668
Municipal securities:
Taxable securities	232,379			164,059
Tax-exempt securities	460,865			418,189
Short-term securities	62,620			68,328
Asset-backed securities	119,811			116,195
U.S. government agency securities	304,737			304,259
U.S. government securities	—			4,966
Derivative contracts	38,633			40,475
Total financial instruments and other inventory positions owned	1,364,028			1,211,595

Less noncontrolling interests (1)	(291,513		)	(103,480		)
	$	1,072,515		$	1,108,115

Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	69,205		$	27,090
Convertible securities	—			1,015
Fixed income securities	24,021			19,314
Municipal securities:
Short-term securities	—			60
U.S. government agency securities	120,084			73,724
U.S. government securities	291,320			231,043
Derivative contracts	8,203			4,955
Total financial instruments and other inventory positions sold, but not yet purchased	512,833			357,201

Less noncontrolling interests (2)	(68,356		)	(27,308		)
	$	444,477		$	329,893


(1)	Noncontrolling interests attributable to third party ownership in a consolidated municipal bond fund consist of $101.8 million and $43.8 million of taxable municipal securities, $183.9 million and $58.0 million of tax-exempt municipal securities, and $5.8 million and $1.7 million of derivative contracts as of December 31, 2013 and 2012 , respectively.


(2)	Noncontrolling interests attributable to third party ownership in a consolidated municipal bond fund consist of $67.4 million and $27.3 million of U.S. government securities as of December 31, 2013 and 2012 , respectively, and $1.0 million of derivative contracts as of December 31, 2013 .

At December 31, 2013 and 2012 , financial instruments and other inventory positions owned in the amount of $957.5 million and $826.8 million , respectively, had been pledged as collateral for short-term financings and repurchase agreements.

Financial instruments and other 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 the market value of its financial instruments and other inventory positions owned using inventory positions sold, but not yet purchased, interest rate derivatives, credit default swap index contracts, futures and exchange traded options.

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Notes to the Consolidated Financial Statements – Continued

Derivative Contract Financial Instruments

The Company uses interest rate swaps, interest rate locks, credit default swap index contracts and option 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 and credit risk of the initial client interest rate derivative contract. In certain limited instances, the Company has only hedged interest rate risk 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, LIBOR or the SIFMA index. The Company also enters into credit default swap index contracts to hedge credit risk associated with its taxable fixed income securities and option contracts to hedge market value risk associated with its convertible securities and asset-backed securities.

Firm investments: The Company has historically entered into foreign currency forward contracts to manage the currency exposure related to its non-U.S. dollar denominated firm investments.

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



(Dollars in thousands)		December 31,		December 31,
Transaction Type or Hedged Security	Derivative Category	2013		2012
Customer matched-book	Interest rate derivative contract	$	5,310,929	$	5,569,096
Trading securities	Interest rate derivative contract	198,500		244,250
Trading securities	Credit default swap index contract	299,333		230,650
Trading securities	Equity option derivative contract	17,090		—
		$	5,825,852	$	6,043,996

The Company’s 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)		Year Ended December 31,
Derivative Category	Operations Category	2013			2012			2011
Interest rate derivative contract	Investment banking	$	(1,529	)	$	(2,583	)	$	(4,959	)
Interest rate derivative contract	Institutional brokerage	(2,511		)	(798		)	(7,371		)
Credit default swap index contract	Institutional brokerage	(1,522		)	(1,603		)	1,009
Equity option derivative contract	Institutional brokerage	(646		)	—			—
Foreign currency forward contract	Other operating expenses	—			—			(59		)
		$	(6,208	)	$	(4,984	)	$	(11,380	)

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Notes to the Consolidated Financial Statements – Continued

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:



(Dollars in thousands)		Asset Value at			Liability Value at
		December 31,			December 31,
Derivative Category	Financial Condition Location	2013		Financial Condition Location	2013
Interest rate derivative contract	Financial instruments and other inventory positions owned	$	342,210	Financial instruments and other inventory positions sold, but not yet purchased	$	323,032
Credit default swap index contract	Financial instruments and other inventory positions owned	10,070		Financial instruments and other inventory positions sold, but not yet purchased	7,676
Equity option derivative contract	Financial instruments and other inventory positions owned	19		Financial instruments and other inventory positions sold, but not yet purchased	1,889
		$	352,299		$	332,597

Derivatives are reported on a net basis by counterparty (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a 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 the Company’s financial risk committee. The Company considers counterparty credit risk in determining derivative contract fair value. The majority of the Company’s derivative contracts are substantially collateralized by its counterparties, who 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 December 31, 2013 , the Company had $22.0 million of uncollateralized credit exposure with these counterparties (notional contract amount of $200.3 million ), including $9.3 million of uncollateralized credit exposure with one counterparty.

Note 7 Fair Value of Financial Instruments

Based on the nature of the Company’s business and its role as a “dealer” in the securities industry or as a manager of alternative asset management funds, the fair values of its financial instruments are determined internally. The Company’s processes are designed to ensure that the fair values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, unobservable inputs are developed based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations and other security-specific information. Valuation adjustments related to illiquidity or counterparty credit risk are also considered. In estimating fair value, the Company may utilize information provided by third-party pricing vendors to corroborate internally-developed fair value estimates.

The Company employs specific control processes to determine the reasonableness of the fair value of its financial instruments. The Company’s processes are designed to ensure that the internally estimated fair values are accurately recorded and that the data inputs and the valuation techniques used are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. Individuals outside of the trading departments perform independent pricing verification reviews as of each reporting date. The Company has established parameters which set forth when the fair value of securities are independently verified. The selection parameters are generally based upon the type of security, the level of estimation risk of a security, the materiality of the security to the Company’s financial statements, changes in fair value from period to period, and other specific facts and circumstances of the Company’s securities portfolio. In evaluating the initial internally-estimated fair values made by the Company’s traders, the nature and complexity of securities involved (e.g., term, coupon, collateral, and other key drivers of value), level of market activity for securities, and availability of market data are considered. The independent price verification procedures include, but are not limited to, analysis of trade data (both internal and external where available), corroboration to the valuation of positions with similar characteristics, risks and components, or comparison to an alternative pricing source, such as a discounted cash flow model. The Company’s valuation committee, comprised of members of senior

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Notes to the Consolidated Financial Statements – Continued

management and risk management, provides oversight and overall responsibility for the internal control processes and procedures related to fair value measurements.

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

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 on the consolidated statements of operations.

Equity securities – Exchange traded equity securities are valued based on quoted prices from the exchange for identical assets or liabilities as of the period-end date. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level I. Non-exchange traded equity securities (principally hybrid preferred securities) are measured primarily using broker quotations, prices observed for recently executed market transactions and internally-developed fair value estimates based on observable inputs and are categorized within Level II of the fair value hierarchy.

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 using model-based valuation techniques with observable market inputs, such as specific company stock price and volatility, and unobservable inputs such as option adjusted spreads over the U.S. treasury securities curve. These instruments are categorized as Level III.

Corporate fixed income securities – Fixed income securities include corporate bonds which are valued based on recently executed market transactions of comparable size, internally-developed fair value estimates based on observable inputs, or broker quotations. Accordingly, these corporate bonds are categorized as Level II. When observable price quotations or certain observable inputs are not available, fair value is determined using model-based valuation techniques with observable inputs such as specific security contractual terms and yield curves, and unobservable inputs such as credit spreads over U.S. treasury securities. Corporate bonds measured using model-based valuation techniques 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.

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. Certain illiquid tax-exempt municipal securities are valued using market data for comparable securities (maturity and sector) and management judgment to infer an appropriate current yield or other model-based valuation techniques deemed appropriate by management based on the specific nature of the individual security and are therefore categorized as Level III.

Short-term municipal securities – Short-term municipal securities include auction rate securities, variable rate demand notes, and other short-term municipal securities. Variable rate demand notes and other short-term municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II. Auction rate securities with limited liquidity are categorized as Level III and are valued using discounted cash flow models with unobservable inputs such as the Company’s expected recovery rate on the securities.

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 residential mortgages, have experienced low volumes of executed transactions resulting in less observable transaction data. Certain asset-backed securities collateralized by residential mortgages are valued using cash flow models that utilize unobservable inputs including credit default rates, prepayment rates, loss severity and valuation yields. As judgment is used to determine the range of these inputs, these asset-backed securities are categorized as Level III.

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Notes to the Consolidated Financial Statements – Continued

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 and are categorized as Level II. Mortgage bonds include bonds secured by mortgages, mortgage pass-through securities, agency collateralized mortgage-obligation (“CMO”) securities and agency interest-only securities. Mortgage pass-through securities, CMO securities and interest-only securities are valued using recently executed observable trades or other observable inputs, such as prepayment speeds and therefore are generally categorized as Level II. Mortgage bonds are valued using observable market inputs, such as market yields ranging from 80 - 175 basis points (“bps”) on spreads over U.S. treasury securities, or models based upon prepayment expectations ranging from 192 - 383 Public Securities Association (“PSA”) prepayment levels. These securities are 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 market prices and therefore categorized as Level I. The Company does not transact in securities of countries other than the U.S. government.

Derivatives – Derivative contracts include interest rate and basis swaps, forward purchase agreements, interest rate locks, futures, options and credit default swap index contracts. These instruments derive their value from underlying assets, reference rates, indices or a combination of these factors. The Company's equity option derivative contracts are valued based on quoted prices from the exchange for identical assets or liabilities as of the period-end date. To the extent these contracts are actively traded and valuation adjustments are not applied, they are categorized as Level I. The Company’s credit default swap index contracts are valued using market price quotations and are classified as Level II. The majority of the Company’s interest rate derivative contracts, including both interest rate swaps and interest rate locks, are valued using market standard pricing models based on the net present value of estimated future cash flows. The valuation models used do not involve material subjectivity as the methodologies do not entail significant judgment and the pricing inputs are market observable, including contractual terms, yield curves and measures of volatility. These instruments are classified as Level II within the fair value hierarchy. Certain interest rate locks transact in less active markets and were valued using valuation models that used the previously mentioned observable inputs and certain unobservable inputs that required significant judgment, such as the premium over the MMD curve. These instruments are classified as Level III.

Investments

The Company’s investments valued at fair value include equity investments in private companies, investments in public companies, investments in registered mutual funds, and warrants of public or private companies. Exchange traded direct equity investments in public companies and registered mutual funds are valued based on quoted prices on active markets and classified as Level I. Company-owned warrants, which have a cashless exercise option, are valued based upon the Black-Scholes option-pricing model and certain unobservable inputs. The Company applies a liquidity discount to the value of its warrants in public and private companies. For warrants in private companies, valuation adjustments, based upon management’s judgment, are made to account for differences between the measured security and the stock volatility factors of comparable companies. Company-owned warrants are reported as Level III assets. Equity securities in private companies are valued based on an assessment of each underlying security, considering rounds of financing, third-party transactions and market-based information, including comparable company transactions, trading multiples and changes in market outlook, among other factors. These securities are generally categorized as Level III.

Fair Value Option – The fair value option permits the irrevocable fair value option election on an instrument-by-instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The fair value option was elected for certain merchant banking and other investments at inception to reflect economic events in earnings on a timely basis. Merchant banking and other equity investments of $16.1 million and $15.4 million , included within investments on the consolidated statements of financial condition, are accounted for at fair value and are classified as Level III assets at December 31, 2013 and 2012 , respectively. The realized and unrealized gains from fair value changes included in earnings as a result of electing to apply the fair value option to certain financial assets were $10.6 million and $2.6 million for the years ended December 31, 2013 and 2012 , respectively.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

The following table summarizes quantitative information about the significant unobservable inputs used in the fair value measurement of the Company’s Level III financial instruments as of December 31, 2013 :



	Valuation			Weighted
	Technique	Unobservable Input	Range	Average
Assets:
Financial instruments and other inventory positions owned:
Municipal securities:
Tax-exempt securities	Discounted cash flow	Debt service coverage ratio (2)	5 - 69%	22.2%
Short-term securities	Discounted cash flow	Expected recovery rate (% of par) (2)	77 - 80%	79.6%
Asset-backed securities:
Collateralized by residential mortgages	Discounted cash flow	Credit default rates (3)	2 - 8%	4.7%
		Prepayment rates (4)	2 - 8%	5.3%
		Loss severity (3)	52 - 100%	69.4%
		Valuation yields (3)	4 - 8%	6.0%
Derivative contracts:
Interest rate locks	Discounted cash flow	Premium over the MMD curve (1)	3 - 49 bps	20.2 bps
Investments at fair value:
Warrants in public and private companies	Black-Scholes option pricing model	Liquidity discount rates (1)	30 - 40%	33.5%
Warrants in private companies	Black-Scholes option pricing model	Stock volatility factors of comparable companies (2)	28 - 97%	56.0%
Equity securities in private companies	Market approach	Revenue multiple (2)	2 - 7 times	3.2 times
		EBITDA multiple (2)	12 times	12.0 times

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts:
Interest rate locks	Discounted cash flow	Premium over the MMD curve (1)	1 - 15 bps	9.1 bps

Sensitivity of the fair value to changes in unobservable inputs:


(1)	Significant increase/(decrease) in the unobservable input in isolation would result in a significantly lower/(higher) fair value measurement.


(2)	Significant increase/(decrease) in the unobservable input in isolation would result in a significantly higher/(lower) fair value measurement.


(3)	Significant changes in any of these inputs in isolation could result in a significantly different fair value. Generally, a change in the assumption used for credit default rates is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally inverse change in the assumption for valuation yields.


(4)	The potential impact of changes in prepayment rates on fair value is dependent on other security-specific factors, such as the par value and structure. Changes in the prepayment rates may result in directionally similar or directionally inverse changes in fair value depending on whether the security trades at a premium or discount to the par value.

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Notes to the Consolidated Financial Statements – Continued

The following table summarizes the valuation of the Company’s financial instruments by pricing observability levels defined in ASC 820 as of December 31, 2013 :



							Counterparty
							and Cash
							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	$	39,711	$	14,386	$	—	$	—		$	54,097
Convertible securities	—		80,784		—		—			80,784
Fixed income securities	—		10,002		100		—			10,102
Municipal securities:
Taxable securities	—		232,379		—		—			232,379
Tax-exempt securities	—		459,432		1,433		—			460,865
Short-term securities	—		61,964		656		—			62,620
Asset-backed securities	—		12		119,799		—			119,811
U.S. government agency securities	—		304,737		—		—			304,737
Derivative contracts	19		351,589		691		(313,666		)	38,633
Total financial instruments and other inventory positions owned:	39,730		1,515,285		122,679		(313,666		)	1,364,028

Cash equivalents	101,629		—		—		—			101,629

Investments at fair value	20,690		—		49,240		—			69,930
Total assets	$	162,049	$	1,515,285	$	171,919	$	(313,666	)	$	1,535,587

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	69,205	$	—	$	—	$	—		$	69,205
Fixed income securities	—		24,021		—		—			24,021
U.S. government agency securities	—		120,084		—		—			120,084
U.S. government securities	291,320		—		—		—			291,320
Derivative contracts	1,889		324,065		6,643		(324,394		)	8,203
Total financial instruments and other inventory positions sold, but not yet purchased:	$	362,414	$	468,170	$	6,643	$	(324,394	)	$	512,833


(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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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

The following table summarizes the valuation of the Company’s financial instruments by pricing observability levels defined in ASC 820 as of December 31, 2012 :



							Counterparty
							and Cash
							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	$	3,180	$	13,298	$	—	$	—		$	16,478
Convertible securities	—		44,978		—		—			44,978
Fixed income securities	—		33,668		—		—			33,668
Municipal securities:
Taxable securities	—		164,059		—		—			164,059
Tax-exempt securities	—		416,760		1,429		—			418,189
Short-term securities	—		67,672		656		—			68,328
Asset-backed securities	—		24		116,171		—			116,195
U.S. government agency securities	—		304,259		—		—			304,259
U.S. government securities	4,966		—		—		—			4,966
Derivative contracts	—		595,486		827		(555,838		)	40,475
Total financial instruments and other inventory positions owned:	8,146		1,640,204		119,083		(555,838		)	1,211,595

Cash equivalents	51,346		—		—		—			51,346

Investments at fair value	5,810		—		33,245		—			39,055
Total assets	$	65,302	$	1,640,204	$	152,328	$	(555,838	)	$	1,301,996

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities	$	25,362	$	1,728	$	—	$	—		$	27,090
Convertible securities	—		1,015		—		—			1,015
Fixed income securities	—		19,314		—		—			19,314
Municipal securities:
Short-term securities	—		60		—		—			60
U.S. government agency securities	—		73,724		—		—			73,724
U.S. government securities	231,043		—		—		—			231,043
Derivative contracts	—		569,764		5,218		(570,027		)	4,955
Total financial instruments and other inventory positions sold, but not yet purchased:	$	256,405	$	665,605	$	5,218	$	(570,027	)	$	357,201


(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 $171.9 million and $152.3 million , or 11.2 percent and 11.7 percent of financial instruments measured at fair value at December 31, 2013 and 2012 , respectively. The value of transfers between levels are recognized at the beginning of the reporting period. There were $0.6 million of transfers of financial assets from Level III to Level II during the year ended December 31, 2013 , related to investments for which recent trade activity was observed and valuation inputs became observable. There were no other transfers between Level I, Level II or Level III for the year ended December 31, 2013 .

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

The following tables summarize the changes in fair value associated with Level III financial instruments during the years ended December 31, 2013 and 2012 :



	Balance at													Realized		Unrealized			Balance at
	December 31,								Transfers		Transfers			gains/		gains/			December 31,
(Dollars in thousands)	2012		Purchases			Sales			in		out			(losses) (1)		(losses) (1)			2013
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Fixed income securities	$	—	$	100		$	—		$	—	$	—		$	—	$	—		$	100
Municipal securities:
Tax-exempt securities	1,429		1			—			—		—			—		3			1,433
Short-term securities	656		—			—			—		—			—		—			656
Asset-backed securities	116,171		227,634			(238,860		)	—		—			17,105		(2,251		)	119,799
Derivative contracts	827		5			(2,382		)	—		—			2,377		(136		)	691
Total financial instruments and other inventory positions owned:	119,083		227,740			(241,242		)	—		—			19,482		(2,384		)	122,679

Investments at fair value	33,245		16,825			(10,358		)	—		(619		)	5,949		4,198			49,240
Total assets	$	152,328	$	244,565		$	(251,600	)	$	—	$	(619	)	$	25,431	$	1,814		$	171,919

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Derivative contracts	$	5,218	$	(5,702	)	$	457		$	—	$	—		$	5,232	$	1,438		$	6,643
Total financial instruments and other inventory positions sold, but not yet purchased:	$	5,218	$	(5,702	)	$	457		$	—	$	—		$	5,232	$	1,438		$	6,643

(1)

Realized and unrealized gains/(losses) related to financial instruments, with the exception of customer matched-book derivatives, are reported in institutional brokerage on the consolidated statements of operations. Realized and unrealized gains/(losses) related to customer matched-book derivatives are reported in investment banking. Realized and unrealized gains/(losses) related to investments are reported in investment banking revenues or investment income on the consolidated statements of operations.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued



	Balance at													Realized			Unrealized			Balance at
	December 31,								Transfers		Transfers			gains/			gains/			December 31,
(Dollars in thousands)	2011		Purchases			Sales			in		out			(losses) (1)			(losses) (1)			2012
Assets:
Financial instruments and other inventory positions owned:
Corporate securities:
Fixed income securities	$	2,815	$	1,995		$	(4,594	)	$	—	$	—		$	(118	)	$	(98	)	$	—
Municipal securities:
Tax-exempt securities	3,135		1,550			(2,997		)	266		—			(1,156		)	631			1,429
Short-term securities	175		650			—			—		—			—			(169		)	656
Asset-backed securities	53,088		125,844			(69,623		)	38		—			487			6,337			116,171
Derivative contracts	—		—			—			—		—			—			827			827
Total financial instruments and other inventory positions owned:	59,213		130,039			(77,214		)	304		—			(787		)	7,528			119,083

Investments at fair value	21,341		15,003			(2,394		)	—		(266		)	1,595			(2,034		)	33,245
Total assets	$	80,554	$	145,042		$	(79,608	)	$	304	$	(266	)	$	808		$	5,494		$	152,328

Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Convertible securities	$	1,171	$	—		$	—		$	—	$	(1,171	)	$	—		$	—		$	—
Fixed income securities	900		(897		)	—			—		—			(49		)	46			—
Derivative contracts	3,594		(6,549		)	—			—		—			6,549			1,624			5,218
Total financial instruments and other inventory positions sold, but not yet purchased:	$	5,665	$	(7,446	)	$	—		$	—	$	(1,171	)	$	6,500		$	1,670		$	5,218

(1)

The carrying values of some of the Company’s financial instruments 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.

Non-Recurring Fair Value Measurement

In 2012 , the Company recorded a goodwill impairment charge of $5.5 million within discontinued operations representing the full value of goodwill attributable to FAMCO. The fair value measurement used in the analysis was based on a discounted cash flow model and the anticipated pricing for the sale of FAMCO. The discounted cash flow model was calculated using unobservable inputs, such as operational budgets, strategic plans and other estimates, which are classified as Level III within the fair value hierarchy.

In 2011 , the Company recorded a goodwill impairment charge of $120.3 million within continuing operations representing the full value of goodwill attributable to the capital markets reporting unit. The fair value measurement used in the analysis was based on the Company’s market capitalization, a discounted cash flow model, and public company comparables. The discounted cash flow model was calculated using unobservable inputs, such as operational budgets, long range strategic plans and other estimates, which are classified as Level III within the fair value hierarchy. See Note 14 for further discussion.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

Note 8 Variable Interest Entities

The Company has investments in and/or acts as the managing partner of various partnerships, limited liability companies, or registered mutual funds. These entities were established for the purpose of investing in securities of public or private companies, or municipal debt obligations and were initially financed through the capital commitments or seed investments of the members.

VIEs are entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities. 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. The Company also considers other characteristics such as the power through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance. For those entities that meet the deferral provisions defined by ASU 2010-10, 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 certain of the entities described above as VIEs. These VIEs had net assets approximating $0.8 billion at December 31, 2013 and 2012 , respectively. The Company’s exposure to loss from these VIEs is $12.5 million , which is the carrying value of its capital contributions recorded in investments on the consolidated statements of financial condition at December 31, 2013 . The Company had no liabilities related to these VIEs at December 31, 2013 and 2012 .

The Company is required to consolidate all VIEs for which it is considered to be the primary beneficiary. 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. For those entities that meet the deferral provisions defined by ASU 2010-10, the determination as to whether the Company is considered to be the primary beneficiary differs in that it 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. The Company determined it is not the primary beneficiary of these VIEs and accordingly does not consolidate them. Furthermore, the Company has not provided financial or other support to these VIEs that it was not previously contractually required to provide as of December 31, 2013 .

The Company also originates CMOs through secondary market vehicles. The Company's risk of loss with respect to these entities is limited to the fair value of the securities held by the Company.

Note 9 Receivables from and Payables to Brokers, Dealers and Clearing Organizations

Amounts receivable from brokers, dealers and clearing organizations included:



	December 31,		December 31,
(Dollars in thousands)	2013		2012
Receivable arising from unsettled securities transactions	$	59,657	$	66,426
Deposits paid for securities borrowed	36,278		32,163
Receivable from clearing organizations	966		17,655
Deposits with clearing organizations	20,995		24,717
Securities failed to deliver	593		5,440
Other	8,624		1,716
	$	127,113	$	148,117

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

Amounts payable to brokers, dealers and clearing organizations included:



	December 31,		December 31,
(Dollars in thousands)	2013		2012
Payable arising from unsettled securities transactions	$	5,643	$	24,643
Payable to clearing organizations	9,462		5,763
Securities failed to receive	744		7,459
Other	11,873		22,290
	$	27,722	$	60,155

Deposits paid for securities borrowed 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 10 Receivables from and Payables to Customers

Amounts receivable from customers included:



	December 31,		December 31,
(Dollars in thousands)	2013		2012
Cash accounts	$	5,013	$	7,444
Margin accounts	6,620		6,351
Total receivables	$	11,633	$	13,795

Securities owned by customers are held as collateral for margin loan receivables. This collateral is not reflected on the consolidated financial statements. Margin loan receivables earn interest at floating interest rates based on prime rates.

Amounts payable to customers included:



	December 31,		December 31,
(Dollars in thousands)	2013		2012
Cash accounts	$	30,499	$	32,103
Margin accounts	2,610		9,904
Total payables	$	33,109	$	42,007

Payables to customers primarily comprise certain cash balances in customer accounts consisting of customer funds pending settlement of securities transactions and customer funds on deposit. Except for amounts arising from customer short sales, all amounts payable to customers are subject to withdrawal by customers upon their request.

Note 11 Collateralized Securities Transactions

The Company’s financing and customer securities activities involve the Company using securities as collateral. In the event that the counterparty does not meet its contractual obligation to return securities used as collateral (e.g., pursuant to the terms of a repurchase agreement), or customers do not deposit additional securities or cash for margin when required, the Company may be exposed to the risk of reacquiring the securities or selling the securities at unfavorable market prices in order to satisfy its obligations to its customers or counterparties. The Company seeks to control this risk by monitoring the market value of securities pledged or used as collateral on a daily basis and requiring adjustments in the event of excess market exposure. The Company also uses unaffiliated third party custodians to administer the underlying collateral for certain of its repurchase agreements and short-term financing to mitigate risk.

In a reverse repurchase agreement the Company purchases financial instruments from a seller, typically in exchange for cash, and agrees to resell the same or substantially the same financial instruments to the seller at a stated price plus accrued interest in the future. In a repurchase agreement, the Company sells financial instruments to a buyer, typically for cash, and agrees to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date. Even though repurchase and reverse repurchase agreements involve the legal transfer of ownership of financial instruments, they are accounted for as financing arrangements because they require the financial instruments to be repurchased or resold at maturity of the agreement.

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Notes to the Consolidated Financial Statements – Continued

In a securities borrowed transaction, the Company borrows securities from a counterparty in exchange for cash. When the Company returns the securities, the counterparty returns the cash. Interest is generally paid periodically over the life of the transaction.

In the normal course of business, the Company obtains securities purchased under agreements to resell, securities borrowed and margin agreements on terms that permit it to repledge or resell the securities to others, typically pursuant to repurchase agreements. The Company obtained securities with a fair value of approximately $212.4 million and $186.1 million at December 31, 2013 and 2012 , respectively, of which $194.9 million and $174.4 million , respectively, had been pledged or otherwise transferred to satisfy its commitments under financial instruments and other inventory positions sold, but not yet purchased.

The following is a summary of the Company’s securities sold under agreements to repurchase ("Repurchase Liabilities"), the fair market value of collateral pledged and the interest rate charged by the Company’s counterparty, which is based on LIBOR plus an applicable margin, as of December 31, 2013 :



	Repurchase		Fair Market
(Dollars in thousands)	Liabilities		Value		Interest Rate
Term up to 30 day maturities:
Asset-backed securities	$	3,672	$	5,328	1.85%
Term of 30 to 90 day maturities:
Asset-backed securities	725		966		1.99%
	$	4,397	$	6,294

Reverse repurchase agreements, repurchase agreements and securities borrowed and loaned are reported on a net basis by counterparty when a legal right of offset exists.

There were no gross amounts offset on the consolidated statements of financial condition for reverse repurchase agreements, securities borrowed or repurchase agreements at December 31, 2013 and 2012 , respectively, as a legal right of offset did not exist. The Company had no outstanding securities lending arrangements as of December 31, 2013 or 2012 . See Note 6 for information related to the Company's offsetting of derivative contracts.

Note 12 Investments



	December 31,			December 31,
(Dollars in thousands)	2013			2012
Investments at fair value	$	69,930		$	39,055
Investments at cost	20,709			26,364
Investments accounted for under the equity method	21,404			20,353
Total investments	112,043			85,772

Less investments attributable to noncontrolling interests (1)	(21,137		)	(13,236		)
	$	90,906		$	72,536


(1)	Noncontrolling interests are attributable to third party ownership in a consolidated merchant banking fund and private equity investment vehicles.

Management regularly reviews the Company’s investments in private company debt and has concluded that no valuation allowance is needed as it is probable that all contractual principal and interest will be collected.

At December 31, 2013 , investments carried on a cost basis had an estimated fair market value of $29.9 million . The estimated fair value of these investments was measured using discounted cash flow models that use market data for comparable companies (e.g., multiples of revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA")). Because valuation adjustments, based upon management’s judgment, were made to account for differences between the measured security and comparable securities, investments carried at cost would be categorized as Level III assets in the fair value hierarchy, if they were carried at fair value.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

Investments accounted for under the equity method include general and limited partnership interests. The carrying value of these investments is based on the investment vehicle’s net asset value. The net assets of investment partnerships consist of investments in both marketable and non-marketable securities. The underlying investments held by such partnerships are valued based on the estimated fair value determined by management in our capacity as general partner or investor and, in the case of investments in unaffiliated investment partnerships, are based on financial statements prepared by the unaffiliated general partners.

Note 13 Other Assets

Other assets included:



	December 31,		December 31,
(Dollars in thousands)	2013		2012
Net deferred income tax assets	$	36,252	$	33,622
Fee receivables	34,415		25,343
Accrued interest receivables	9,793		8,029
Forgivable loans, net	7,879		10,315
Income tax receivables	—		5,448
Prepaid expenses	5,237		3,840
Other	8,516		2,202
Total other assets	$	102,092	$	88,799

See Note 28 for additional details concerning the Company's net deferred income tax assets.

Note 14 Goodwill and Intangible Assets

The following table presents the changes in the carrying value of goodwill and intangible assets from continuing operations for the years ended December 31 :



	Capital			Asset
(Dollars in thousands)	Markets			Management			Total
Goodwill
Balance at December 31, 2011	$	—		$	196,844		$	196,844
Goodwill acquired	—			—			—
Impairment charge	—			—			—
Balance at December 31, 2012	$	—		$	196,844		$	196,844
Goodwill acquired	13,790			—			13,790
Impairment charge	—			—			—
Balance at December 31, 2013	$	13,790		$	196,844		$	210,634

Intangible assets
Balance at December 31, 2011	$	—		$	48,202		$	48,202
Amortization of intangible assets	—			(6,944		)	(6,944		)
Balance at December 31, 2012	$	—		$	41,258		$	41,258
Intangible assets acquired	6,665			—			6,665
Amortization of intangible assets	(1,349		)	(6,644		)	(7,993		)
Balance at December 31, 2013	$	5,316		$	34,614		$	39,930

The Company tests goodwill and indefinite-life intangible assets for impairment on an annual basis and on an interim basis when circumstances exist that could indicate possible impairment. The Company tests for impairment at the reporting unit level, which is generally one level below its operating segments. The Company has identified two reporting units: capital markets and asset management. When testing for impairment, the Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after making an assessment, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if the Company concludes otherwise, then the Company is required to perform the two-step impairment test, 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 reporting units based on the following factors: a discounted cash flow model using revenue and profit forecasts, the Company’s market capitalization, public

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Notes to the Consolidated Financial Statements – Continued

market comparables and multiples of recent mergers and acquisitions of similar businesses, if available. The estimated fair values of our reporting units are compared with their carrying values, which includes the allocated goodwill. If the estimated fair value is less than the carrying values, a second step is performed to measure the amount of the impairment loss, if any. An impairment loss is equal to the excess of the carrying amount of goodwill over its fair value.

The Company completed its annual goodwill impairment testing as of October 31, 2013 , and concluded there was no goodwill impairment. In 2012 , the Company recorded a non-cash goodwill impairment charge of $5.5 million within discontinued operations. This amount represented the full value of goodwill attributable to FAMCO. In 2011 , the Company recorded a non-cash goodwill impairment charge of $120.3 million within continuing operations. The charge related to the capital markets reporting unit and primarily pertained to goodwill created from the 1998 acquisition of Piper Jaffray Companies Inc. by U.S. Bancorp, which was retained by the Company when the Company spun-off from U.S. Bancorp on December 31, 2003.

The Company also tested its intangible assets (indefinite and definite-lived) and concluded there was no impairment in 2013 , 2012 and 2011 , respectively.

The addition of goodwill and intangible assets during the year ended December 31, 2013 related to the acquisitions of Seattle-Northwest and Edgeview, as discussed in Note 4 . Management identified $6.7 million of intangible assets, consisting of customer relationships ( $6.0 million ) and non-competition agreements ( $0.7 million ), which will be amortized over a weighted average life of 1.9 years and 3.0 years , respectively.

Intangible assets with determinable lives consist of asset management contractual relationships and capital markets customer relationships and non-competition agreements. The intangible assets are amortized over their estimated useful lives ranging from two to ten years . The following table summarizes the future aggregate amortization expense of the Company's intangible assets with determinable lives for the years ended:



(Dollars in thousands)
2014	$	9,272
2015	7,093
2016	6,219
2017	5,230
Thereafter	9,256
Total	$	37,070

Note 15 Fixed Assets

The following is a summary of fixed assets:



	December 31,			December 31,
(Dollars in thousands)	2013			2012
Furniture and equipment	$	34,980		$	36,454
Leasehold improvements	23,478			19,508
Software	19,967			20,159
Total	78,425			76,121
Accumulated depreciation and amortization	(62,311		)	(61,032		)
	$	16,114		$	15,089

For the years ended December 31, 2013 , 2012 and 2011 , depreciation and amortization of furniture and equipment, leasehold improvements and software from continuing operations totaled $5.6 million , $6.5 million and $6.6 million , respectively, and are included in occupancy and equipment on the consolidated statements of operations.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

Note 16 Short-Term Financing

The following is a summary of short-term financing and the weighted average interest rate on borrowings:



	Outstanding Balance				Weighted Average Interest Rate
	December 31,		December 31,		December 31,	December 31,
(Dollars in thousands)	2013		2012		2013	2012
Commercial paper (secured)	$	280,294	$	304,439	1.59%	1.65%
Prime broker arrangement	234,417		172,575		0.90%	0.98%
Total short-term financing	$	514,711	$	477,014

The Company issues secured commercial paper to fund a portion of its securities inventory. The commercial paper notes (“CP Notes”) can be issued with maturities of 27 days to 270 days from the date of issuance. The CP Notes are issued under three separate programs, CP Series A, CP Series II A and CP Series III A, and are secured by different inventory classes. As of December 31, 2013 , the weighted average maturity of CP Series A, CP Series II A and CP Series III A was 132 days , 107 days and 31 days , respectively. The CP Notes are interest bearing or sold at a discount to par with an interest rate based on LIBOR plus an applicable margin.

The Company has established an arrangement to obtain financing with a prime broker related to its municipal bond funds. Financing under this arrangement is secured by certain securities, primarily municipal securities, and collateral limitations could reduce the amount of funding available under this arrangement. The funding is at the discretion of the prime broker.

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 December 31, 2013 consisted of a one -year $250 million committed revolving credit facility with U.S. Bank, N.A., which was renewed in December 2013. Advances under this facility are secured by certain marketable securities. The facility includes a covenant that requires the Company’s U.S. broker dealer subsidiary to maintain a minimum net capital of $120 million , and the unpaid principal amount of all advances under this facility will be due on December 27, 2014 . The Company pays a nonrefundable commitment fee on the unused portion of the facility on a quarterly basis. At December 31, 2013 , the Company had no advances against this line of credit.

The Company’s uncommitted secured lines at December 31, 2013 totaled $185 million with two 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. At December 31, 2013 , the Company had no advances against these lines of credit.

Note 17 Variable Rate Senior Notes

On November 30, 2012 , the Company entered into a note purchase agreement (“Note Purchase Agreement”) under which the Company issued unsecured variable rate senior notes (“Notes”) in the amount of $125 million . The initial holders of the Notes are certain entities advised by PIMCO. The Notes consist of two classes, Class A Notes and Class B Notes, with principal amounts of $50 million and $75 million , respectively. The Class A Notes bear interest at a rate equal to three -month LIBOR plus 4.00 percent and mature on May 31, 2014 . The Class B Notes bear interest at a rate equal to three -month LIBOR plus 4.50 percent and mature on November 30, 2015 . Interest on the Notes is adjustable and payable quarterly. The unpaid principal amounts are due in full on the respective maturity dates and may not be prepaid by the Company. The proceeds from the Notes were used to repay the outstanding balance under the bank syndicated credit agreement (“Credit Agreement”) discussed in Note 18 . The remaining proceeds are being used for general corporate purposes.

The Note Purchase Agreement includes customary events of default, including failure to pay principal when due or failure to pay interest within five business days of when due, any representation or warranty in the Note Purchase Agreement proving untrue in any material respect when made by the Company, failure to comply with the covenants in the Note Purchase Agreement, failure to pay or another event of default under other material indebtedness in an amount exceeding $10 million , bankruptcy or insolvency of the Company or any of its subsidiaries or a change in control of the Company. If there is any event of default under the Note

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Notes to the Consolidated Financial Statements – Continued

Purchase Agreement, the noteholders may declare the entire principal and any accrued interest on the Notes to be due and payable and exercise other customary remedies.

The Note Purchase Agreement includes covenants that, among other things, require the Company to maintain a minimum consolidated tangible net worth and regulatory net capital, limit the Company's leverage ratio and require the Company to maintain a minimum ratio of operating cash flow to fixed charges. With respect to the net capital covenant, the Company's U.S. broker dealer subsidiary is required to maintain minimum net capital of $120 million . At December 31, 2013 , the Company was in compliance with all covenants.

The Notes are recorded at amortized cost. As of December 31, 2013 , the carrying value of the Notes approximates fair value.

Note 18 Bank Syndicated Financing

On December 29, 2010, the Company entered into a three -year Credit Agreement comprised of a $100 million amortizing term loan and a $50 million revolving credit facility. SunTrust Bank was the administrative agent (“Agent”) for the lenders. The interest rate for borrowing under the Credit Agreement was, at the option of the Company, equal to LIBOR or a base rate, plus an applicable margin, adjustable and payable quarterly at a minimum. The base rate was defined as the highest of the Agent’s prime lending rate, the Federal Funds Rate plus 0.50 percent or one -month LIBOR plus 1.00 percent . The applicable margin varied from 1.50 percent to 3.00 percent and was based on the Company’s leverage ratio. In addition, the Company also paid a nonrefundable commitment fee of 0.50 percent on the unused portion of the revolving credit facility on a quarterly basis. The outstanding balance and unpaid interest on the Credit Agreement was repaid on November 30, 2012 from the proceeds of the Notes discussed in Note 17 .

Note 19 Contingencies, Commitments and Guarantees

Legal 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 actions 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 (“SROs”) which could result in adverse judgments, settlement, penalties, fines or other relief.

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. In many cases, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount or range of any potential loss, particularly where proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters frequently need to be more developed before a loss or range of loss can reasonably be estimated.

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 and ranges of reasonably possible losses are difficult to determine and of necessity subject to future revision. Subject to the foregoing, management of the Company believes, based on currently available information, after consultation with outside legal counsel and taking into account its established reserves, that pending legal actions, investigations and regulatory proceedings will be resolved with no material adverse effect on the consolidated statements of financial condition, results of operations or cash flows 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 and cash flows in that period and the financial condition as of the end of that period could be materially adversely affected. In addition, there can be no assurance that material losses will not be incurred from claims that have not yet been brought to the Company’s attention or are not yet determined to be reasonably possible.

Litigation-related reserve activity from continuing operations included within other operating expenses resulted in a benefit of $4.1 million primarily attributable to the receipt of insurance proceeds for the reimbursement of prior legal settlements, expense of $0.9 million , and a benefit of $0.2 million for the years ended December 31, 2013 , 2012 and 2011 , respectively.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

Operating Lease Commitments

The Company leases office space throughout the United States and in a limited number of foreign countries where the Company’s international operations reside. Aggregate minimum lease commitments under operating leases as of December 31, 2013 are as follows:



(Dollars in thousands)
2014	$	11,997
2015	10,011
2016	10,203
2017	8,477
2018	8,158
Thereafter	27,718
	$	76,564

Total minimum rentals to be received from 2014 through 2018 under noncancelable subleases were $9.8 million at December 31, 2013 .

Rental expense, including operating costs and real estate taxes, from continuing operations was $12.9 million , $13.1 million and $14.9 million for the years ended December 31, 2013 , 2012 and 2011 , respectively.

Fund Commitments

As of December 31, 2013 , the Company had commitments to invest approximately $47.6 million in limited partnerships that make investments in private equity and venture capital funds. The commitments are estimated to be funded, if called, through the end of the respective investment periods ranging from 2014 to 2018.

Other Guarantees

The Company is a member of numerous exchanges and clearinghouses. Under the membership agreements with these entities, members generally are required to guarantee the performance of other members, and if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet shortfalls. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral. In addition, the Company identifies and guarantees certain clearing agents against specified potential losses in connection with providing services to the Company or its affiliates. The Company’s maximum potential liability under these arrangements cannot be quantified. However, management believes the likelihood that the Company would be required to make payments under these arrangements is remote. Accordingly, no liability is recorded in the consolidated financial statements for these arrangements.

As general partner, Piper Jaffray Investment Management LLC, a wholly-owned subsidiary of the Company, has guaranteed the debts, liabilities and obligations of a municipal bond fund to the extent of the general partner’s assets. Management believes the likelihood that the Company would be required to make payments under this arrangement is remote. Accordingly, no liability is recorded in the consolidated financial statements for this arrangement.

Concentration of Credit Risk

The Company provides investment, capital-raising and related services to a diverse group of domestic and foreign customers, including governments, corporations, and institutional and individual investors. The Company’s exposure to credit risk associated with the non-performance of customers in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile securities markets, credit markets and regulatory changes. This exposure is measured on an individual customer basis and on a group basis for customers that share similar attributes. To alleviate the potential for risk concentrations, counterparty credit limits have been implemented for certain products and are continually monitored in light of changing customer and market conditions.

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Notes to the Consolidated Financial Statements – Continued

Note 20 Restructuring

For the year ended December 31, 2013 , the Company incurred pre-tax restructuring charges of $3.6 million from continuing operations. The charge resulted from severance benefits of $2.4 million , $0.5 million for vacating redundant leased office space and $0.7 million for contract termination costs. For the year ended December 31, 2012 , the Company incurred pre-tax restructuring-related charges of $3.6 million from continuing operations. The charge resulted from severance benefits of $2.4 million and from the reduction of leased office space of $1.2 million .

Note 21 Shareholders’ Equity

The certificate of incorporation of Piper Jaffray Companies provides for the issuance of up to 100,000,000 shares of common stock with a par value of $0.01 per share and up to 5,000,000 shares of undesignated preferred stock with a par value of $0.01 per share.

Common Stock

The holders of Piper Jaffray Companies common stock are entitled to one vote per share on all matters to be voted upon by the shareholders. Subject to preferences that may be applicable to any outstanding preferred stock of Piper Jaffray Companies, the holders of its common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Piper Jaffray Companies board of directors out of funds legally available for that purpose. Piper Jaffray Companies does not currently pay cash dividends on its common stock. Additionally, there are dividend restrictions as set forth in Note 27 .

In the event that Piper Jaffray Companies is liquidated or dissolved, the holders of its common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to any prior distribution rights of Piper Jaffray Companies preferred stock, if any, then outstanding. Currently, there is no outstanding preferred stock. The holders of the common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to Piper Jaffray Companies common stock.

During the year ended December 31, 2013 , the Company issued 96,049 common shares out of treasury stock in fulfillment of $3.9 million in obligations under the Piper Jaffray Companies Retirement Plan (the “Retirement Plan”) and issued 786,467 common shares out of treasury stock as a result of employee restricted share vesting as discussed in Note 24 . During the year ended December 31, 2012 , the Company issued 165,241 common shares out of treasury stock in fulfillment of $3.8 million in obligations under the Retirement Plan and issued 937,978 common shares out of treasury stock as a result of employee restricted share vesting.

In the third quarter of 2010, the Company’s board of directors authorized the repurchase of up to $75.0 million in common shares through September 30, 2012. During the nine months ended September 30, 2012, the Company repurchased 1,488,881 shares of the Company’s common stock at an average price of $22.48 per share for an aggregate purchase price of $33.5 million related to this authorization. This share repurchase authorization expired as of September 30, 2012 .

In the third quarter of 2012, the Company’s board of directors authorized the repurchase of up to $100.0 million in common shares through September 30, 2014 . During the fourth quarter of 2012, the Company repurchased 156,577 shares of the Company's common stock at an average price of $29.38 per share for an aggregate purchase price of $4.6 million related to this authorization. During the year ended December 31, 2013 , the Company repurchased 1,719,662 shares, or 11.3 percent of the Company’s outstanding common stock, at an average price of $32.52 per share for an aggregate purchase price of $55.9 million related to this authorization. The Company has $39.5 million remaining under this authorization.

The Company also purchases shares of common stock from restricted stock award recipients upon the award vesting as recipients sell shares to meet their employment tax obligations. The Company purchased 386,713 shares or $15.5 million and 385,449 shares or $9.1 million of the Company’s common stock for this purpose during the years ended December 31, 2013 and 2012 , respectively.

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

Preferred Stock

The Piper Jaffray Companies board of directors has the authority, without action by its shareholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each series, which may be greater than the rights associated with the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of common stock until the Piper Jaffray Companies board of directors determines the specific rights of the holders of preferred stock. However, the effects might include, among other things, the following: restricting dividends on its common stock, diluting the voting power of its common stock, impairing the liquidation rights of its common stock and delaying or preventing a change in control of Piper Jaffray Companies without further action by its shareholders.

Note 22 Noncontrolling Interests

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. Noncontrolling interests represent equity interests in consolidated entities that are not attributable, either directly or indirectly, to Piper Jaffray Companies. Noncontrolling interests include the minority equity holders’ proportionate share of the equity in a municipal bond fund of $126.3 million , a merchant banking fund of $14.1 million and private equity investment vehicles aggregating $7.0 million as of December 31, 2013 . As of December 31, 2012 , noncontrolling interests included the minority equity holders’ proportionate share of the equity in a municipal bond fund of $43.7 million , a merchant banking fund of $6.4 million and private equity investment vehicles aggregating $6.8 million .

Ownership interests in entities held by parties other than the Company’s common shareholders are presented as noncontrolling interests within shareholders’ equity, separate from the Company’s own equity. Revenues, expenses and net income or loss are reported on the consolidated statements of operations on a consolidated basis, which includes amounts attributable to both the Company’s common shareholders and noncontrolling interests. Net income or loss is then allocated between the Company and noncontrolling interests based upon their relative ownership interests. Net income applicable to noncontrolling interests is deducted from consolidated net income to determine net income applicable to the Company. There was no other comprehensive income or loss attributed to noncontrolling interests for the years ended December 31, 2013 , 2012 and 2011 .

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Notes to the Consolidated Financial Statements – Continued

Note 23 Employee Benefit Plans

The Company has various employee benefit plans, and substantially all employees are covered by at least one plan. The plans include health and welfare plans, a tax-qualified retirement plan (the “Retirement Plan”), and a post-retirement medical plan, which was terminated in 2013. During the years ended December 31, 2013 , 2012 and 2011 , the Company incurred employee benefits expenses from continuing operations of $12.1 million , $13.0 million and $11.6 million , respectively.

Health and Welfare Plans

Company employees who meet certain work schedule and service requirements are eligible to participate in the Company’s health and welfare plans. The Company subsidizes the cost of coverage for employees. The medical plan contains cost-sharing features such as deductibles and coinsurance.

The Company is self-insured for losses related to health claims, although it obtains third-party stop loss insurance coverage on both an individual and a group plan basis. Self-insured liabilities are based on a number of factors, including historical claims experience, an estimate of claims incurred but not reported and valuations provided by third-party actuaries. For the years ended December 31, 2013 , 2012 and 2011 , the Company recognized expense of $7.2 million , $8.0 million and $6.9 million , respectively, in compensation and benefits expense from continuing operations on the consolidated statements of operations related to its health plans.

Retirement Plan

The Retirement Plan consists of a defined contribution retirement savings plan. The defined contribution retirement savings plan allows qualified employees, at their option, to make contributions through salary deductions under Section 401(k) of the Internal Revenue Code. Employee contributions are 100 percent matched by the Company to a maximum of six percent of recognized compensation up to the social security taxable wage base. Although the Company’s matching contribution vests immediately, a participant must be employed on December 31 to receive that year’s matching contribution. The matching contribution can be made in cash or Piper Jaffray Companies common stock, at the Company’s discretion.

Post-retirement Medical Plan

All employees of the Company who met defined age and service requirements were eligible to receive post-retirement health care benefits provided under a post-retirement medical plan established by the Company in 2004. The estimated cost of these retiree health care benefits was accrued during the employees’ active service. The Company accounted for its post-retirement medical plan in accordance with FASB Accounting Standards Codification Topic 715, “Compensation – Retirement Benefits” (“ASC 715”). The Company recognized the funded status of its plan on the consolidated statements of financial condition with a corresponding adjustment to accumulated other comprehensive income, net of tax. The net unrecognized actuarial losses and unrecognized prior service costs were amortized as a component of net periodic benefit cost. Further, actuarial gains and losses that arose and were not recognized as net periodic benefit cost in the same periods were recognized as a component of other comprehensive income. These amounts were amortized as a component of net periodic benefit cost on the same basis as the amounts recognized in accumulated other comprehensive income. For each of the years ended December 31, 2013 , 2012 and 2011 , the net periodic benefit cost from continuing operations was $0.1 million .

The Company terminated the post-retirement medical plan in 2013. The Company recognized a settlement gain of $1.1 million in compensation and benefits expense from continuing operations on the consolidated statements of operations for the year ended December 31, 2013 . In conjunction with the termination, the Company elected to make lump sum cash distributions to current plan participants, Company employees meeting certain age requirements and certain former employees with accumulated credits. These lump sum cash payments, totaling $1.1 million , were based on a percentage of accumulated retiree health care credits and were included in compensation and benefits expense from continuing operations on the consolidated statements of operations for the year ended December 31, 2013 .

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Piper Jaffray Companies

Notes to the Consolidated Financial Statements – Continued

Note 24 Compensation Plans

Stock-Based Compensation Plans

The Company maintains two stock-based compensation plans, the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (the “Incentive Plan”) and the 2010 Employment Inducement Award Plan (the “Inducement Plan”). The Company’s equity awards are recognized on the consolidated statements of operations at grant date fair value over the service period of the award, net of estimated forfeitures.

The following table provides a summary of the Company’s outstanding equity awards (in shares or units) as of December 31, 2013 :



Incentive Plan
Restricted Stock
Annual grants	866,894
Sign-on grants	436,402
Retention grants	—
Performance grants	—
	1,303,296
Inducement Plan
Restricted Stock	58,310

Total restricted stock related to compensation	1,361,606

ARI deal consideration (1)	220,456

Total restricted stock outstanding	1,582,062

Incentive Plan
Restricted Stock Units
Leadership grants	290,536

Incentive Plan
Stock options outstanding	469,289


(1)	The Company issued restricted stock as part of deal consideration in conjunction with the acquisition of ARI.

Incentive Plan

The Incentive Plan permits the grant of equity awards, including restricted stock, restricted stock units and non-qualified stock options, to the Company’s employees and directors for up to 7.0 million shares of common stock ( 1.1 million shares remained available for future issuance under the Incentive Plan as of December 31, 2013 ). 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 Incentive Plan provides for accelerated vesting of awards if there is a severance event, a change in control of the Company (as defined in the Incentive Plan), in the event of a participant’s death, and at the discretion of the compensation committee of the Company’s board of directors.

Restricted Stock Awards

Restricted stock grants are valued at the market price of the Company’s common stock on the date of grant and are amortized over the related requisite service period. The Company grants shares of restricted stock to current employees as part of year-end compensation (“Annual Grants”) and as a retention tool. Employees may receive restricted stock upon initial hiring or as a retention award (“Sign-on Grants”). The Company has also granted incremental restricted stock awards with service conditions to key employees (“Retention Grants”) and restricted stock with performance conditions to members of senior management ("Performance Grants").

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Notes to the Consolidated Financial Statements – Continued

The Company’s Annual Grants are made each year in February. Annual Grants vest ratably over three years in equal installments. The Annual Grants provide for continued vesting after termination of employment, so long as the employee does not violate certain post-termination restrictions set forth in the award agreement or any agreements entered into upon termination. The Company determined the service inception date precedes the grant date for the Annual Grants, and that the post-termination restrictions do not meet the criteria for an in-substance service condition, as defined by ASC 718. Accordingly, restricted stock granted as part of the Annual Grants is expensed in the one -year period in which those awards are deemed to be earned, which is generally the calendar year preceding the February grant date. For example, the Company recognized compensation expense during fiscal 2013 for its February 2014 Annual Grant. If an equity award related to the Annual Grants 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 a reversal of compensation expense.

Sign-on Grants are used as a recruiting tool for new employees and are issued to current employees as a retention tool. These awards have both cliff and ratable vesting terms, and the employees must fulfill service requirements in exchange for rights to the awards. Compensation expense is amortized on a straight-line basis from the grant date over the requisite service period, generally two to five years. Employees forfeit unvested shares upon termination of employment and a reversal of compensation expense is recorded.

Retention Grants were subject to ratable vesting based upon a five -year service requirement and were amortized as compensation expense on a straight-line basis from the 2008 grant date over the requisite service period, which ended in May 2013. Employees forfeited unvested retention shares upon termination of employment and a reversal of compensation expense was recorded.

Performance Grants awarded in 2008 and 2009 expired unvested in May 2013.

Annually, the Company grants stock to its non-employee directors. The stock-based compensation paid to non-employee directors is fully expensed on the grant date and included within outside services expense on the consolidated statements of operations.

Restricted Stock Units

The Company granted restricted stock units to its leadership team (“Leadership Grants”) in May 2012 and 2013, respectively. The units will vest and convert to shares of common stock at the end of each 36 -month performance period only if the Company satisfies predetermined market conditions over the performance period. Under the terms of the grants, the number of units that will vest and convert to shares will be based on the Company achieving specified market conditions during each performance period as described below. Compensation expense is amortized on a straight-line basis over the three -year requisite service period based on the fair value of the award on the grant date. The market condition must be met for the awards to vest and compensation cost will be recognized regardless if the market condition is satisfied. Employees forfeit unvested share units upon termination of employment with a corresponding reversal of compensation expense.

Up to 50 percent of the award can be earned based on the Company’s total shareholder return relative to members of a predetermined peer group and up to 50 percent of the award can be earned based on the Company’s total shareholder return. The fair value of the awards on the grant date were determined using a Monte Carlo simulation with the following assumptions:



	Risk-free	Expected Stock
Grant Year	Interest Rate	Price Volatility
2013	0.40%	44.0%
2012	0.38%	47.6%

Because a portion of the award vesting depends on the Company’s total shareholder return relative to a peer group, the valuation modeled the performance of the peer group as well as the correlation between the Company and the peer group. The expected stock price volatility assumptions were determined using historical volatility as correlation coefficients can only be developed through historical volatility. The risk-free interest rates were determined based on three -year U.S. Treasury bond yields.

100

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Notes to the Consolidated Financial Statements – Continued

Stock Options

The Company previously granted options to purchase Piper Jaffray Companies common stock to employees and non-employee directors in fiscal years 2004 through 2008. Employee and director 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. As described above pertaining to the Company’s Annual Grants of restricted shares, stock options granted to employees were expensed in the calendar year preceding the annual February grant date. For example, the Company recognized compensation expense during fiscal 2007 for its February 2008 option grant. The maximum term of the stock options granted to employees and directors is ten years. The Company has not granted stock options since 2008.

Inducement Plan

In 2010, the Company established the Inducement Plan in conjunction with the acquisition of ARI. The Company granted $7.0 million in restricted stock ( 158,801 shares) under the Inducement Plan to ARI employees upon closing of the transaction. These shares vest ratably over five years in equal annual installments ending on March 1, 2015. Inducement Plan awards are amortized as compensation expense on a straight-line basis over the vesting period. Employees forfeit unvested Inducement Plan shares upon termination of employment and a reversal of compensation expense is recorded.

Stock-Based Compensation Activity

The Company recorded total compensation expense within continuing operations of $21.0 million , $20.2 million and $21.2 million for the years ended December 31, 2013 , 2012 and 2011 , respectively, related to employee restricted stock and restricted stock unit awards. Total compensation cost includes year-end compensation for Annual Grants and the amortization of Sign-on, Retention and Leadership Grants, less forfeitures of $1.0 million , $1.3 million and $3.3 million for the years ended December 31, 2013 , 2012 and 2011 , respectively. The tax benefit related to stock-based compensation costs totaled $8.2 million , $7.9 million and $8.2 million for the years ended December 31, 2013 , 2012 and 2011 , respectively.

The following table summarizes the changes in the Company’s unvested restricted stock (including the unvested restricted stock issued as part of the deal consideration for ARI) under the Incentive Plan and Inducement Plan for the years ended December 31, 2013 , 2012 and 2011 :



	Unvested		Weighted Average
	Restricted Stock		Grant Date
	(in Shares)		Fair Value
December 31, 2010	4,523,184		$	39.84
Granted	663,887		40.87
Vested	(1,791,712	)	37.77
Canceled	(243,358	)	39.03
December 31, 2011	3,152,001		$	38.79
Granted	635,136		22.89
Vested	(1,309,881	)	34.21
Canceled	(154,818	)	39.37
December 31, 2012	2,322,438		$	37.01
Granted	682,760		38.35
Vested	(1,165,989	)	39.83
Canceled	(257,147	)	38.30
December 31, 2013	1,582,062		$	35.25

The fair value of restricted stock that vested during the years ended December 31, 2013 , 2012 and 2011 was $46.4 million , $44.8 million and $67.7 million , respectively.

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The following summarizes the changes in the Company’s unvested restricted stock units under the Incentive Plan for the years ended December 31, 2013 and 2012 :



	Unvested		Weighted Average
	Restricted		Grant Date
	Stock Units		Fair Value
December 31, 2011	—		$	—
Granted	214,526		12.12
Vested	—		—
Canceled	(41,255	)	12.12
December 31, 2012	173,271		$	12.12
Granted	117,265		21.32
Vested	—		—
Canceled	—		—
December 31, 2013	290,536		$	15.83

As of December 31, 2013 , there was $13.5 million of total unrecognized compensation cost related to restricted stock and restricted stock units expected to be recognized over a weighted average period of 2.86 years .

The following table summarizes the changes in the Company’s outstanding stock options for the years ended December 31, 2013 , 2012 and 2011 :



					Weighted Average
			Weighted		Remaining
	Options		Average		Contractual Term	Aggregate
	Outstanding		Exercise Price		(in Years)	Intrinsic Value
December 31, 2010	515,492		$	44.64	4.9	$	166,406
Granted	—		—
Exercised	(1,023	)	39.62
Canceled	(11,846	)	42.19
December 31, 2011	502,623		$	44.71	3.9	$	—
Granted	—		—
Exercised	—		—
Canceled	(16,060	)	43.17
December 31, 2012	486,563		$	44.76	2.9	$	94,150
Granted	—		—
Exercised	—		—
Canceled	(17,274	)	42.85
December 31, 2013	469,289		$	44.83	2.0	$	288,318

Options exercisable at December 31, 2011	502,623		$	44.71	3.9	$	—
Options exercisable at December 31, 2012	486,563		$	44.76	2.9	$	94,150
Options exercisable at December 31, 2013	469,289		$	44.83	2.0	$	288,318

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Notes to the Consolidated Financial Statements – Continued

Additional information regarding Piper Jaffray Companies options outstanding as of December 31, 2013 is as follows:



	Options Outstanding				Exercisable Options
		Weighted Average
		Remaining	Weighted			Weighted
Range of		Contractual	Average			Average
Exercise Prices	Shares	Life (in Years)	Exercise Price		Shares	Exercise Price
$28.01	22,852	1.3	$	28.01	22,852	$	28.01
$33.40	4,001	1.6	$	33.40	4,001	$	33.40
$39.62	131,637	1.1	$	39.62	131,637	$	39.62
$41.09	128,887	4.1	$	41.09	128,887	$	41.09
$47.30 - $51.05	134,499	0.5	$	47.74	134,499	$	47.74
$70.13 - $70.65	47,413	2.9	$	70.26	47,413	$	70.26

As of December 31, 2013 , there was no unrecognized compensation cost related to stock options expected to be recognized over future years.

The fair value of options exercised, cash received from option exercises and the resulting tax benefit realized for the tax deductions from option exercises were immaterial for the years ended December 31, 2013 , 2012 and 2011 , respectively.

The Company has a policy of issuing shares out of treasury (to the extent available) to satisfy share option exercises and restricted stock vesting. The Company expects to withhold approximately 0.3 million shares from employee equity awards vesting in 2014, related to employee individual income tax withholding obligations on restricted stock vesting. For accounting purposes, withholding shares to cover employees’ tax obligations is deemed to be a repurchase of shares by the Company.

Deferred Compensation Plan

In 2012, the Company established the Piper Jaffray Companies Mutual Fund Restricted Share Investment Plan, a deferred compensation plan which allows eligible employees to elect to receive a portion of the incentive compensation they would otherwise receive in the form of restricted stock, instead in MFRS Awards of registered funds managed by the Company's asset management business. MFRS Awards are awarded to qualifying employees in February of each year, and represent a portion of their compensation for performance in the preceding year similar to the Company's Annual Grants. MFRS Awards vest ratably over three years in equal installments and provide for continued vesting after termination of employment so long as the employee does not violate certain post-termination restrictions set forth in the award agreement or any agreement entered into upon termination. Forfeitures are recorded as a reduction of compensation and benefits expense within the consolidated statements of operations.

The Company has also granted MFRS Awards to new employees as a recruiting tool. Employees must fulfill service requirements in exchange for rights to the awards. Compensation expense from these awards will be amortized on a straight-line basis over the requisite service period of two to five years .

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Notes to the Consolidated Financial Statements – Continued

Note 25 Earnings 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 Piper Jaffray Companies’ common shareholders by the weighted average number of common shares outstanding for the period. Net income/(loss) applicable to Piper Jaffray Companies’ common shareholders represents net income/(loss) applicable to Piper Jaffray Companies reduced by the allocation of earnings to participating securities. Losses are not allocated to participating securities. All of the Company’s unvested restricted shares are deemed to be participating securities as they are eligible to share in the profits (e.g., receive dividends) of the Company. The Company’s unvested restricted stock units are not participating securities as they are not eligible to share in the profits of the Company. 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:



	Year Ended December 31,
(Amounts in thousands, except per share data)	2013			2012			2011
Net income/(loss) from continuing operations applicable to Piper Jaffray Companies	$	49,829		$	47,075		$	(90,772	)
Net loss from discontinued operations	(4,739		)	(5,807		)	(11,248		)
Net income/(loss) applicable to Piper Jaffray Companies	45,090			41,268			(102,020		)
Earnings allocated to participating securities (1)	(4,494		)	(5,933		)	—
Net income/(loss) applicable to Piper Jaffray Companies’ common shareholders (2)	$	40,596		$	35,335		$	(102,020	)

Shares for basic and diluted calculations:
Average shares used in basic computation	15,046			15,615			15,672
Stock options	15			1			13
Restricted stock	—			—			2,892
Average shares used in diluted computation	15,061			15,616			18,577			(3)

Earnings/(loss) per basic common share:
Income/(loss) from continuing operations	$	2.98		$	2.58		$	(5.79	)
Loss from discontinued operations	(0.28		)	(0.32		)	(0.72		)
Earnings/(loss) per basic common share	$	2.70		$	2.26		$	(6.51	)

Earnings/(loss) per diluted common share:
Income/(loss) from continuing operations	$	2.98		$	2.58		$	(5.79	)
Loss from discontinued operations	(0.28		)	(0.32		)	(0.72		)
Earnings/(loss) per diluted common share	$	2.70		$	2.26		$	(6.51	)	(3)


(1)	Represents the allocation of earnings to participating securities. Losses are not allocated to participating securities. Participating securities include all of the Company’s unvested restricted shares. The weighted average participating shares outstanding were 1,667,067 ; 2,622,438 and 3,528,624 for the years ended December 31, 2013 , 2012 and 2011 , respectively.

(2)

Net income/(loss) applicable to Piper Jaffray Companies’ 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 Piper Jaffray Companies’ common shareholders and participating securities for purposes of calculating diluted and basic EPS.


(3)	Earnings per diluted common share is calculated using the basic weighted average number of common shares outstanding for periods in which a loss is incurred.

The anti-dilutive effects from stock options were immaterial for the years ended December 31, 2013 , 2012 and 2011.

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Notes to the Consolidated Financial Statements – Continued

Note 26 Segment Reporting

Basis for Presentation

The Company structures its segments primarily based upon the nature of the financial products and services provided to customers and the Company’s management organization. The Company evaluates performance and allocates resources based on segment pre-tax operating income or loss and segment pre-tax operating margin. Revenues and expenses directly associated with each respective segment are included in determining their operating results. Other revenues and expenses that are not directly attributable to a particular segment are allocated based upon the Company’s allocation methodologies, including each segment’s respective net revenues, use of shared resources, headcount or other relevant measures. The financial management of assets is performed on an enterprise-wide basis. As such, assets are not assigned to the business segments.

Segment pre-tax operating income and segment pre-tax operating margin exclude the results of discontinued operations.

Reportable segment financial results from continuing operations are as follows:



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011
Capital Markets
Investment banking
Financing
Equities	$	100,224		$	73,180		$	74,161
Debt	74,284			74,102			54,565
Advisory services	74,420			86,165			74,373
Total investment banking	248,928			233,447			203,099

Institutional sales and trading
Equities	91,169			75,723			86,175
Fixed income	76,275			111,492			75,589
Total institutional sales and trading	167,444			187,215			161,764

Management and performance fees	3,891			1,678			243

Investment income	30,404			9,840			11,052

Long-term financing expenses	(7,420		)	(7,982		)	(7,067		)

Net revenues	443,247			424,198			369,091

Non-interest expenses
Goodwill impairment	—			—			120,298
Operating expenses (1)	393,231			371,628			344,036
Total non-interest expenses	393,231			371,628			464,334

Segment pre-tax operating income/(loss)	$	50,016		$	52,570		$	(95,243	)

Segment pre-tax operating margin	11.3		%	12.4		%	N/M

Continued on next page

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Notes to the Consolidated Financial Statements – Continued



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011
Capital Markets
Investment banking
Asset Management
Management and performance fees
Management fees	$	71,314		$	63,236		$	60,819
Performance fees	7,840			785			2,245
Total management and performance fees	79,154			64,021			63,064

Investment income/(loss)	2,794			733			(72		)

Net revenues	81,948			64,754			62,992

Operating expenses (1)	56,351			48,313			47,938

Segment pre-tax operating income	$	25,597		$	16,441		$	15,054

Segment pre-tax operating margin	31.2		%	25.4		%	23.9		%


Total
Net revenues	$	525,195		$	488,952		$	432,083

Non-interest expenses
Goodwill impairment	—			—			120,298
Operating expenses (1)	449,582			419,941			391,974
Total non-interest expenses	449,582			419,941			512,272

Pre-tax operating income/(loss)	$	75,613		$	69,011		$	(80,189	)

Pre-tax operating margin	14.4		%	14.1		%	N/M

N/M – Not meaningful


(1)	Operating expenses include intangible asset amortization expense as set forth in the table below:



	Year Ended December 31,
(Dollars in thousands)	2013		2012		2011
Capital Markets	$	1,349	$	—	$	—
Asset Management	6,644		6,944		7,256
Total intangible asset amortization expense	$	7,993	$	6,944	$	7,256

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Notes to the Consolidated Financial Statements – Continued

Geographic Areas

The Company operates in both U.S. and non-U.S. markets. The Company’s non-U.S. business activities are principally conducted through European locations. Net revenues and long-lived assets for the Company's Asian location was not significant. Net revenues disclosed in the following table reflect the regional view, with financing revenues allocated to geographic locations based upon the location of the capital market, advisory revenues allocated based upon the location of the investment banking team and net institutional sales and trading revenues allocated based upon the location of the client. Asset management revenues are allocated to the U.S. based upon the geographic location of the Company’s asset management team. Net revenues exclude discontinued operations for all periods presented.



	Year Ended December 31,
(Dollars in thousands)	2013		2012		2011
Net revenues:
United States	$	513,433	$	476,718	$	415,647
Europe	11,762		12,234		16,436
Consolidated	$	525,195	$	488,952	$	432,083

Long-lived assets are allocated to geographic locations based upon the location of the asset. The following table presents long-lived assets held for use by geographic region:



	December 31,		December 31,
(Dollars in thousands)	2013		2012
Long-lived assets:
United States	$	296,516	$	285,682
Europe	6,414		1,131
Consolidated	$	302,930	$	286,813

Note 27 Net Capital Requirements and Other Regulatory Matters

Piper Jaffray is registered as a securities broker dealer with the SEC and is a member of various 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 and other provisions of SEC and FINRA rules. In addition, Piper Jaffray is subject to certain notification requirements related to withdrawals of excess net capital.

At December 31, 2013 , net capital calculated under the SEC rule was $165.6 million , and exceeded the minimum net capital required under the SEC rule by $164.6 million .

The Company’s short-term committed credit facility of $250 million and its variable rate senior notes include covenants requiring Piper Jaffray to maintain minimum net capital of $120 million .

Piper Jaffray Ltd., a broker dealer subsidiary registered in the United Kingdom, was subject to the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority. As of December 31, 2013 , Piper Jaffray Ltd. was in compliance with the capital requirements of the Prudential Regulation Authority and the Financial Conduct Authority.

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Notes to the Consolidated Financial Statements – Continued

Note 28 Income Taxes

Income tax expense is provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between amounts reported for income tax purposes and financial statement purposes, 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 components of income tax expense from continuing operations are as follows:



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011
Current:
Federal	$	20,468		$	16,939		$	(6,108	)
State	3,795			(9,563		)	27
Foreign	183			—			—
	24,446			7,376			(6,081		)
Deferred:
Federal	(1,582		)	7,735			13,803
State	(4,041		)	4,413			2,491
Foreign	1,567			(54		)	(1,093		)
	(4,056		)	12,094			15,201

Total income tax expense from continuing operations	$	20,390		$	19,470		$	9,120

Total income tax expense/(benefit) from discontinued operations	$	(2,935	)	$	(23,795	)	$	1,756

A reconciliation of federal income taxes at statutory rates to the Company’s effective tax rates from continuing operations is as follows:



	Year Ended December 31,
(Dollars in thousands)	2013			2012			2011
Federal income tax expense/(benefit) at statutory rates	$	26,464		$	24,153		$	(28,066	)
Increase/(reduction) in taxes resulting from:
Goodwill impairment	—			—			40,440
State income taxes, net of federal tax benefit	2,785			2,540			1,327
Net tax-exempt interest income	(3,917		)	(3,353		)	(3,308		)
Foreign jurisdictions tax rate differential	(185		)	(164		)	413
Change in valuation allowance	(4,182		)	(1,110		)	(2,185		)
Restricted stock deferred tax asset write-off	—			4,577			557
Income attributable to noncontrolling interests	(1,888		)	(863		)	(512		)
Other, net	1,313			(6,310		)	454
Total income tax expense from continuing operations	$	20,390		$	19,470		$	9,120

In accordance with ASC 740, U.S. income taxes are not provided on undistributed earnings of international subsidiaries that are permanently reinvested. As of December 31, 2013 , undistributed earnings permanently reinvested in the Company’s foreign subsidiaries were not material.

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Notes to the Consolidated Financial Statements – Continued

Deferred income tax assets and liabilities reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for the same items for income tax reporting purposes. The net deferred income tax assets included in other assets on the consolidated statements of financial condition consisted of the following items:



	December 31,			December 31,
(Dollars in thousands)	2013			2012
Deferred tax assets:
Deferred compensation	$	43,608		$	38,090
Net operating loss carry forwards	5,569			7,645
Liabilities/accruals not currently deductible	1,903			2,035
Other	1,459			2,667
Total deferred tax assets	52,539			50,437
Valuation allowance	(159		)	(5,139		)

Deferred tax assets after valuation allowance	52,380			45,298

Deferred tax liabilities:
Goodwill amortization	9,957			6,010
Unrealized gains on firm investments	3,577			2,134
Fixed assets	1,017			2,706
Other	1,577			826

Total deferred tax liabilities	16,128			11,676

Net deferred tax assets	$	36,252		$	33,622

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. The Company believes that its future tax profits will be sufficient to recognize its deferred tax assets, with the exception of $0.2 million in state net operating loss carryforwards.

The Company accounts for unrecognized tax benefits in accordance with the provisions of ASC 740, which requires tax reserves to be recorded for uncertain tax positions on the consolidated statements of financial condition. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(Dollars in thousands)
Balance at December 31, 2010	$	9,510
Additions based on tax positions related to the current year	—
Additions for tax positions of prior years	—
Reductions for tax positions of prior years	(595		)
Settlements	—
Balance at December 31, 2011	$	8,915
Additions based on tax positions related to the current year	—
Additions for tax positions of prior years	200
Reductions for tax positions of prior years	(8,825		)
Settlements	—
Balance at December 31, 2012	$	290
Additions based on tax positions related to the current year	—
Additions for tax positions of prior years	2,000
Reductions for tax positions of prior years	(90		)
Settlements	—
Balance at December 31, 2013	$	2,200

As of December 31, 2013 , approximately $0.2 million of the Company's unrecognized tax benefits would impact the annual effective rate, if recognized. In 2012 , the Company reversed $8.8 million for unrecognized tax benefits. In addition, the Company reversed $2.6 million of accrued interest related to these positions. In aggregate, the Company recorded a $7.4 million credit to

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Notes to the Consolidated Financial Statements – Continued

income tax expense in 2012 , net of federal income tax. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. During the year ended December 31, 2013 , the Company recognized $0.2 million in interest and penalties. During the year ended December 31, 2012 , the Company recognized no interest and penalties. During the year ended December 31, 2011 , the Company recognized approximately $0.3 million in interest and penalties. The Company had approximately $0.2 million and $0.1 million for the payment of interest and penalties accrued at December 31, 2013 and 2012 , respectively. The Company or one of its subsidiaries files income tax returns with the various states and foreign jurisdictions in which the Company operates. The Company is not subject to U.S. federal tax authorities for years before 2011 and is not subject to state and local or non-U.S. tax authorities for taxable years before 2006. The Company anticipates all of its uncertain income tax provisions will be resolved within the next twelve months.

Note 29 Piper Jaffray Companies (Parent Company only)

Condensed Statements of Financial Condition



	December 31,		December 31,
(Amounts in thousands)	2013		2012
Assets
Cash and cash equivalents	$	336	$	1,069
Investment in and advances to subsidiaries	870,104		857,973
Other assets	9,119		20,850
Total assets	$	879,559	$	879,892

Liabilities and Shareholders’ Equity
Variable rate senior notes	$	125,000	$	125,000
Accrued compensation	18,454		20,838
Other liabilities and accrued expenses	1,429		762
Total liabilities	144,883		146,600

Shareholders’ equity	734,676		733,292
Total liabilities and shareholders’ equity	$	879,559	$	879,892

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Notes to the Consolidated Financial Statements – Continued

Condensed Statements of Operations



	Year Ended December 31,
(Amounts in thousands)	2013			2012			2011
Revenues:
Dividends from subsidiaries	$	46,000		$	119,000		$	80,483
Interest	254			82			31
Other revenues	198			—			—
Total revenues	46,452			119,082			80,514

Interest expense	5,850			5,823			5,392

Net revenues	40,602			113,259			75,122

Non-interest expenses:
Total non-interest expenses	3,096			4,222			13,044

Income from continuing operations before income tax expense/(benefit) and equity in undistributed/(distributed in excess of) income of subsidiaries	37,506			109,037			62,078

Income tax expense/(benefit)	13,263			39,175			(3,128		)

Income from continuing operations of parent company	24,243			69,862			65,206

Equity in undistributed/(distributed in excess of) income of subsidiaries	25,200			(49,617		)	(167,226		)

Net income/(loss) from continuing operations	49,443			20,245			(102,020		)

Discontinued operations:
Income/(loss) from discontinued operations, net of tax	(4,353		)	21,023			—

Net income/(loss)	$	45,090		$	41,268		$	(102,020	)

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Notes to the Consolidated Financial Statements – Continued

Condensed Statements of Cash Flows



	Year Ended December 31,
(Amounts in thousands)	2013			2012			2011
Operating Activities:
Net income/(loss)	$	45,090		$	41,268		$	(102,020	)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Share-based and deferred compensation	60			240			437
Goodwill impairment	—			—			9,247
Equity distributed in excess of/(in undistributed) income of subsidiaries	(25,200		)	49,617			167,226

Net cash provided by operating activities	19,950			91,125			74,890

Financing Activities:
Issuance of variable rate senior notes	—			125,000			—
Decrease in bank syndicated financing	—			(115,000		)	(10,000		)
Advances from/(to) subsidiaries	35,246			(76,481		)	(51,916		)
Repurchase of common stock	(55,929		)	(38,068		)	(5,994		)

Net cash used in financing activities	(20,683		)	(104,549		)	(67,910		)

Net increase/(decrease) in cash and cash equivalents	(733		)	(13,424		)	6,980

Cash and cash equivalents at beginning of year	1,069			14,493			7,513

Cash and cash equivalents at end of year	$	336		$	1,069		$	14,493

Supplemental disclosures of cash flow information
Cash received/(paid) during the year for:
Interest	$	(5,596	)	$	(5,741	)	$	(5,361	)
Income taxes	$	(13,263	)	$	(39,175	)	$	3,128

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Supplemental Information

Quarterly Information (unaudited)



	2013 Fiscal Quarter
(Amounts in thousands, except per share data)		First			Second			Third			Fourth
Total revenues		$	115,312		$	106,520		$	134,506		$	193,893
Interest expense		5,779			6,748			6,192			6,317
Net revenues		109,533			99,772			128,314			187,576
Non-interest expenses		91,365			96,439			116,254			145,524
Income from continuing operations before income tax expense		18,168			3,333			12,060			42,052
Income tax expense		5,600			1,644			2,886			10,260
Net income from continuing operations		12,568			1,689			9,174			31,792
Loss from discontinued operations, net of tax		(521		)	(1,871		)	(1,529		)	(818		)
Net income/(loss)		12,047			(182		)	7,645			30,974
Net income/(loss) applicable to noncontrolling interests		1,901			(2,670		)	2,323			3,840
Net income applicable to Piper Jaffray Companies		$	10,146		$	2,488		$	5,322		27,134
Net income applicable to Piper Jaffray Companies' common shareholders		$	8,966		$	2,266		$	4,826		$	24,445

Amounts applicable to Piper Jaffray Companies
Net income from continuing operations		$	10,667		$	4,359		$	6,851		$	27,952
Net loss from discontinued operations		(521		)	(1,871		)	(1,529		)	(818		)
Net income applicable to Piper Jaffray Companies		$	10,146		$	2,488		$	5,322		$	27,134

Earnings per basic common share
Income from continuing operations		$	0.60		$	0.25		$	0.42		$	1.75
Loss from discontinued operations		(0.03		)	(0.11		)	(0.09		)	(0.05		)
Earnings per basic common share		$	0.58		$	0.15		$	0.33		$	1.70

Earnings per diluted common share
Income from continuing operations		$	0.60		$	0.25		$	0.42		$	1.75
Loss from discontinued operations		(0.03		)	(0.11		)	(0.09		)	(0.05		)
Earnings per diluted common share		$	0.57		$	0.15		$	0.33		$	1.70

Weighted average number of common shares
Basic		15,582			15,621			14,641			14,378
Diluted		15,610			15,626			14,626			14,397

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Piper Jaffray Companies

Supplemental Information – Continued



	2012 Fiscal Quarter
(Amounts in thousands, except per share data)		First			Second			Third		Fourth
Total revenues		$	117,566		$	107,417		$	135,900	$	147,164
Interest expense		4,128			4,319			4,395		6,253
Net revenues		113,438			103,098			131,505		140,911
Non-interest expenses		98,216			97,443			106,153		118,129
Income from continuing operations before income tax expense/(benefit)		15,222			5,655			25,352		22,782
Income tax expense/(benefit)		7,553			(5,699		)	10,194		7,422
Net income from continuing operations		7,669			11,354			15,158		15,360
Income/(loss) from discontinued operations, net of tax		(3,303		)	(3,934		)	5,171		(3,741		)
Net income		4,366			7,420			20,329		11,619
Net income/(loss) applicable to noncontrolling interests		1,437			569			665		(205		)
Net income applicable to Piper Jaffray Companies		$	2,929		$	6,851		$	19,664	$	11,824
Net income applicable to Piper Jaffray Companies' common shareholders		$	2,480		$	5,890		$	16,840	$	10,198

Amounts applicable to Piper Jaffray Companies
Net income from continuing operations		$	6,232		$	10,785		$	14,493	$	15,565
Net income/(loss) from discontinued operations		(3,303		)	(3,934		)	5,171		(3,741		)
Net income applicable to Piper Jaffray Companies		$	2,929		$	6,851		$	19,664	$	11,824

Earnings per basic common share
Income from continuing operations		$	0.33		$	0.58		$	0.82	$	0.88
Income/(loss) from discontinued operations		(0.17		)	(0.21		)	0.29		(0.21		)
Earnings per basic common share		$	0.15		$	0.37		$	1.11	$	0.67

Earnings per diluted common share
Income from continuing operations		$	0.33		$	0.58		$	0.82	$	0.88
Income/(loss) from discontinued operations		(0.17		)	(0.21		)	0.29		(0.21		)
Earnings per diluted common share		$	0.15		$	0.37		$	1.11	$	0.67

Weighted average number of common shares
Basic		16,072			15,932			15,210		15,253
Diluted		16,072			15,932			15,210		15,256

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. 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 fourth quarter of our fiscal year ending December 31, 2013 , 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.

Management’s Report on Internal Control Over Financial Reporting and the attestation report of our independent registered public accounting firm on management’s assessment of internal control over financial reporting are included in Part II, Item 8 entitled “Financial Statements and Supplemental Information” and are incorporated herein by reference.

ITEM 9B. OTHER INFORMATION.

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information regarding our executive officers included in Part I of this Form 10-K under the caption “Executive Officers” is incorporated herein by reference. The information in the definitive proxy statement for our 2014 annual meeting of shareholders to be held on May 7, 2014 , under the captions “Item I — Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance — Committees of the Board — Audit Committee,” “Information Regarding the Board of Directors and Corporate Governance — Codes of Ethics and Business Conduct” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

The information in the definitive proxy statement for our 2014 annual meeting of shareholders to be held on May 7, 2014 , under the captions “Executive Compensation,” “Certain Relationships and Related Transactions — Compensation Committee Interlocks and Insider Participation,” “Information Regarding the Board of Directors and Corporate Governance — Compensation Program for Non-Employee Directors” and “Information Regarding the Board of Directors and Corporate Governance — Non-Employee Director Compensation for 2013” is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.

The information in the definitive proxy statement for our 2014 annual meeting of shareholders to be held on May 7, 2014 , under the captions “Security Ownership — Beneficial Ownership of Directors, Nominees and Executive Officers,” “Security Ownership — Beneficial Owners of More than Five Percent of Our Common Stock” and “Executive Compensation — Outstanding Equity Awards” are incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information in the definitive proxy statement for our 2014 annual meeting of shareholders to be held on May 7, 2014 , under the captions “Information Regarding the Board of Directors and Corporate Governance — Director Independence,” “Certain Relationships and Related Transactions — Transactions with Related Persons” and “Certain Relationships and Related Transactions — Review and Approval of Transactions with Related Persons” is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information in the definitive proxy statement for our 2014 annual meeting of shareholders to be held on May 7, 2014 , under the captions “Audit Committee Report and Payment of Fees to Our Independent Auditor — Auditor Fees” and “Audit Committee Report and Payment of Fees to Our Independent Auditor — Auditor Services Pre-Approval Policy” is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1) FINANCIAL STATEMENTS OF THE COMPANY.

The Consolidated Financial Statements are incorporated herein by reference and included in Part II, Item 8 to this Form 10-K.

(a)(2) FINANCIAL STATEMENT SCHEDULES.

All financial statement schedules for the Company have been included in the consolidated financial statements or the related footnotes, or are either inapplicable or not required.

(a)(3) EXHIBITS.



Exhibit
Number		Description

2.1		Separation and Distribution Agreement dated as of December 23, 2003, between U.S. Bancorp and Piper Jaffray Companies (incorporated by reference to Exhibit 2.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed March 8, 2004). #
2.2		Agreement of Purchase and Sale dated March 8, 2013 among Piper Jaffray Asset Management Inc., Piper Jaffray Companies, Fiduciary Asset Management LLC, The Wiley Angell Family Trust, and Wiley D. Angell (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed March 11, 2013). #
2.3		Agreement and Plan of Merger dated April 16, 2013 among Piper Jaffray Companies, Piper Jaffray & Co., Piper Jaffray Newco Inc., Seattle-Northwest Securities Corporation and Karl Leaverton, as representative of the shareholders (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed April 17, 2013). #
3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007, filed August 3, 2007).
3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007, filed August 3, 2007).
4.1		Form of Specimen Certificate for Piper Jaffray Companies Common Stock (incorporated by reference to Exhibit 4.1 to the Company's Form 10, filed June 25, 2003).
4.2		Second Amended and Restated Indenture dated as of June 11, 2012 (Secured Commercial Paper Notes), between Piper Jaffray & Co. and the Bank of New York Mellon (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, filed August 2, 2012).
4.3		Indenture dated as of April 2, 2012 (Secured Commercial Paper Notes -- Series II), between Piper Jaffray & Co. and the Bank of New York Mellon (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed April 5, 2012).

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Exhibit
Number		Description

4.4		Indenture dated April 1, 2013 (Secured Commercial Paper Notes -- Series III), between Piper Jaffray & Co. and the Bank of New York Mellon (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed April 1, 2013).
10.1		Office Lease Agreement, dated May 30, 2012, by and among Piper Jaffray & Co. and Wells REIT – 800 Nicollett Avenue Owner, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed June 1, 2012).
10.2		U.S. Bancorp Piper Jaffray Inc. Second Century 2000 Deferred Compensation Plan (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed March 8, 2004). †
10.3		U.S. Bancorp Piper Jaffray Inc. Second Century Growth Deferred Compensation Plan, as amended and restated effective September 30, 1998 (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed March 8, 2004). †
10.4		Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement for its 2013 Annual Meeting of Shareholders, filed March 22, 2013). †
10.5		Form of Performance Share Unit Agreement for 2013 Leadership Team Grants under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2013, filed July 31, 2013). †
10.6		Piper Jaffray Companies Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2013, filed July 31, 2013). †
10.7		Form of Restricted Stock Agreement for Employee Grants in 2011, 2012, and 2013 (related to 2010, 2011, and 2012 performance, respectively) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed February 28, 2011). †
10.8		Form of Restricted Stock Agreement for Employee Grants in 2014 (related to 2013 performance) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan. † *
10.9		Form of Stock Option Agreement for Employee Grants in 2004 and 2005 (related to 2003 and 2004 performance, respectively) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed August 4, 2004). †
10.10		Form of Stock Option Agreement for Employee Grants in 2006 (related to 2005 performance) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, filed March 1, 2006). †
10.11		Form of Stock Option Agreement for Employee Grants in 2007 and 2008 (related to 2006 and 2007 performance, respectively) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed March 1, 2007). †
10.12		Form of Stock Option Agreement for Non-Employee Director Grants under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed August 4, 2004). †
10.13		Form of Performance Share Unit Agreement for 2012 Leadership Team Grants under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, filed August 2, 2012). †
10.14		Piper Jaffray Companies Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed February 28, 2011). †
10.15		Summary of Non-Employee Director Compensation Program. † *
10.16		Form of Notice Period Agreement (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed March 1, 2007). †
10.17		Amended and Restated Loan Agreement dated December 28, 2012, between Piper Jaffray & Co. and U.S. Bank National Association (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012, filed February 27, 2013).

117

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Exhibit
Number		Description

10.18		First Amendment to Amended and Restated Loan Agreement, dated December 28, 2013, between Piper Jaffray & Co. and U.S. Bank National Association.*
10.19		Note Purchase Agreement dated November 30, 2012 among Piper Jaffray Companies, Piper Jaffray & Co. and the Purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed November 30, 2012).
10.20		Restricted Stock Agreement with Brien O’Brien (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010, filed on May 7, 2010). †
10.21		Amendment to Restricted Stock Agreement with Brien O’Brien (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed February 27, 2012). †
10.22		Employment Agreement between the Company and Brien M. O’Brien (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 11, 2012). †
10.23		First Amendment to Employment Agreement, dated February 27, 2012, by and between Piper Jaffray Companies and Brien M. O'Brien (incorporated by reference to Exhibit 10.1 to the Company's Current Report on 8-K, filed February 27, 2012). †
10.24		Second Amendment to Employment Agreement, dated January 30, 2013, by and between Piper Jaffray Companies and Brien M. O'Brien (incorporated by reference to Exhibit 10.1 to the Company's Current Report on 8-K, filed February 8, 2013). †
10.25		Compensation Arrangement with M. Brad Winges (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012, filed February 27, 2013). †
10.26		Advisory Research, Inc. Long-Term Incentive Plan. † *
10.27		Piper Jaffray Companies Mutual Fund Restricted Share Investment Plan (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed February 27, 2012). †
10.28		Form of Mutual Fund Restricted Share Agreement for Employee Grants in 2012 and 2013 (related to performance in 2011 and 2012, respectively) (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed February 27, 2012). †
10.29		Form of Mutual Fund Restricted Share Agreement for Employee Grants in 2014 (related to performance in 2013). † *
21.1		Subsidiaries of Piper Jaffray Companies *
23.1		Consent of Ernst & Young LLP *
24.1		Power of Attorney *
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive Officer. *
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. *
32.1		Section 1350 Certifications. **
101		Interactive data files pursuant to Rule 405 Registration S-T: (i) the Consolidated Statements of Financial Condition as of December 31, 2013 and December 31, 2012, (ii) the Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011, (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011, (iv) the Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2013, 2012 and 2011, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 and (vi) the notes to the Consolidated Financial Statements.

_______________________


#	The Company hereby agrees to furnish supplementally to the Commission upon request any omitted exhibit or schedule.


†	This exhibit is a management contract or compensatory plan or agreement.


*	Filed herewith


**	This information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

118

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 28, 2014 .



PIPER JAFFRAY COMPANIES

By		/s/ Andrew S. Duff
Its		Chairman and Chief Executive Officer



	SIGNATURE			TITLE

	/s/ Andrew S. Duff			Chairman and Chief Executive Officer
	Andrew S. Duff			(Principal Executive Officer)

	/s/ Debbra L. Schoneman			Chief Financial Officer
	Debbra L. Schoneman			(Principal Financial and Accounting Officer)

	/s/ Michael R. Francis			Director
	Michael R. Francis

	/s/ B. Kristine Johnson			Director
	B. Kristine Johnson

	/s/ Addison L. Piper			Director
	Addison L. Piper

	/s/ Lisa K. Polsky			Director
	Lisa K. Polsky

	/s/ Philip E. Soran			Director
	Philip E. Soran

	/s/ Scott C. Taylor			Director
	Scott C. Taylor

	/s/ Michele Volpi			Director
	Michele Volpi

	/s/ Hope Woodhouse			Director
	Hope Woodhouse

119

Exhibit Index



Exhibit
Number		Description

2.1		Separation and Distribution Agreement dated as of December 23, 2003, between U.S. Bancorp and Piper Jaffray Companies (incorporated by reference to Exhibit 2.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed March 8, 2004). #
2.2		Agreement of Purchase and Sale dated March 8, 2013 among Piper Jaffray Asset Management Inc., Piper Jaffray Companies, Fiduciary Asset Management LLC, The Wiley Angell Family Trust, and Wiley D. Angell (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed March 11, 2013). #
2.3		Agreement and Plan of Merger dated April 16, 2013 among Piper Jaffray Companies, Piper Jaffray & Co., Piper Jaffray Newco Inc., Seattle-Northwest Securities Corporation and Karl Leaverton, as representative of the shareholders (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed April 17, 2013). #
3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007, filed August 3, 2007).
3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007, filed August 3, 2007).
4.1		Form of Specimen Certificate for Piper Jaffray Companies Common Stock (incorporated by reference to Exhibit 4.1 to the Company's Form 10, filed June 25, 2003).
4.2		Second Amended and Restated Indenture dated as of June 11, 2012 (Secured Commercial Paper Notes), between Piper Jaffray & Co. and the Bank of New York Mellon (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, filed August 2, 2012).
4.3		Indenture dated as of April 2, 2012 (Secured Commercial Paper Notes -- Series II), between Piper Jaffray & Co. and the Bank of New York Mellon (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed April 5, 2012).
4.4		Indenture dated April 1, 2013 (Secured Commercial Paper Notes -- Series III), between Piper Jaffray & Co. and the Bank of New York Mellon (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed April 1, 2013).
10.1		Office Lease Agreement, dated May 30, 2012, by and among Piper Jaffray & Co. and Wells REIT – 800 Nicollett Avenue Owner, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed June 1, 2012).
10.2		U.S. Bancorp Piper Jaffray Inc. Second Century 2000 Deferred Compensation Plan (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed March 8, 2004). †
10.3		U.S. Bancorp Piper Jaffray Inc. Second Century Growth Deferred Compensation Plan, as amended and restated effective September 30, 1998 (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed March 8, 2004). †
10.4		Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement for its 2013 Annual Meeting of Shareholders, filed March 22, 2013). †
10.5		Form of Performance Share Unit Agreement for 2013 Leadership Team Grants under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2013, filed July 31, 2013). †
10.6		Piper Jaffray Companies Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2013, filed July 31, 2013). †
10.7		Form of Restricted Stock Agreement for Employee Grants in 2011, 2012, and 2013 (related to 2010, 2011, and 2012 performance, respectively) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed February 28, 2011). †
10.8		Form of Restricted Stock Agreement for Employee Grants in 2014 (related to 2013 performance) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan. † *

120



Exhibit
Number		Description

10.9		Form of Stock Option Agreement for Employee Grants in 2004 and 2005 (related to 2003 and 2004 performance, respectively) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed August 4, 2004). †
10.10		Form of Stock Option Agreement for Employee Grants in 2006 (related to 2005 performance) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, filed March 1, 2006). †
10.11		Form of Stock Option Agreement for Employee Grants in 2007 and 2008 (related to 2006 and 2007 performance, respectively) under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed March 1, 2007). †
10.12		Form of Stock Option Agreement for Non-Employee Director Grants under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed August 4, 2004). †
10.13		Form of Performance Share Unit Agreement for 2012 Leadership Team Grants under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, filed August 2, 2012). †
10.14		Piper Jaffray Companies Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed February 28, 2011). †
10.15		Summary of Non-Employee Director Compensation Program. † *
10.16		Form of Notice Period Agreement (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed March 1, 2007). †
10.17		Amended and Restated Loan Agreement dated December 28, 2012, between Piper Jaffray & Co. and U.S. Bank National Association (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012, filed February 27, 2013).
10.18		First Amendment to Amended and Restated Loan Agreement, dated December 28, 2013, between Piper Jaffray & Co. and U.S. Bank National Association.*
10.19		Note Purchase Agreement dated November 30, 2012 among Piper Jaffray Companies, Piper Jaffray & Co. and the Purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed November 30, 2012).
10.20		Restricted Stock Agreement with Brien O’Brien (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010, filed on May 7, 2010). †
10.21		Amendment to Restricted Stock Agreement with Brien O’Brien (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed February 27, 2012). †
10.22		Employment Agreement between the Company and Brien M. O’Brien (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 11, 2012). †
10.23		First Amendment to Employment Agreement, dated February 27, 2012, by and between Piper Jaffray Companies and Brien M. O'Brien (incorporated by reference to Exhibit 10.1 to the Company's Current Report on 8-K, filed February 27, 2012). †
10.24		Second Amendment to Employment Agreement, dated January 30, 2013, by and between Piper Jaffray Companies and Brien M. O'Brien (incorporated by reference to Exhibit 10.1 to the Company's Current Report on 8-K, filed February 8, 2013). †
10.25		Compensation Arrangement with M. Brad Winges (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012, filed February 27, 2013). †
10.26		Advisory Research, Inc. Long-Term Incentive Plan. † *
10.27		Piper Jaffray Companies Mutual Fund Restricted Share Investment Plan (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed February 27, 2012). †
10.28		Form of Mutual Fund Restricted Share Agreement for Employee Grants in 2012 and 2013 (related to performance in 2011 and 2012, respectively) (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed February 27, 2012). †

121



Exhibit
Number		Description

10.29		Form of Mutual Fund Restricted Share Agreement for Employee Grants in 2014 (related to performance in 2013). † *
21.1		Subsidiaries of Piper Jaffray Companies *
23.1		Consent of Ernst & Young LLP *
24.1		Power of Attorney *
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive Officer. *
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. *
32.1		Section 1350 Certifications. **
101		Interactive data files pursuant to Rule 405 Registration S-T: (i) the Consolidated Statements of Financial Condition as of December 31, 2013 and December 31, 2012, (ii) the Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011, (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011, (iv) the Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2013, 2012 and 2011, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 and (vi) the notes to the Consolidated Financial Statements.

_______________________


#	The Company hereby agrees to furnish supplementally to the Commission upon request any omitted exhibit or schedule.


†	This exhibit is a management contract or compensatory plan or agreement.


*	Filed herewith


**	This information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

122

Exhibit 10.8

PIPER JAFFRAY COMPANIES

AMENDED AND RESTATED

2003 ANNUAL AND LONG-TERM INCENTIVE PLAN

Restricted Stock Agreement

(201_ Annual Grant)



Name of Employee:
No. of Shares Covered:	Date of Issuance:
Vesting Schedule pursuant to Section 2:
	No. of Shares Which
Vesting Date(s)	Become Vested as of Such Date

This is a Restricted Stock Agreement (“Agreement”) between Piper Jaffray Companies, a Delaware corporation (the “Company”), and the above-named employee of the Company or an Affiliate of the Company (the “Employee”). The Company maintains the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan, as amended from time to time (the “Plan”), and the Board of Directors of the Company has delegated to the Compensation Committee (the “Committee”) the authority to determine the awards to be granted under the Plan. The Board of Directors of the Company or the Committee (or the delegee of either) has determined that the Employee is eligible to receive an award under the Plan in the form of restricted stock and has set the terms thereof. Accordingly, the Company hereby grants this award to the Employee under the following terms:

Terms and Conditions ^*

1. Grant of Restricted Stock .

(a) Subject to the terms and conditions of this Agreement and the Plan, the Company hereby grants to the Employee the number of Shares specified at the beginning of this Agreement. These Shares are subject to the restrictions provided for in this Agreement and are referred to collectively as the “Restricted Shares” and each as a “Restricted Share.”

(b) The Restricted Shares will be evidenced by a book entry made in the records of the Company’s transfer agent in the name of the Employee (unless the Employee requests a certificate evidencing the Restricted Shares). All restrictions provided for in this Agreement will apply to each Restricted Share and to any other securities distributed with respect to that Restricted Share. Unless otherwise permitted by the Committee in accordance with the terms of the Plan, the Restricted Shares may not (until such Restricted Shares have vested in the Employee in accordance with all terms and

^* Unless the context indicates otherwise, capitalized terms that are not defined in this Agreement have the meanings set forth in the Plan.

conditions of this Agreement) be assigned or transferred other than by will or the laws of descent and distribution and shall not be subject to pledge, hypothecation, execution, attachment or similar process. Each Restricted Share will remain restricted and subject to cancellation and return to the Plan unless and until that Restricted Share has vested in the Employee in accordance with all of the terms and conditions of this Agreement and the Plan. Each book entry (or stock certificate if requested by the Employee) evidencing any Restricted Share may contain such notations or legends and stock transfer instructions or limitations as may be determined or authorized by the Company in its sole discretion. If a certificate evidencing any Restricted Share is requested by the Employee, the Company may, in its sole discretion, retain custody of the certificate throughout the period during which any restrictions are in effect and require, as a condition to issuing a certificate, that the Employee tender to the Company a stock power duly executed in blank relating to such custody.

2. Vesting .

(a) So long as the Employee remains continuously employed (including during the continuance of any leave of absence as approved by the Company or an Affiliate) by the Company or an Affiliate, then the Restricted Shares will vest in the numbers and on the dates specified in the Vesting Schedule at the beginning of this Agreement. Except as otherwise provided herein, if and when the Employee’s employment with the Company or an Affiliate terminates, whether by the Employee or by the Company (or an Affiliate), voluntarily or involuntarily, for any reason, then the Restricted Shares shall cease vesting and the shares not vested as of the termination date shall be cancelled and returned to the Plan in accordance with Section 4 of this Agreement.

(b) If the Employee’s employment by the Company or an Affiliate terminates because of the Employee’s death or long-term disability (as defined in the Company’s long-term disability plan, a “Disability”), then the unvested Restricted Shares will immediately vest in full.

(c) If the Employee’s employment by the Company or an Affiliate is involuntarily terminated as a result of a Company-determined severance event (i.e., an event specifically designated as a severance event by the Company in a written notice to the Employee that he or she is eligible for severance benefits under the Company’s Severance Plan, as may be amended from time to time), then the unvested Restricted Shares will, as set forth in writing in a severance agreement, vest in full upon the expiration of a thirty-day period commencing upon the Employee’s execution of a general release of all claims against the Company, on a form provided by the Company for this purpose and within the timeframe designated by the Company; provided that, no such vesting will occur unless (i) the Employee has not revoked the general release and it remains effective and enforceable upon expiration of the thirty-day period following its execution, and (ii) the Employee has complied with the terms and conditions of the Severance Plan and the applicable severance agreement.

(d) If the Employee’s employment with the Company or an Affiliate terminates for any reason other than for Cause (as defined in Section 4(b) below), the Employee’s death or Disability (as set forth in Section 2(b) above), or a Severance Event (as set forth in Section 2(c) above), then the Restricted Shares shall cease vesting and be cancelled and returned to the Plan in accordance with Section 4 of this Agreement, unless, at or around the time of such termination, the Employee voluntarily elects to sign a Post-Termination Agreement with the Company. If the Employee signs a Post-Termination Agreement, and thereafter elects to comply with the Employee’s obligations under such Post-Termination Agreement, including the obligation to refrain from engaging in any Post-Termination Restricted Activities for the shorter of the remaining vesting period of the Restricted Shares or two years following the date of termination, then the Restricted Shares shall not cease to vest and shall not be cancelled and returned to

the Plan in accordance with Section 4 below but rather, as set forth in the Post-Termination Agreement, shall continue to vest in the numbers and on the dates specified in the Vesting Schedule at the beginning of this Agreement for so long as the Employee elects to continuously refrain from engaging in any Post-Termination Restricted Activities. “Post-Termination Restricted Activities” include each of the following:

(i) at any time during the period set forth in the Post-Termination Agreement, the Employee uses, discloses or misappropriates any Company-Confidential Information (as defined below) unless the Company or an Affiliate consents otherwise in writing. “Company-Confidential Information” means any confidential, secret or proprietary knowledge or information of the Company or an Affiliate that the Employee has acquired or become acquainted with during the Employee’s employment with the Company or an Affiliate, including, without limitation, any confidential customer, client or account lists or contacts or confidential business plans or information; provided, however, that Company-Confidential Information shall not include any knowledge or information that is now publicly available or which subsequently becomes generally publicly known in the form in which it was obtained from the Company or an Affiliate, other than as a direct or indirect result of the Employee’s disclosure in violation of this Section 2(d)(i);

(ii) at any time during the period set forth in the Post-Termination Agreement, the Employee directly or indirectly, on behalf of the Employee or any other person (including but not limited to any Talent Competitor (as defined below)), solicits, induces or encourages any person then employed by the Company or an Affiliate to terminate or otherwise modify their employment relationship with the Company;

(iii) at any time during the period set forth in the Post-Termination Agreement, the Employee directly or indirectly, on behalf of the Employee or any other person (including but not limited to any Talent Competitor), solicits or otherwise seeks to divert any customer, client or account of the Company or any Affiliate with which the Employee had substantive interaction prior to the Employee’s termination of employment, away from engaging in business with the Company or any Affiliate; or

(iv) at any time during the period set forth in the Post-Termination Agreement, without the prior written consent of the Company or an Affiliate, the Employee (x) becomes a director, officer, employee, partner, consultant or independent contractor of, or otherwise works or provides services for, a Talent Competitor doing business in the same geographic or market area(s) in which the Company or an Affiliate is also doing business, or (y) has or acquires any material ownership or similar financial interest in any such Talent Competitor.

For purposes of this Section 2(d), a “Talent Competitor” means any corporation, partnership, limited liability company or other business association, organization or entity that engages in the investment banking, securities brokerage or investment management business, including, but not limited to, investment banks, sell-side broker dealers, mergers and acquisitions or strategic advisory firms, merchant banks, hedge funds, private equity firms, venture capital firms, asset managers and investment advisory firms.

Shares upon termination of employment (other than for Cause, death or Disability, or a Severance Event) by voluntarily electing to sign a Post-Termination Agreement and complying with the obligations thereunder (including the obligation to refrain from engaging in the specified Post-Termination Restricted Activities). Employee need not so choose, however, and is free to elect not to sign a Post-Termination Agreement, in which case the unvested Restricted Shares will be cancelled and returned to the Plan as described in Section 4 as a result of Employee’s termination of employment.

(e) Notwithstanding any other provisions of this Agreement to the contrary, the Committee may, in its sole discretion, declare at any time that the Restricted Shares, or any portion thereof, shall vest immediately or, to the extent they otherwise would be cancelled and returned to the Plan, shall vest in the numbers and on such dates as are determined by the Committee to be in the interests of the Company as determined by the Committee in its sole discretion.

3. Effect of Vesting . Upon the vesting of any Restricted Shares, such vested Restricted Shares will no longer be subject to cancellation and return to the Plan as provided in Section 4 of this Agreement.

4. Cancellation and Return of Unvested Restricted Shares to the Plan .

(a) If (i) the Employee attempts to pledge, encumber, assign, transfer or otherwise dispose of any of the Restricted Shares (except as permitted by Section 1(b) of this Agreement) or the Restricted Shares become subject to attachment or any similar involuntary process in violation of this Agreement, or (ii) the Employee’s employment with the Company or an Affiliate (A) is terminated for Cause or (B) terminates under the circumstances covered by Section 2(c) or Section 2(d) of this Agreement and either (1) the conditions or restrictions of such Section, as applicable, are not satisfied or (2) the conditions or restrictions of such Section, as applicable, are satisfied but the Employee subsequently violates any of them, then any Restricted Shares that have not previously vested shall cease to vest and shall be cancelled immediately and returned to the Plan, the Employee shall thereafter have no right, title or interest whatever in such unvested Restricted Shares, and, if the Company does not have custody of any and all certificates representing Restricted Shares so cancelled, the Employee shall immediately return to the Company any and all certificates representing Restricted Shares so cancelled. Additionally, the Employee will deliver to the Company a stock power duly executed in blank relating to any and all certificates representing such cancelled Restricted Shares to the Company in accordance with the previous sentence or, if such stock power has previously been tendered to the Company, the Company will be authorized to deem such previously tendered stock power delivered, and the Company will be authorized to cancel any and all certificates representing Restricted Shares so cancelled and to cause a book entry to be made in the records of the Company’s transfer agent in the name of the Employee (or a new stock certificate to be issued, if requested by the Employee) evidencing any Restricted Shares that vested prior to cancellation of unvested Restricted Shares under this Section 4. If the Restricted Shares are evidenced by a book entry made in the records of the Company’s transfer agent, then the Company will be authorized to cause such book entry to be adjusted to reflect the number of Restricted Shares so cancelled.

(b) For purposes of this Agreement, “Cause” means (i) the Employee’s continued failure to substantially perform his or her duties with the Company or an Affiliate after written demand for substantial performance is delivered to the Employee, (ii) the Employee’s conviction of a crime (including a misdemeanor) that, in the Company’s determination, impairs the Employee’s ability to perform his or her duties with the Company or an Affiliate, (iii) the Employee’s violation of any policy of the Company or an Affiliate that the Company deems material, (iv) the Employee’s violation of any securities law, rule or regulation that the Company deems material, (v) the Employee’s engagement in conduct that, in the Company’s determination, exposes the Company or an Affiliate to civil or regulatory

liability or injury to their reputations, (vi) the Employee’s engagement in conduct that would subject the Employee to statutory disqualification pursuant to Section 15(b) of the Exchange Act and the regulations promulgated thereunder, or (vii) the Employee’s gross or willful misconduct, as determined by the Company.

5. Potential Clawback . The Restricted Shares and any Shares which vest in accordance with the terms of this Agreement, and any compensation associated therewith, including any proceeds received upon the sale of any Shares by the Employee, may be made subject to forfeiture, recovery by the Company or other action pursuant to any compensation recovery policy adopted by the Board or the Committee at any time, including in response to the requirements of Section 10D of the Exchange Act and any implementing rules and regulations thereunder, or as otherwise required by law. This Agreement may be unilaterally amended by the Committee at any time to comply with any such compensation recovery policy.

6. Stockholder Rights . As of the date of issuance specified at the beginning of this Agreement, the Employee shall have all of the rights of a stockholder of the Company with respect to the Restricted Shares, except as otherwise specifically provided in this Agreement.

7. Tax Withholding . The parties hereto recognize that the Company or an Affiliate may be obligated to withhold federal and state taxes or other taxes upon the vesting of the Restricted Shares, or, in the event that the Employee elects under Code Section 83(b) to report the receipt of the Restricted Shares as income in the year of receipt, upon the Employee’s receipt of the Restricted Shares. The Employee agrees that, at such time, if the Company or an Affiliate is required to withhold such taxes, the Employee will promptly pay, in cash upon demand (or in any other manner permitted by the Committee in accordance with the terms of the Plan), to the Company or an Affiliate such amounts as shall be necessary to satisfy such obligation. The Employee further acknowledges that the Company has directed the Employee to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which the Employee may reside, and the tax consequences of the Employee’s death.

8. Restrictive Legends and Stop-Transfer Orders .

(a) Legends . The book entry or certificate representing the Restricted Shares shall contain a notation or bear the following legend (as well as any notations or legends required by applicable state and federal corporate and securities laws) noting the existence of the restrictions and the Company’s rights to reacquire the Restricted Shares set forth in this Agreement:

“THE SHARES REPRESENTED BY THIS [BOOK ENTRY] [CERTIFICATE] MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.”

(b) Stop-Transfer Notices . The Employee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

(c) Refusal to Transfer . The Company shall not be required (i) to transfer on its books any Restricted Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of the Restricted Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom the Restricted Shares shall have been so transferred.

9. Interpretation of This Agreement . All decisions and interpretations made by the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive upon the Company and the Employee. If there is any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan shall govern.

10. No Promise of Future Awards or Continued Employment . The Employee acknowledges that this Agreement awards restricted stock to the Employee, but does not impose any obligation on the Company to make any future grants or issue any future Awards to the Employee or otherwise continue the participation of the Employee under the Plan. This Agreement shall not give the Employee a right to continued employment with the Company or any Affiliate, and the Company or Affiliate employing the Employee may terminate his or her employment at will, and otherwise deal with the Employee without regard to this Agreement.

11. Binding Effect . This Agreement shall be binding in all respects on the heirs, administrators, representatives, executors and successors of the Employee, and on the Company and its successors and assigns.

12. Agreement to Arbitrate . The Company and the Employee each agrees (i) that any dispute, claim or controversy arising out of or relating directly or indirectly to the construction, performance or breach of this Agreement (including, without limitation, the grant, issuance or cancellation of Restricted Shares) shall be settled by arbitration before and in accordance with the rules of the Financial Industry Regulatory Authority; and (ii) that judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Accordingly, the Company and the Employee each waive their right (if any) to a trial before a court judge and/or jury to resolve any such disputes.

13. Choice of Law . The Company is incorporated in the State of Delaware, and by its terms the Plan is governed by the laws of the State of Delaware. Accordingly, this Agreement is entered into under the laws of the State of Delaware and shall be construed and interpreted thereunder (without regard to its conflict-of-law principles).

14. Termination; Modification . In the event that any one or more of the Post-Termination Restricted Activities described in Section 2(d) above shall be held to be unenforceable, invalid or illegal for any reason including, but not limited to, being excessively broad as to duration, geographical scope, activity or subject, such restriction shall be construed or modified by limiting and reducing it, so as to provide the Company with the maximum protection of its business interests and the intent of the parties as set forth herein and yet be valid and enforceable under the applicable law as it shall then exist. If any such restriction held to be unenforceable, invalid or illegal cannot be so construed or modified, then Section 2(d) shall be stricken in its entirety from this Agreement and this Agreement shall be construed, interpreted and enforced as if Section 2(d) had never been contained herein, and the unvested Restricted Shares that are or have been the subject of Section 2(d) shall be deemed to have ceased vesting upon the termination of the Employee’s employment and the unvested Restricted Shares shall be cancelled and returned to the Plan in accordance with Section 4 above.

15. Entire Agreement . This Agreement and the Plan set forth the entire agreement and understanding of the parties hereto with respect to the issuance and sale of the Restricted Shares and the administration of the Plan and supersede all prior agreements, arrangements, plans, and understandings relating to the issuance and sale of the Restricted Shares and the administration of the Plan.

16. Amendment and Waiver . Except as provided in the Plan or in Section 5 above, this Agreement may be amended, modified, or canceled only by a written instrument executed by the parties. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel to enforce any provision of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived, and shall not constitute a waiver of such term or condition for the future or as to any other act other than that specifically waived.

17. Acknowledgment of Receipt of Copy . By execution hereof, the Employee acknowledges having received a copy of the prospectus related to the Plan and instructions on how to access a copy of the Plan.

18. Acknowledgement of Voluntary Election; Fairness . By executing this Agreement, the Employee acknowledges his or her voluntary election to receive and accept the Restricted Shares subject to all of the terms and conditions set forth in this Agreement, and agrees to be bound thereby, including, without limitation, the terms and conditions specifying the circumstances under which the Restricted Shares shall cease to vest and shall be cancelled and returned to the Plan. Employee further acknowledges and agrees that such terms and conditions are fair and reasonable in light of the circumstances under which the award of Restricted Shares is being made.

IN WITNESS WHEREOF, the Employee and the Company have executed this Agreement as of the date of issuance specified at the beginning of this Agreement.

IMPORTANT ACKNOWLEDGEMENT: By signing this

Agreement, Employee voluntarily elects to receive and accept

the Restricted Shares subject to all of the terms and conditions

set forth in this Agreement, and specifically acknowledges and

agrees that the Restricted Shares may cease to vest and be

cancelled under certain circumstances, as specified in Section 4(a).

Employee also acknowledges and agrees that such terms and

conditions are fair and reasonable under the circumstances.

EMPLOYEE

____________________________________

PIPER JAFFRAY COMPANIES

By__________________________________

Its________________________________

Exhibit 10.15

PIPER JAFFRAY COMPANIES

2014 Compensation and Benefits for Non-Employee Directors



	Amount	Objective	Time and Terms of Payment
Annual Cash Retainer	$60,000	Consideration for Board and committee service for the current calendar year	Paid on the first business day in January. For directors joining the Board after January in any year, a pro rata amount will be paid based on the number of days the director will serve on the Board during that year.
Additional Annual Cash Retainer for Lead Director and Committee Chairpersons	$20,000-Lead Director $25,000-Audit $15,000-Compensation $15,000-Nominating and Governance	Consideration for service as lead director or committee chairperson for the current calendar year	Paid on the first business day in January. For directors becoming a Committee chairperson after January in any year, a pro rata amount will be paid based on the number of days the director will serve as chairperson during that year.
Additional Annual Cash Retainer for Committee Members	$10,000-Audit $5,000-Compensation $5,000-Nominating and Governance	Consideration for service as committee member for the current calendar year	Paid on the first business day in January. For directors joining a Committee after January in any year, a pro rata amount will be paid based on the number of days the director will serve on the committee during that year.
Additional Cash Fee for Non-Member Attendance at Committee Meetings	$1,000 per meeting	Consideration for attendance at a meeting of a committee on which the attendee is not a member	Paid on the last business day in December.
Initial Equity Grant	$60,000 (valued as of election date)	Establish PJC equity interest upon initial election to the Board to align director and shareholder interests	Shares of PJC common stock granted on the date of the director's initial election or appointment to the Board.
Annual Equity Grant	$60,000 (valued on the date of the annual meeting of shareholders)	Incentive compensation for continuing service on the Board and enhanced alignment of director and shareholder interests	Shares of PJC common stock granted on the date of the annual meeting of shareholders to any director whose service on the Board will continue following the annual meeting. For directors joining the Board after the annual meeting in any year, an equity award will be granted on the date the director is elected to the Board covering a pro rata number of shares based on the number of days during which the director will serve on the Board during that year.
Deferral Opportunity	All cash and equity received on an annual basis	Increase equity stake by directors	Annual opportunity to participate in the Amended and Restated Piper Jaffray Companies Deferred Compensation Plan for Non-Employee Directors, permitting deferral into phantom stock units of all or a portion of the director's annual cash compensation for service as a Piper Jaffray Companies director, and deferral of any shares granted in consideration of the director's service as a director. To participate in any year, irrevocable election must be made by December 31 of the preceding year for continuing directors and on the date of initial election or appointment to the Board for new directors. Annual opportunity to change the subsequent year's election. The deferral date for the cash retainer is the first business day in January each year; the deferral date for the equity grant is the date of the annual meeting of shareholders each year.



	Amount	Objective	Time and Terms of Payment
Charitable Gift Matching Program	Up to $1,500	Encourage charitable giving	Pursuant to the Piper Jaffray Gift Matching Program, Piper Jaffray will match directors' gifts to eligible organizations dollar for dollar from a minimum of $50 up to an aggregate maximum of $1,500 per year (the same terms and conditions as are applicable to employees).
Reimbursement of Out-of-Pocket Expenses	In addition to the foregoing, non-employee directors will be reimbursed for reasonable out-of-pocket expenses incurred in connection with their service on the Board and Board committees.

Exhibit 10.18

FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT

THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this “ Amendment ”) made and entered into as of December 28, 2013, by and between: PIPER JAFFRAY & CO. , a Delaware corporation (“ Borrower ”), and U.S. BANK NATIONAL ASSOCIATION , a national banking association (“ Lender ”); has reference to the following facts and circumstances (the “ Preambles ”):

A. Borrower and Lender entered into the Amended and Restated Loan Agreement dated as of December 28, 2012 (as amended, the “ Agreement ”; all capitalized terms used and not otherwise defined in this Amendment shall have the respective meanings ascribed to them in the Agreement as amended by this Amendment).

B. Borrower and Lender desire to amend the Agreement in order to extend the Termination Date until December 27, 2014, on the terms set forth below.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree as follows:

1. Preambles . The Preambles are true and correct, and, with the defined terms set forth herein, are incorporated herein by this reference.

2. Amendment to Agreement . The Agreement is amended as follows:

(a) The definition of “Termination Date” in Section 1 of the Agreement is deleted and replaced with the following:

Termination Date shall mean the earlier of December 27, 2014, or the date on which this Agreement is terminated pursuant to Section 12.

(b) The reference to “December 28, 2012” in Exhibit C (Pricing and Fees) to the Agreement is deleted and replaced with “December 28, 2013.”

3. References . All references in the Note, the Collateral Pledge Agreement, and the other Credit Documents to “the Loan Agreement” and any other references of similar import shall henceforth mean the Agreement as amended by this Amendment.

4. Full Force and Effect . Except to the extent specifically amended by this Amendment, all of the terms, provisions, conditions, covenants, representations and warranties contained in the Agreement shall be and remain in full force and effect and the same are hereby ratified and confirmed.

5. Continuing Security . The Agreement, as hereby amended, and the Note, are, and shall continue to be, secured by the Collateral Pledge Agreement.

6. Successors and Assigns . This Amendment shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns, except that Borrower may not assign, transfer or delegate any of its rights or obligations under the Agreement as amended by this Amendment.

7. Representations and Warranties . Borrower hereby represents and warrants to Lender that:

(a) the execution, delivery and performance by Borrower of this Amendment are within the corporate powers of Borrower, have been duly authorized by all necessary corporate action and require no action by or in respect of, consent of or filing or recording with, any governmental or regulatory body, instrumentality, authority, agency or official or any other person or entity;

(b) the execution, delivery and performance by Borrower of this Amendment do not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under or result in any violation of, the terms of the Certificate of Incorporation or Bylaws of Borrower, any applicable law, rule, regulation, order, writ, judgment or decree of any court or governmental or regulatory body, instrumentality authority, agency or official or any agreement, document or instrument to which Borrower is a party or by which Borrower or any of its property or assets is bound or to which Borrower or any of its property is subject;

(c) this Amendment has been duly executed and delivered by Borrower and constitutes the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law);

(d) all of the representations and warranties made by Borrower in the Agreement, the Note, the Collateral Pledge Agreement, and the other Credit Documents are true and correct in all material respects on and as of the date of this Amendment as if made on and as of the date of this Amendment; and

(e) as of the date of this Amendment, Borrower is in compliance with all provisions of the Agreement, the Note, the Collateral Pledge Agreement, and the other Credit Documents.

8. Inconsistency . In the event of any inconsistency or conflict between this Amendment and the Agreement, the terms, provisions and conditions contained in this Amendment shall govern and control.

9. Conditions . Notwithstanding any provision contained in this Amendment to the contrary, this Amendment shall not be effective unless and until Lender shall have received:

(a) this Amendment and the Pricing Letter, duly executed by Borrower;

(b) a Certificate of Secretary (with Resolutions), certified by the Secretary of Borrower;

(d) a certificate of good standing for Borrower issued by the Delaware Secretary of State (or other evidence of good standing acceptable to Lender); and

(e) such other documents and information as reasonably required by Lender.

IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment as of the day and year first above written.

[SIGNATURES ON FOLLOWING PAGE]

- 2 -

SIGNATURE PAGE-

FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT

Borrower:

PIPER JAFFRAY & CO.

By: /s/ Debbra L. Schoneman

Debbra L. Schoneman, Chief Financial Officer

By: /s/ Timothy L. Carter

Timothy L. Carter, Treasurer

Lender:

U.S. BANK NATIONAL ASSOCIATION

By: /s/ Christopher M. Doering

Christopher M. Doering, Senior Vice President

- 3 -

[U.S. BANK LETTERHEAD]

December 28, 2013

Piper Jaffray & Co.

800 Nicollet Mall, J09S04

Minneapolis, Minnesota 55402

Attention: Debbra L. Schoneman, Chief Financial Officer and Timothy L. Carter, Treasurer

Re: Amended and Restated Loan Agreement dated as of December 28, 2012, executed by U.S. Bank National Association (“ Lender ”) and Piper Jaffray & Co. (“ Borrower ”), as amended by the First Amendment to Amended and Restated Loan Agreement dated as of December 28, 2013 (as amended, the “ Agreement ”; all capitalized terms used and not otherwise defined in this Amendment shall have the respective meanings ascribed to them in the Agreement as amended by this letter agreement).

Dear Debbra and Tim:

This letter agreement is the Pricing Letter, as defined in the Agreement (and amends, restates and replaces the Pricing Letter dated December 28, 2012). The following terms are defined and incorporated into the Agreement by reference:

Applicable Margin shall mean 1.0%.

Commitment Fee . From and including the date of this Agreement to but excluding the Termination Date, Borrower shall pay a nonrefundable commitment fee on the unused portion of the Facility Amount (determined by subtracting the outstanding principal amount of all Advances from the Facility Amount) at an annual rate of 0.25%%. The commitment fee shall be (a) calculated on a daily basis, (b) payable quarterly in arrears on the first (1 ^st ) day of each calendar quarter prior to the Termination Date and on the Termination Date, and (c) calculated on an actual day, 360‑day year basis.

Work Fee . Borrower shall pay Lender, in conjunction with the First Amendment to Loan Agreement dated as of December 28, 2013, a work fee in the amount of $312,500.

Please indicate your acceptance of this Pricing Letter by signing in the space indicated below and returning a copy of this letter to the undersigned.

Very Truly Yours,

U.S. BANK NATIONAL ASSOCIATION

By: /s/ Christopher M. Doering ________

Christopher M. Doering, Senior Vice President

[BORROWER’S SIGNATURES ON PAGE 2]

Piper Jaffray & Co.

December 28, 2013

Page 2

Accepted and agreed to by Borrower as of December 28, 2013:

PIPER JAFFRAY & CO.

By: /s/ Debbra L. Schoneman

Debbra L. Schoneman, Chief Financial Officer

By: /s/ Timothy L. Carter

Timothy L. Carter, Treasurer

Exhibit 10.26

ADVISORY RESEARCH, INC.

LONG-TERM INCENTIVE PLAN

1. Purpose . The purpose of the Advisory Research, Inc. (the “Company”) Long-Term Incentive Plan (the “Plan”) is to incentivize key employees of the Company’s ARI Business (as defined below) to grow the earnings of the ARI Business, to provide a long-term incentive compensation opportunity that will encourage these key employees to remain in the employ of the Company, and to create meaningful wealth building opportunities for these key employees.

2. Definitions and Rules of Construction .

2.1 Definitions . The terms defined in this section are used (and capitalized) elsewhere in the Plan.

(a) “ Affiliate ” means any entity in which the Company has, directly or indirectly through one or more intermediaries, a controlling interest or which has, directly or indirectly through one or more intermediaries, a controlling interest in the Company, within the meaning of Treasury Regulation § 1.409A-1(b)(5)(iii)(E).

(b) “ AIP Amount” or “Annual Incentive Pool Amount” means the dollar amount determined annually to be credited to the Plan Accounts of Participants for the applicable Plan Year, as described in Section 5.

(c) “Allocable Share” means the portion of an AIP Amount allocated to the Plan Account of a Participant for a given Plan Year, as determined pursuant to Section 6.1.

(d) “ Allocation Points ” means the number of points assigned to a Participant by the Committee for a Plan Year for purposes of determining that Participant’s Allocable Share of the AIP Amount for that Plan Year.

(e) “ ARI Business ” means the business conducted and marketed by the Company under the “Advisory Research” name, including the business involving master limited partnership investment products, but excluding the business conducted and marketed under the “FAMCO” name, referring to the Company’s Fiduciary Asset Management, LLC subsidiary.

(f) “ Cause ” means (i) a Participant’s continued failure to substantially perform his or her duties with the Company or an Affiliate after written demand for substantial performance is delivered to the Participant, (ii) a Participant’s conviction of a crime (including a misdemeanor) that, in the Company’s determination, impairs the Participant’s ability to perform his or her duties with the Company or an Affiliate, (iii) a Participant’s violation of any policy of the Company or an Affiliate that the Company deems material, (iv) a Participant’s violation of any securities law, rule or regulation that the Company deems material, (v) a Participant’s engagement in conduct that, in the Company’s determination, exposes the Company or an Affiliate to civil or regulatory liability or injury to their reputations, (vi) a Participant’s engagement in conduct that would subject the Participant to statutory disqualification pursuant to Section 15(b) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder, or (vii) a Participant’s gross or willful misconduct, as determined by the Company.

(g) “Committee” means the Parent’s Chief Executive Officer (“CEO”), the Parent’s Chief Financial Officer and an Eligible Employee designated by the CEO.

(h) “EBITDA” means the ARI Business’s consolidated earnings before interest, taxes, depreciation and intangible and acquisition-related stock amortization. Notwithstanding the forgoing, EBITDA will exclude:

(i) All corporate overhead expenses allocated to the ARI Business, with the understanding that in-house legal services agreed upon by the parties and provided and directly charged to the ARI Business (including, but not limited to, legal expenses based on work performed by in-house counsel) will be separated out from the allocations;

(ii) All gains and losses based on realized and unrealized investments by the Parent in the funds of the ARI Business; and

(iii) All compensation paid or payable under the Plan.

(i) “Effective Date” means the date specified in Section 10.1.

(j) “ Eligible Employee ” means any employee of the Company or any Affiliate whose primary employment responsibilities involve the ARI Business.

(k) “ Initial Participation Date ” means the date an Eligible Employee first becomes a Participant, as evidenced by an initial Participation Notice issued to such Eligible Employee.

(l) “ Parent ” means Piper Jaffray Companies, a Delaware corporation and ultimate parent corporation and Affiliate of the Company.

(m) “Participant” means any Eligible Employee who has been selected by the Committee to participate in the Plan.

(n) “ Participation Notice ” means the written or electronic notice issued by the Company to an Eligible Employee notifying the Eligible Employee that he is a Participant in the Plan for a specified Plan Year and assigning that Participant a number of Allocation Points for that Plan Year.

(o) “ Plan Account ” means the account maintained in the books and records of the Company for each Participant that reflects amounts credited to the account of the Participant pursuant to Section 6.2, amounts paid to the Participant pursuant to Section 8, and any amounts forfeited pursuant to Section 9. Each Plan Account shall be unfunded and maintained for bookkeeping purposes only, with the balance thereof representing an unfunded and unsecured obligation of the Company. No interest will be credited to any Participant’s Plan Account.

(p) “Plan Year ” means the Company’s fiscal year (January 1 to December 31).

2.2 Gender and Number . Except when otherwise indicated by context, reference to the masculine gender shall include, when used, the feminine gender and any term used in the singular shall also include the plural.

3. Administration of the Plan .

3.1 Administration . The Committee shall administer the Plan on behalf of the Company. The Committee shall have the authority, in its discretion, to take such actions as it deems necessary or advisable to administer the Plan, including (i) determining the Eligible Employees who will be Participants in the Plan, (ii) determining the number of Allocation Points to be assigned to any Participant for a Plan Year, (iii) reviewing and approving the calculation of the AIP Amount for any Plan Year in accordance with Section 5, (iv) reviewing and approving the calculation of each Participant’s Allocable Share of the AIP Amount for any Plan Year and the resulting credit to the Participant’s Plan Account in accordance with Section 6, and (v) establishing, amending or rescinding rules to administer the Plan, interpreting the Plan and any Award made under the Plan, and making all other determinations necessary or desirable for the administration of the Plan. The interpretation of the Plan and of any Awards made under the Plan by the Committee shall be final, binding and conclusive on all persons with an interest therein.

3.2 Acts of the Committee; Delegation . A majority of the members of the Committee, which majority must include the CEO, shall constitute a quorum for any meeting of the Committee, and any act of a majority of the members present at any meeting at which a quorum is present, which majority must include the CEO, shall be the act of the Committee. In addition, any act unanimously approved in writing by all members of the Committee shall also be the act of the Committee. The Committee may delegate all or any portion of its authority under the Plan to the CEO, and may also delegate non-discretionary administrative responsibilities in connection with the Plan to such other persons as it deems advisable.

4. Determination of Participants and Assignment of Allocation Points .

4.1 Annual Determinations . As of the Effective Date with respect to Plan Year 2012, and as of the beginning of each Plan Year commencing with 2013, the Committee will, in its discretion, determine the Eligible Employees who will be Participants for that Plan Year and the number of Allocation Points for that Plan Year to be assigned to each Participant. Each Participant will receive a Participation Notice informing him of such determinations. Nothing in this Plan shall be construed as creating any entitlement on the part of any Participant to any number of Allocation Points in any Plan Year, and the Committee shall have full discretion to increase or decrease, including to zero, the number of Allocation Points assigned to any Participant from one Plan Year to the next.

4.2 Mid-Year Determinations . The Committee may, in its discretion, designate an Eligible Employee as a Participant at any time during a Plan Year for that Plan Year, and any such Participant shall be assigned a number of Allocation Points for that Plan Year that equitably takes into account the fact that such individual has been a Participant for only a portion of the Plan Year and such other factors as the Committee may deem relevant.

4.3 Discontinuance of Participant Status . While it is expected that any Eligible Employee who is named a Participant in one Plan Year will continue to be named a Participant in subsequent Plan Years so long as that individual continues to be an Eligible Employee, the Committee retains the discretion to discontinue any Eligible Employee’s designation as a Participant in connection with a new Plan Year. Discontinuance of Participant status will also occur if an individual ceases to be an Eligible Employee, even though he continues to be employed by an Affiliate. If an individual’s status as a Participant is discontinued as provided in this Section 4.3, the future vesting and payout of such Participant’s Plan Account will be governed by Sections 7.5 and 8.1.

5. Determination of Annual Incentive Pool Amount . Except as otherwise provided in this Section, the AIP Amount for each Plan Year shall be equal to (i) 20% of the amount, if any, by which EBITDA for

that Plan Year (not to exceed $33.7 million in EBITDA) exceeds $28.1 million, plus (ii) 10% of the of the amount, if any, by which EBITDA for that Plan Year exceeds $33.7 million. Notwithstanding the foregoing, the AIP Amount for the 2012 Plan Year shall be $2.0 million, and the AIP Amount for any subsequent Plan Year may be increased by the Committee in its discretion to an amount greater than that which would result from an application of the formula in the first sentence of this Section.

6. Allocation of Annual Incentive Pool Amount .

6.1 Determination of Each Participant’s Allocable Share . An Allocable Share percentage for each Plan Year shall be determined as of the close of that Plan Year for each Participant who continues to be an Eligible Employee at the end of that Plan Year by dividing the number of Allocation Points assigned to the Participant for that Plan Year by the total number of Allocation Points assigned for that Plan Year to all Participants who continue to be Eligible Employees at the end of such Plan Year, with the resulting percentage rounded down to the nearest one-tenth of 1%. By way of example, if a Participant were assigned nine allocation points for a Plan Year in which there were a total of six Participants to whom a total of 55 Allocation Points had been assigned, and each of those six Participants continued to be Eligible Employees as of the end of that Plan Year, then the Participant’s Allocable Share percentage for that Plan Year would be 16.3%. A Participant’s Allocable Share of an AIP Amount for any Plan Year shall be determined by multiplying that Participant’s Allocable Share percentage for that Plan Year by the AIP Amount determined for that Plan Year.

6.2 Credits to Plan Accounts . Prior to February 28 following the completion of each Plan Year, the Committee shall credit to the Plan Account of each Participant for that Plan Year such Participant’s Allocable Share of the AIP Amount for that Plan Year. Any amount credited to a Participant’s Plan Account will be deemed earned when credited, but a Participant’s Plan Account balance shall be subject to possible forfeiture as provided in Section 9 except to the extent the account balance has vested in accordance with Section 7.

7. Vesting of Plan Account Balances .

7.1 Scheduled Vesting . Except as otherwise provided in this Section 7, if a Participant remains continuously employed (including during the continuance of any leave of absence as approved by the Company or any Affiliate) by the Company or any Affiliate since the Participant’s Initial Participation Date, then one-third of the Participant’s then current Plan Account balance will vest on May 1 immediately following the close of the third Plan Year after such Participant’s Initial Participation Date (counting the Plan Year during which such Initial Participation Date occurred as the first of the three Plan Years for these purposes), and on each May 1 thereafter.

7.2 Death or Disability . If the Participant’s employment by the Company and all its Affiliates terminates because of the Participant’s death or long-term disability (as defined in the Company’s long-term disability plan, a “Disability”), then the Participant’s Plan Account balance will immediately vest in full. For purposes of this Section 7.2, if such termination due to death or Disability occurs in any Plan Year before the date the amount of the Participant’s Allocable Share of the AIP Amount for the immediately preceding Plan Year is credited to his Plan Account, the Participant shall be entitled to have such amount credited to his Plan Account and such amount shall be fully vested as of the time it is so credited. The Participant shall be entitled to no additional credits to his Plan Account thereafter.

7.3 Severance Event . If the Participant’s employment by the Company and all its Affiliates is involuntarily terminated as a result of a Company-determined Severance Event (that is, an event specifically designated as a severance event by the Company in a written notice to the Participant that he is eligible for

severance benefits under the Company’s Severance Plan, as may be amended from time to time), then the Participant’s Plan Account balance will vest in full upon the expiration of a 30 day period commencing on the Participant’s execution of a general release of all claims against the Company on a form provided by the Company for this purpose and executed within the timeframe, not to exceed 30 days after the effective date of the termination, designated by the Company; provided that no such vesting will occur and the unvested Plan Account balance will be forfeited unless (i) the Participant has not revoked the general release and it remains effective and enforceable upon expiration of the 30 day period following its execution, and (ii) the Participant has complied with the terms and conditions of the Severance Plan and any applicable severance agreement. For purposes of this Section 7.3, if such termination as a result of a Company-determined Severance Event occurs in any Plan Year before the date the amount of the Participant’s Allocable Share of the AIP Amount for the immediately preceding Plan Year is credited to his Plan Account, the Participant shall be entitled to have such amount credited to his Plan Account and such amount shall be fully vested as of the later of (i) the time it is credited to the Plan Account or (ii) the vesting date specified in the first sentence of this Section 7.3. The Participant shall be entitled to no additional credits to his Plan Account thereafter.

7.4 Other Termination Events .

(a) If a Participant’s employment with the Company and all its Affiliates terminates for any reason other than (i) for Cause, (ii) as a result of the Participant’s death or Disability (as set forth in Section 7.2 above), or (iii) as a result of a Severance Event (as set forth in Section 7.3 above), then such Participant’s unvested Plan Account balance as of the termination date shall immediately cease to vest and shall be forfeited to the Plan unless at the time of the termination, the Participant is offered by the Company, and voluntarily elects to sign within 10 days of the effective date of the termination, a Post-Termination Agreement with the Company. If a termination of employment subject to this Section 7.4(a) occurs in any Plan Year before the date the amount of the Participant’s Allocable Share of the AIP Amount for the immediately preceding Plan Year is credited to his Plan Account, and if the Participant signs a Post-Termination Agreement in connection with such termination, the Participant shall be entitled to have such amount credited to his Plan Account. The Participant shall be entitled to no additional credits to his Plan Account thereafter. If the Participant signs a Post-Termination Agreement, and thereafter complies with the Participant’s obligations under such Post-Termination Agreement, including the obligation to refrain from engaging in any Post-Termination Restricted Activities (as defined in Section 7.4(b)) during the remaining vesting period described below, then the Participant’s then current Plan Account balance (after giving effect to any additional credit described in the second sentence of this Section 7.4(a)) shall not cease to vest and shall not be forfeited to the Plan but rather shall continue to vest as to one-third of such Plan Account balance on the 90 ^th day after the Participant’s termination of employment and on May 1 in each of the two Plan Years following the Plan Year in which the termination occurred, so long as the Participant continues to refrain from engaging in any Post-Termination Restricted Activities.

(b) For purposes of this Section 7.4, “Post-Termination Restricted Activities” include each of the following:

(i) At any time during the period set forth in the Post-Termination Agreement, the Participant uses, discloses or misappropriates any Company-Confidential Information (as defined below) unless the Company or an Affiliate consents otherwise in writing;

(ii) At any time during the period set forth in the Post-Termination Agreement, the Participant directly or indirectly, on behalf of the Participant or any other person (including but not limited to any Talent Competitor (as defined below)), solicits, induces or

encourages any person then employed by the Company or an Affiliate to terminate or otherwise modify their employment relationship with the Company;

(iii) At any time during the period set forth in the Post-Termination Agreement, the Participant directly or indirectly, on behalf of the Participant or any other person (including but not limited to any Talent Competitor), solicits or otherwise seeks to divert any customer, client or account of the Company or any Affiliate with which the Participant had substantive interaction prior to the Participant’s termination of employment, away from engaging in business with the Company or any Affiliate; or

( iv) At any time during the period set forth in the Post-Termination Agreement, without the prior written consent of the Company or an Affiliate, the Participant (x) becomes a director, officer, employee, partner, consultant or independent contractor of, or otherwise works or provides services for, a Talent Competitor doing business in the same geographic or market area(s) in which the Company or an Affiliate is also doing business, or (y) has or acquires any material ownership or similar financial interest in any such Talent Competitor.

(c) For purposes of this Section 7.4, “Company-Confidential Information” means any confidential, secret or proprietary knowledge or information of the Company or an Affiliate that the Participant has acquired or become acquainted with during the Participant’s employment with the Company or an Affiliate, including, without limitation, any confidential customer, client or account lists or contacts or confidential business plans or information; provided , however, that Company-Confidential Information shall not include any knowledge or information that is now publicly available or which subsequently becomes generally publicly known in the form in which it was obtained from the Company or an Affiliate, other than as a direct or indirect result of the Participant’s disclosure in violation of Section 7.4(b)(i).

(d) For purposes of this Section 7.4, a “Talent Competitor” means any corporation, partnership, limited liability company or other business association, organization or entity that engages in the investment banking, securities brokerage or investment management business, including, but not limited to, investment banks, sell-side broker dealers, mergers and acquisitions or strategic advisory firms, merchant banks, hedge funds, private equity firms, venture capital firms, asset managers and investment advisory firms.

7.5 Discontinuance of Participant Status . If the Participant ceases to be designated as a Participant for a Plan Year as provided in Section 4.3, but his employment with the Company and all Affiliates is not terminated, he shall not be entitled to any additional credits to his Plan Account for Plan Years for which he is no longer designated as a Participant, but his Plan Account balance as of May 1 immediately following the most recent Plan Year for which he was designated a Participant (after giving effect to the credit to his Plan Account of his Allocable Share of the AIP Amount for such most recent Plan Year) shall continue to vest as to one-third of such balance on (i) the later of (A) such May 1 or (B) the May 1 immediately following the close of the third Plan Year after such Participant’s Initial Participation Date (counting the Plan Year during which such Initial Participation Date occurred as the first of the three Plan Years for these purposes) and (ii) on May 1 of each of the two following Plan Years, so long as his employment with the Company or any Affiliate continues.

8. Payment of Vested Balances . Payment of a Participant’s vested Plan Account balance shall be made to the Participant as provided in this Section 8.

8.1 Payment Upon Scheduled Vesting . Payment of the portion of a Participant’s Plan Account balance that has vested pursuant to Section 7.1 or Section 7.5 shall be made on the applicable vesting date.

8.2 Payment in Connection with Death . Payment of a Participant’s entire Plan Account balance that has vested in connection with the Participant’s death as provided in Section 7.2 shall be made in a lump sum within 90 days of the Participant’s death. The Participant shall have no right to designate the taxable year of such payment.

8.3 Payment in Connection with Disability Termination . Payment of a Participant’s Plan Account balance that has vested in connection with the Participant’s termination of employment as the result of a Disability as provided in Section 7.2 shall occur as to one-third of such Plan Account balance on the 90 ^th day after the Participant’s termination of employment and on May 1 in each of the two Plan Years following the Plan Year in which the termination occurred.

8.4 Payment in Connection with Severance Event . Subject to the prior execution and non-revocation of the general release referenced in Section 7.3, payment of a Participant’s Plan Account balance that has vested in connection with the Participant’s termination of employment in connection with a Severance Event as provided in Section 7.3 shall occur as to one-third of such Plan Account balance on the 90 ^th day after the Participant’s termination of employment and on May 1 in each of the two Plan Years following the Plan Year in which the termination occurred.

8.5 Payment in Connection with Other Termination Events . Subject to the prior execution of the Post-Termination Agreement referenced in Section 7.4(a) and a Participant’s continuing compliance with his obligations thereunder, payment of the portion of a Participant’s Plan Account balance that has vested pursuant to Section 7.4(a) shall be made on the applicable vesting date.

9. Forfeiture of Unvested Plan Account Balance . If a Participant’s employment with the Company and all of its Affiliates terminates (i) for Cause or (ii) under the circumstances covered by Section 7.3 or Section 7.4 and either (A) the conditions or restrictions of such Section, as applicable, are not satisfied or (B) the conditions or restrictions of such Section, as applicable, are satisfied but the Participant subsequently violates any of them, then such Participant’s unvested Plan Account balance shall immediately cease to vest and shall be forfeited.

10. Additional Provisions.

10.1 Effective Date of the Plan . The Plan shall become effective as of December 31, 2012. The Plan shall remain in effect until it has been terminated pursuant to Section 10.4.

10.2 No Promise of Continued Employment . Nothing in the Plan shall confer upon any Participant the right to continue in the employment of the Company or any Affiliate or affect the right the Company or any Affiliate has to terminate the employment of a Participant. Furthermore, a Participant may resign from his employment with the Company or any Affiliate at any time for any reason or for no reason.

10.3 Withholding and Deductions . The Company shall have the right to withhold from payments under the Plan to a Participant or other person an amount sufficient to cover any required withholding taxes and any authorized deductions.

10.4 Amendment and Termination of the Plan . The Plan may be amended in any respect by the Company, but no amendment shall adversely affect the rights of any Participant with respect to amounts previously credited to his Plan Account, unless such action is necessary to comply with applicable law or any compensation recovery policy contemplated by Section 10.8. The Company may terminate the Plan as of the end of any Plan Year upon advance written notice to the Participants. Termination of the Plan shall not affect the calculation or allocation among the Participants of the AIP Amount for the Plan Year in which such termination occurs, and each Participant’s Plan Account balance (after giving effect to the credit of such Participant’s Allocable Share for the Plan Year in which termination occurred) shall continue to vest as to one-third of such balance on each May 1 following the effective date of the Plan termination so long as his employment with the Company or any Affiliate continues.

10.5 Unfunded Plan . The Plan and any Plan Accounts shall be unfunded and the Company shall not be required to segregate any assets that may at any time be represented by Awards under the Plan.

10.6 Other Benefit and Compensation Programs . Payment of all or any portion of a Plan Account balance to a Participant shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan, contract or similar arrangement provided by the Company or any Affiliate unless expressly so provided by such other plan, contract or arrangement. Participants shall be entitled to their regular, recurring compensation and employee benefits for service provided to the Company or any Affiliate regardless of the AIP Amount or any Participant’s Allocable Share thereof for any given Plan Year.

10.7 Governing Law . To the extent that Federal laws do not otherwise control, the Plan and all determinations made and actions taken pursuant to the Plan shall be governed by the laws of Minnesota, without regard to its conflicts of law principles, and shall be construed accordingly.

10.8 Compensation Recovery . Any compensation associated with participation in this Plan may be made subject to forfeiture, recovery by the Company or other action pursuant to any compensation recovery policy adopted by the Parent’s Board of Directors or its Compensation Committee at any time, including in response to the requirements of Section 10D of the Securities Exchange Act of 1934, as amended, and any implementing rules and regulations thereunder, or as otherwise required by law. This Plan may be unilaterally amended by the Committee to comply with any such compensation recovery policy.

10.9 Conformance with Section 409A of the Code . The following provisions shall apply notwithstanding any other provision of the Plan:

(a) If any amount is payable under the Plan upon a termination of employment or other service, a termination of employment or other service will be deemed to have occurred only at such time as the Participant has experienced a “separation from service” as such term is defined for purposes of Section 409A of the Internal Revenue Code and the regulations issued thereunder (collectively, “Code Section 409A”).

(b) If any amount shall be payable under the Plan as a result of a Participant’s “separation from service” at such time as the Participant is a “specified employee” within the meaning of Code Section 409A, then no payment shall be made, except as permitted under Code Section 409A, prior to the first business day after the earlier of (i) the date that is six months after the Participant’s separation from service or (ii) the Participant’s death. Unless the Committee has adopted a specified employee identification policy as contemplated by Code Section 409A, specified employees will be identified in accordance with the default provisions specified under Code Section 409A.

(c) The Plan may be unilaterally amended by the Company in any manner deemed necessary or advisable by the Committee in order to maintain compliance with Code Section 409A, and any such amendment shall conclusively be presumed to be necessary to comply with applicable law.

(d) None of the Company, the Committee, any Affiliate or any other person involved with the administration of this Plan shall in any way be responsible for ensuring the compliance by the Plan with the requirements of Code Section 409A. By accepting the opportunity to participate in this Plan, each Participant acknowledges that the Company has no duty or obligation to design or administer the Plan in a manner that minimizes a Participant’s tax liabilities, including the avoidance of any additional tax liabilities under Code Section 409A.

In Witness Whereof, this Long-Term Incentive Plan document has been adopted by the Company as of the effective date specified in Section 10.1.

ADVISORY RESEARCH, INC.

By: PIPER JAFFRAY ASSET MANAGEMENT INC.

Its sole shareholder

By: PIPER JAFFRAY COMPANIES

Its sole shareholder

By: /s/ Andrew S. Duff ___________

Andrew S. Duff

Chairman and Chief Executive Officer

Exhibit 10.29

PIPER JAFFRAY COMPANIES

MUTUAL FUND RESTRICTED SHARE INVESTMENT PLAN

MUTUAL FUND RESTRICTED SHARE AGREEMENT

(201_ Annual Grant)



Name of Employee:		Date of Award:
Shares Covered:*
Advisory Research All Cap Value Fund (ADVGX)
Advisory Research Global Value Fund (ADVWX)
Advisory Research MLP & Energy Income Fund (Class I: INFIX)

Vesting Schedule pursuant to Section 2:
	No. of Restricted Mutual Fund Shares
	Vested as of Each Date
Vesting Date(s)	Advisory Research All Cap Value Fund	Advisory Research Global Value Fund	Advisory Research MLP & Energy Income Fund
February 15, 201_
February 15, 201_
February 15, 201_

* Subject to adjustment in accordance with the terms of this Agreement.

This is a Mutual Fund Restricted Share Agreement (“Agreement”) between Piper Jaffray Companies, a Delaware corporation (the “Company”), and the above-named employee of the Company or an Affiliate of the Company (the “Employee”). The Company maintains the Piper Jaffray Companies Mutual Fund Restricted Share Investment Plan, as amended from time to time (the “Plan”), which allows the Employee the option of receiving a portion (not less than ten percent (10%) or more than fifty percent (50%)) of the award that would otherwise have been granted to the Employee under the Piper Jaffray Companies Amended 2003 Annual and Long-Term Incentive Plan, in the form of restricted stock or other equity of the Company, instead in the form of restricted property consisting of shares of selected mutual funds managed by Affiliates of the Company. Based on the Employee’s election, the Company hereby grants this award to the Employee under the following terms:

Terms and Conditions ¹

1. Grant of Restricted Mutual Fund Shares .

(a) Subject to the terms and conditions of this Agreement and the Plan, the Company hereby grants to the Employee the number of mutual fund shares specified at the beginning of this Agreement. These shares are subject to the vesting conditions and restrictions provided for in this Agreement and are referred to collectively as “Restricted Mutual Fund Shares” and each as the “Restricted Share.”

(b) After the Employee has completed and submitted the election form and the deadline for submitting election forms, if any, has passed, no reallocation in the selected mutual funds shall be permitted an Employee’s election shall be irrevocable.

(c) All vesting contingencies and restrictions provided for in this Agreement will apply to each Restricted Share. The Restricted Mutual Fund Shares may not (until such Restricted Mutual Fund Shares have vested in the Employee in accordance with all terms and conditions of this Agreement) be assigned or transferred other than by will or the laws of descent and distribution and shall not be subject to pledge, hypothecation, execution, attachment or similar process. Each Restricted Share will remain restricted and subject to cancellation by the Company unless and until that Restricted Share has vested in the Employee in accordance with all of the terms and conditions of this Agreement and the Plan. The Employee shall execute such pledge or other agreement that the Company may require at any time to perfect such restriction.

2. Vesting .

(a) So long as the Employee remains continuously employed (including during the continuance of any leave of absence as approved by the Company or an Affiliate) by the Company or an Affiliate, then the Restricted Mutual Fund Shares shall vest in the numbers and on the dates specified in the Vesting Schedule at the beginning of this Agreement. Except as otherwise provided herein, if and when the Employee’s employment with the Company or an Affiliate terminates, whether by the Employee or by the Company (or an Affiliate), voluntarily or involuntarily, for any reason, then the Restricted Mutual Fund Shares shall cease vesting and the shares not vested as of the termination date shall be cancelled.

(b) If the Employee’s employment by the Company and all its Affiliates terminates because of the Employee’s death or long-term disability (a “Disability” as defined in the Company’s long-term disability plan), then the unvested Restricted Mutual Fund Shares shall immediately vest in the Employee in full.

(c) If the Employee’s employment by the Company and all its Affiliates is involuntarily terminated as a result of a Company-determined severance event (i.e., an event specifically designated as a severance event by the Company in a written notice to the Employee that he or she is eligible for severance benefits under the Company’s Severance Plan, as may be amended from time to time), then the unvested Restricted Mutual Fund Shares shall, as set forth in writing in a severance agreement, vest in full upon the expiration of a thirty-day period commencing upon the Employee’s execution of a general release of all claims against the Company, on a form provided by the Company for this purpose and within the timeframe designated by the Company; provided that, no such vesting shall occur unless (i) the Employee has not revoked the general release and it remains effective and enforceable upon expiration of the thirty-day period following its execution, and (ii) the Employee has complied with the terms and conditions of the Severance Plan and the applicable severance agreement.

(d) If the Employee’s employment with the Company and all its Affiliates terminates for any reason other than for Cause (as defined in Section 4(b) below), the Employee’s death or Disability (as set forth in Section 2(b) above), or a Severance Event (as set forth in Section 2(c) above), then the Restricted Mutual Fund Shares shall cease vesting and be cancelled, unless, at or around the time of such termination, the Employee is offered by the Company, and voluntarily elects to sign, a Post-Termination Agreement with the Company. If the Employee signs a Post-Termination Agreement, and thereafter elects to comply with the Employee’s obligations under such Post-Termination Agreement, including the obligation to refrain from engaging in any Post-Termination Restricted Activities for the

¹ Unless the context indicates otherwise, capitalized terms that are not defined in this Agreement have the meanings set forth in the Plan.

shorter of the remaining vesting period of the Restricted Mutual Fund Shares or two years following the date of termination, then the Restricted Mutual Fund Shares shall not cease to vest and shall not be cancelled in accordance with Section 4 below but rather, as set forth in the Post-Termination Agreement, shall continue to vest in the numbers and on the dates specified in the Vesting Schedule at the beginning of this Agreement for so long as the Employee elects to continuously refrain from engaging in any Post-Termination Restricted Activities. “Post-Termination Restricted Activities” include each of the following:

(i) at any time during the period set forth in the Post-Termination Agreement, the Employee uses, discloses or misappropriates any Company-Confidential Information (as defined below) unless the Company or an Affiliate consents otherwise in writing. “Company-Confidential Information” means any confidential, secret or proprietary knowledge or information of the Company or an Affiliate that the Employee has acquired or become acquainted with during the Employee’s employment with the Company or an Affiliate, including, without limitation, any confidential customer, client or account lists or contacts or confidential business plans or information; provided , however, that Company-Confidential Information shall not include any knowledge or information that is now publicly available or which subsequently becomes generally publicly known in the form in which it was obtained from the Company or an Affiliate, other than as a direct or indirect result of the Employee’s disclosure in violation of this Section 2(d)(i);

For clarity of understanding, Employee acknowledges and agrees that this Section 2(d) is not intended, and shall not operate, to prevent Employee from working or providing services for a Talent Competitor upon termination of employment. Rather, this Section 2(d) specifies the circumstances under which Employee has the opportunity to choose to forestall the cancellation of the unvested Restricted Mutual Fund Shares upon termination of employment (other than for Cause, death or Disability, or a Severance Event) by voluntarily electing to sign a Post-Termination Agreement and complying with the obligations thereunder (including the obligation to refrain from engaging in the specified Post-Termination Restricted Activities). Employee need not so choose, however, and is free to elect not to sign a Post-Termination Agreement, in which case the unvested Restricted Mutual Fund Shares shall be cancelled as described in Section 4 as a result of Employee’s termination of employment.

(e) Notwithstanding any other provisions of this Agreement to the contrary, the Company may, in its sole discretion, declare at any time that the Restricted Mutual Fund Shares, or any portion thereof, shall vest immediately

or, to the extent they otherwise would be cancelled, shall vest in the numbers and on such dates as are determined by the Company to be in the interests of the Company as determined by the Company in its sole discretion.

3. Effect of Vesting . Upon the vesting of any Restricted Mutual Fund Shares, such vested Restricted Mutual Fund Shares shall no longer be subject to cancellation by the Company as provided in Section 4 of this Agreement.

4. Cancellation of Unvested Restricted Mutual Fund Shares .

(a) If (i) the Employee attempts to pledge, encumber, assign, transfer or otherwise dispose of the Employee’s interest in or rights to any of the Restricted Mutual Fund Shares or the Restricted Mutual Fund Shares (except as permitted by Section 1(b) of this Agreement) become subject to attachment or any similar involuntary process in violation of this Agreement, or (ii) the Employee’s employment with the Company or an Affiliate (A) is terminated for Cause or (B) terminates under the circumstances covered by Section 2(c) or Section 2(d) of this Agreement and either (1) the conditions or restrictions of such Section, as applicable, are not satisfied or (2) the conditions or restrictions of such Section, as applicable, are satisfied but the Employee subsequently violates any of them, then any Restricted Mutual Fund Shares that have not previously vested shall cease to vest and shall be cancelled immediately.

5. Potential Clawback . The Restricted Shares and any mutual fund shares which vest in accordance with the terms of this Agreement, and any compensation associated therewith, including any proceeds received upon the sale of any mutual fund shares by the Employee, may be made subject to forfeiture, recovery by the Company or other action pursuant to any compensation recovery policy adopted by the Board or the Committee at any time, including in response to the requirements of Section 10D of the Exchange Act and any implementing rules and regulations thereunder, or as otherwise required by law. This Agreement may be unilaterally amended by the Committee at any time to comply with any such compensation recovery policy.

6. Shareholder Rights . As of the date of issuance specified at the beginning of this Agreement, the Employee shall have all of the rights of a mutual fund shareholder with respect to the Restricted Mutual Fund Shares, except as otherwise specifically provided in this Agreement.

7. Fees and Distributions .

(a) Management fees of the applicable mutual funds for the Restricted Mutual Fund Shares shall be the sole responsibility of the Employee.

(b) If any mutual fund in which the Employee holds an interest distributes dividends, income or earnings with respect to Restricted Mutual Fund Shares, prior to the vesting of such Restricted Mutual Fund Shares, then the following shall apply. In the event of distributions made in cash, such cash distributions shall be paid to the Employee promptly, subject to tax withholding as noted below. In the event of in-kind distributions, extraordinary distributions (whether in other securities or other property) or other adjustment, such distributions shall be held in the account of the Employee together with the Restricted Mutual Fund Shares. All Restricted Mutual Fund Shares received via distributions shall also be restricted and shall vest on the dates specified in the Vesting Schedule at the beginning of this Agreement. For the avoidance of doubt, in the event that any Restricted Mutual Fund Shares are

cancelled in accordance with this Agreement, the distributions with respect to any such Restricted Mutual Fund Shares not previously paid out will also be cancelled.

8. Tax Withholding . The parties hereto recognize that the Company or an Affiliate may be obligated to withhold federal and state taxes or other taxes in the event of distributions or upon the vesting of the Restricted Mutual Fund Shares. In the event that the Employee elects under Code Section 83(b) to report the receipt of the Restricted Mutual Fund Shares as income in the year of receipt, the Company or an Affiliate may be obligated to withhold federal and state taxes or other taxes upon the Employee’s receipt of the Restricted Mutual Fund Shares. The Employee agrees that, at such time, if the Company or an Affiliate is required to withhold such taxes, the Employee will promptly pay, in cash upon demand (or in any other manner permitted by the Company in accordance with the terms of the Plan), to the Company or an Affiliate such amounts as shall be necessary to satisfy such obligation. The Employee further acknowledges that the Company has directed the Employee to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or country in which the Employee may reside, and the tax consequences of the Employee’s death.

9. Interpretation of This Agreement . All decisions and interpretations made by the Company with regard to any question arising hereunder or under the Plan shall be binding and conclusive upon the Company and the Employee. If there is any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan shall govern.

10. No Promise of Future Awards or Continued Employment . The Employee acknowledges that this Agreement awards restricted property to the Employee, but does not impose any obligation on the Company to make any future grants or issue any future Awards to the Employee or otherwise continue the participation of the Employee under the Plan. This Agreement shall not give the Employee a right to continued employment with the Company or any Affiliate, and the Company or Affiliate employing the Employee may terminate his or her employment at will, and otherwise deal with the Employee without regard to this Agreement.

12. Agreement to Arbitrate . The Company and the Employee each agrees (i) that any dispute, claim or controversy arising out of or relating directly or indirectly to the construction, performance or breach of this Agreement (including, without limitation, the grant, issuance or cancellation of Restricted Mutual Fund Shares) shall be settled by arbitration before and in accordance with the rules of the Financial Industry Regulatory Authority; and (ii) that judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Accordingly, the Company and the Employee each waive their right (if any) to a trial before a court judge and/or jury to resolve any such disputes.

14. Termination; Modification . In the event that any one or more of the Post-Termination Restricted Activities described in Section 2(d) above shall be held to be unenforceable, invalid or illegal for any reason including, but not limited to, being excessively broad as to duration, geographical scope, activity or subject, such restriction shall be construed or modified by limiting and reducing it, so as to provide the Company with the maximum protection of its business interests and the intent of the parties as set forth herein and yet be valid and enforceable under the applicable law as it shall then exist. If any such restriction held to be unenforceable, invalid or illegal cannot be so construed or modified, then Section 2(d) shall be stricken in its entirety from this Agreement and this Agreement shall be construed, interpreted and enforced as if Section 2(d) had never been contained herein, and the unvested Restricted Mutual Fund Shares that are or have been the subject of Section 2(d) shall be deemed to have ceased vesting upon the termination of the Employee’s employment and the unvested Restricted Mutual Fund Shares shall be cancelled in accordance with Section 4 above.

15. Entire Agreement . This Agreement and the Plan set forth the entire agreement and understanding of the parties hereto with respect to the issuance and sale of the Restricted Mutual Fund Shares and the administration of the Plan and supersede all prior agreements, arrangements, plans, and understandings relating to the issuance and sale of the Restricted Mutual Fund Shares and the administration of the Plan.

16. Amendment and Waiver . Except as provided in the Plan or Section 5 above, this Agreement may be amended, modified, or canceled only by a written instrument executed by the parties. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel to enforce any provision of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived, and shall not constitute a waiver of such term or condition for the future or as to any other act other than that specifically waived.

17. Acknowledgment of Receipt of Copy . By execution hereof, the Employee acknowledges having received a copy of the Plan.

18. Electronic Delivery of Fund Information . By execution hereof, Employee agrees to the electronic delivery of mutual fund prospectuses and other fund information. If Employee changes this consent, or Employee’s e-mail address for this purpose, Employee will notify the Company’s Human Resources department.

19. Acknowledgement of Voluntary Election; Fairness . By executing this Agreement, the Employee acknowledges his or her voluntary election to receive and accept the Restricted Mutual Fund Shares subject to all of the terms and conditions set forth in this Agreement, and agrees to be bound thereby, including, without limitation, the terms and conditions specifying the circumstances under which the Restricted Mutual Fund Shares shall cease to vest. Employee further acknowledges and agrees that such terms and conditions are fair and reasonable in light of the circumstances under which the award of Restricted Mutual Fund Shares is being made.

IN WITNESS WHEREOF, the Employee and the Company have executed this Agreement as of the date of issuance specified at the beginning of this Agreement.

IMPORTANT ACKNOWLEDGEMENT: By signing this Agreement, Employee voluntarily elects to receive and accept the Restricted Mutual Fund Shares subject to all of the terms and conditions set forth in this Agreement, and specifically acknowledges and agrees that the Restricted Mutual Fund Shares may cease to vest, as specified in Section 4(a). Employee also acknowledges and agrees that such terms and conditions are fair and reasonable under the circumstances.

EMPLOYEE

_________________________________

PIPER JAFFRAY COMPANIES

By________________________________

Its ______________________________

Exhibit 21.1

SUBSIDIARIES OF PIPER JAFFRAY COMPANIES

(as of January 10, 2014)



Name *	State or Jurisdiction of Entity
Piper Jaffray & Co.	Delaware
Piper Jaffray EVP, LLC	Delaware
Piper Jaffray Ltd.	United Kingdom
Edgeview Partners, L.P.	Delaware
Piper Jaffray Financial Products Inc.	Delaware
Piper Jaffray Financial Products II Inc.	Delaware
Piper Jaffray Financial Products III Inc.	Delaware
Piper Jaffray Foundation	Delaware
Piper Jaffray Funding LLC	Delaware
Piper Jaffray Lending Inc.	Delaware
Piper Jaffray Lending LLC	Delaware
Piper Jaffray Private Capital Inc.	Delaware
Piper Jaffray Ventures Inc.	Delaware
Piper Ventures Capital Inc.	Delaware
PJC Capital LLC	Delaware
PJC Consumer Partners Acquisition I, LLC	Delaware
Piper Jaffray Asset Management Inc.	Delaware
Advisory Research, Inc.	Delaware
Piper Jaffray MENA (LP) Inc.	Delaware
Piper Jaffray Investment Group Inc.	Delaware
Piper Jaffray Investment Management LLC	Delaware
Piper Jaffray Municipal Fund LLC	Delaware
Piper Jaffray Municipal Opportunities Fund, L.P.	Delaware
Piper Jaffray Funds Management LLC	Delaware
Piper Jaffray Municipal Opportunities Fund II, L.P.	Delaware
PJC Capital Management LLC	Delaware
Piper Jaffray Merchant Banking Fund I, L.P.	Delaware
PJC Merchant Banking Partners I, LLC	Delaware
PJC Merchant Banking Partners II, LLC	Delaware
PJC Merchant Banking Partners III, LLC	Delaware
PJC Capital Partners LLC	Delaware
Piper Jaffray Hong Kong Limited	Hong Kong
Piper Jaffray Asia Holdings Limited	Hong Kong

* Indentation indicates the principal parent of each subsidiary.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Piper Jaffray Companies (the Company) of our reports dated February 28, 2014 , with respect to the consolidated financial statements of the Company and the effectiveness of internal control over financial reporting of the Company, included in the 2013 Annual Report to Shareholders of the Company.

We consent to the incorporation by reference in the following Registration Statements


1.	Registration Statement (Form S-8 No. 333-111665) of the Company dated December 31, 2003


2.	Registration Statement (Form S-8 No. 333-112384) of the Company dated January 30, 2004


3.	Registration Statement (Form S-8 No. 333-122494) of the Company dated February 2, 2005


4.	Registration Statement (Form S-8 No. 333-142699) of the Company dated May 8, 2007


5.	Registration Statement (Form S-8 No. 333-150962) of the Company dated May 16, 2008


6.	Registration Statement (Form S-8 No. 333-159360) of the Company dated May 20, 2009


7.	Registration Statement (Form S-8 No. 333-165094) of the Company dated February 26, 2010

of our reports dated February 28, 2014 , with respect to the consolidated financial statements of the Company and the effectiveness of internal control over financial reporting of the Company, incorporated herein by reference.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

February 28, 2014

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrew S. Duff, Debbra L. Schoneman and John W. Geelan, and each of them, his or her true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of Piper Jaffray Companies (the “Company”) for the Company's fiscal year ended December 31, 2013 , and any or all amendments to said Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and to file the same with such other authorities as necessary, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

Dated and effective as of the 28th of February, 2014 .



/s/ Andrew S. Duff Andrew S. Duff, Chairman and Chief Executive Officer	/s/ Lisa K. Polsky Lisa K. Polsky, Director
/s/ Debbra L. Schoneman Debbra L. Schoneman Chief Financial Officer	/s/ Philip E. Soran Philip E. Soran, Director
/s/ Michael R. Francis Michael R. Francis, Director	/s/ Scott C. Taylor Scott C. Taylor, Director
/s/ B. Kristine Johnson B. Kristine Johnson, Director	/s/ Michele Volpi Michele Volpi, Director
/s/ Addison L. Piper Addison L. Piper, Director	/s/ Hope Woodhouse Hope Woodhouse, Director

Exhibit 31.1

CERTIFICATIONS

I, Andrew S. Duff, certify that:


1.	I have reviewed this annual report on Form 10-K of Piper Jaffray Companies;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 28, 2014



	/s/ Andrew S. Duff
	Andrew S. Duff
	Chairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Debbra L. Schoneman, certify that:


1.	I have reviewed this annual report on Form 10-K of Piper Jaffray Companies;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 28, 2014



	/s/ Debbra L. Schoneman
	Debbra L. Schoneman
	Chief Financial Officer

Exhibit 32.1

Certification Under Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of Piper Jaffray Companies.

Dated: February 28, 2014



	/s/ Andrew S. Duff
	Andrew S. Duff
	Chairman and Chief Executive Officer

	/s/ Debbra L. Schoneman
	Debbra L. Schoneman
	Chief Financial Officer