UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended June 30, 2008

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

For the transition period from                      to                     

PIPER JAFFRAY COMPANIES

(Exact name of registrant as specified in its charter)

DELAWARE		30-0168701
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)
800 Nicollet Mall, Suite 800
Minneapolis, Minnesota		55402
(Address of principal executive offices)		(Zip Code)

(612) 303-6000
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

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

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

     As of July 25, 2008, the registrant had 19,172,678 shares of Common Stock outstanding.

 

 

Piper Jaffray Companies

Index to Quarterly Report on Form 10-Q

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Financial Condition as of June 30, 2008 and December 31, 2007

Consolidated Statements of Operations for the three months and six months ended June 30, 2008 and June 30, 2007

Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and June 30, 2007

Notes to Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 4. Submissions of Matters to a Vote of Security Holders

Item 6. Exhibits

Signatures

Exhibit Index

Amended and Restated 2003 Annual & Long-Term Incentive Plan

Form of Restricted Stock Agreement

Form of Restricted Stock Agreement

Employment Agreement

Certification of CEO

Certification of CFO

Section 1350 Certifications

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Piper Jaffray Companies

		June 30,				December 31,
		2008				2007
(Amounts in thousands, except share data)		(Unaudited)
Assets
Cash and cash equivalents		$	33,231			$	150,348
Cash and cash equivalents segregated for regulatory purposes			7,000				—
Receivables:
Customers			98,291				124,329
Brokers, dealers and clearing organizations			66,128				87,668
Deposits with clearing organizations			34,500				30,649
Securities purchased under agreements to resell			83,074				52,931
Financial instruments and other inventory positions owned			570,671				550,335
Financial instruments and other inventory positions owned and pledged as collateral			243,023				242,214
Total financial instruments and other inventory positions owned			813,694				792,549
Fixed assets (net of accumulated depreciation and amortization of $59,877 and $55,508, respectively)			22,870				27,208
Goodwill			284,804				284,804
Intangible assets (net of accumulated amortization of $6,920 and $5,609, respectively)			15,833				17,144
Other receivables			50,746				47,719
Other assets			113,902				107,807
Total assets		$	1,624,073			$	1,723,156
Liabilities and Shareholders’ Equity
Short-term bank financing		$	161,500			$	—
Payables:
Customers			68,678				91,272
Checks and drafts			5,243				7,444
Brokers, dealers and clearing organizations			100,960				23,675
Securities sold under agreements to repurchase			68,703				247,202
Financial instruments and other inventory positions sold, but not yet purchased			182,854				224,710
Accrued compensation			49,643				132,908
Other liabilities and accrued expenses			62,607				83,356
Total liabilities			700,188				810,567
Shareholders’ equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at June 30, 2008 and December 31, 2007;
Shares issued: 19,494,488 at June 30, 2008 and December 31, 2007;
Shares outstanding: 16,093,907 at June 30, 2008 and 15,662,835 at December 31, 2007			195				195
Additional paid-in capital			732,459				737,735
Retained earnings			360,829				367,900
Less common stock held in treasury, at cost: 3,400,581 shares at June 30, 2008 and 3,831,653 shares at December 31, 2007			(170,695	)			(194,461	)
Other comprehensive income			1,097				1,220
Total shareholders’ equity			923,885				912,589
Total liabilities and shareholders’ equity		$	1,624,073			$	1,723,156

See Notes to Consolidated Financial Statements

Piper Jaffray Companies

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Amounts in thousands, except per share data)		2008				2007				2008				2007
Revenues:
Investment banking		$	32,184			$	74,872			$	87,449			$	158,605
Institutional brokerage			51,196				38,597				81,008				80,291
Interest			13,114				13,816				28,273				31,226
Asset management			4,697				72				8,670				199
Other income/(loss)			(460	)			(364	)			(2,060	)			324
Total revenues			100,731				126,993				203,340				270,645
Interest expense			5,826				4,417				12,704				11,119
Net revenues			94,905				122,576				190,636				259,526
Non-interest expenses:
Compensation and benefits			65,885				71,707				131,136				151,823
Occupancy and equipment			8,133				8,849				16,243				16,571
Communications			5,869				5,997				12,608				12,256
Floor brokerage and clearance			3,899				4,176				6,553				7,691
Marketing and business development			7,381				6,380				13,477				12,061
Outside services			11,431				9,122				20,248				16,439
Other operating expenses			6,603				1,194				9,077				4,950
Total non-interest expenses			109,201				107,425				209,342				221,791
Income/(loss) from continuing operations before income tax expense/(benefit)			(14,296	)			15,151				(18,706	)			37,735
Income tax expense/(benefit)			(9,223	)			4,774				(10,196	)			12,636
Net income/(loss) from continuing operations			(5,073	)			10,377				(8,510	)			25,099
Discontinued operations:
Income/(loss) from discontinued operations, net of tax			1,439				(1,051	)			1,439				(2,355	)
Net income/(loss)		$	(3,634	)		$	9,326			$	(7,071	)		$	22,744
Earnings per basic common share
Income/(loss) from continuing operations		$	(0.32	)		$	0.61			$	(0.53	)		$	1.47
Income/(loss) from discontinued operations			0.09				(0.06	)			0.09				(0.14	)
Earnings per basic common share		$	(0.23	)		$	0.55			$	(0.44	)		$	1.33
Earnings per diluted common share
Income from continuing operations			N/A			$	0.58				N/A			$	1.40
Loss from discontinued operations			N/A				(0.06	)			N/A				(0.13	)
Earnings per diluted common share			N/A			$	0.52				N/A			$	1.27
Weighted average number of common shares outstanding
Basic			16,072				17,073				15,951				17,072
Diluted			16,709				17,919				16,671				17,969

See Notes to Consolidated Financial Statements

Piper Jaffray Companies

		Six Months Ended June 30,
(Dollars in thousands)		2008				2007
Operating Activities:
Net income/(loss)		$	(7,071	)		$	22,744
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization of fixed assets			4,755				4,413
Deferred income taxes			2,331				8,123
Gain on disposal of fixed assets			—				314
Stock-based compensation			22,165				12,503
Amortization of intangible assets			1,311				800
Decrease/(increase) in operating assets:
Cash and cash equivalents segregated for regulatory purposes			(7,000	)			—
Receivables:
Customers			25,991				(7,217	)
Brokers, dealers and clearing organizations			23,132				178,566
Deposits with clearing organizations			(3,851	)			3,802
Securities purchased under agreements to resell			(30,143	)			11,778
Net financial instruments and other inventory positions owned			(63,005	)			69,093
Other receivables			(3,113	)			(1,424	)
Other assets			(8,431	)			(4,551	)
Increase/(decrease) in operating liabilities:
Payables:
Customers			(22,588	)			(11,364	)
Checks and drafts			(2,201	)			(4,306	)
Brokers, dealers and clearing organizations			75,430				(169,257	)
Securities sold under agreements to repurchase			3,015				1,465
Accrued compensation			(78,964	)			(77,923	)
Other liabilities and accrued expenses			(21,000	)			(31,690	)
Net cash provided by/(used in) operating activities			(89,237	)			5,869
Investing Activities:
Purchases of fixed assets, net			(509	)			(5,500	)
Net cash used in investing activities			(509	)			(5,500	)
Financing Activities:
Increase in securities loaned			—				408
Decrease in securities sold under agreements to repurchase			(181,514	)			(38,159	)
Increase in short-term bank financing			161,500				33,000
Repurchase of common stock			(8,192	)			(17,442	)
Excess tax benefits from stock-based compensation			792				2,068
Proceeds from stock option transactions			20				2,266
Net cash used in financing activities			(27,394	)			(17,859	)
Currency adjustment:
Effect of exchange rate changes on cash			23				211
Net decrease in cash and cash equivalents			(117,117	)			(17,279	)
Cash and cash equivalents at beginning of period			150,348				39,903
Cash and cash equivalents at end of period		$	33,231			$	22,624
Supplemental disclosure of cash flow information - Cash paid/(received) during the period for:
Interest		$	13,095			$	10,822
Income taxes		$	(5,028	)		$	1,815
Non-cash financing activities - Issuance of common stock for retirement plan obligations:
90,140 shares and 8,619 shares for the six months ended June 30, 2008 and 2007, respectively		$	3,704			$	598

See Notes to Consolidated Financial Statements

Piper Jaffray Companies

Note 1 Background

     Piper Jaffray Companies is the parent company of Piper Jaffray & Co. (“Piper Jaffray”), a securities broker dealer and investment banking firm; Piper Jaffray Ltd., a firm providing securities brokerage and investment banking services in Europe headquartered in London, England; Piper Jaffray Asia Holdings Limited, an entity providing investment banking services in China headquartered in Hong Kong; Fiduciary Asset Management, LLC (“FAMCO”), an entity providing asset management services to clients through separately managed accounts and closed end funds offering an array of investment products; Piper Jaffray Financial Products Inc., an entity that facilitates customer derivative transactions; Piper Jaffray Financial Products II Inc., an entity dealing primarily in variable rate municipal products; and other immaterial subsidiaries. Piper Jaffray Companies and its subsidiaries (collectively, the “Company”) operate as one reporting segment providing investment banking services, institutional sales, trading and research services, and asset management services. As discussed more fully in Note 4, the Company completed the sale of its Private Client Services branch network and certain related assets to UBS Financial Services, Inc., a subsidiary of UBS AG (“UBS”), on August 11, 2006, thereby exiting the Private Client Services (“PCS”) business.

Basis of Presentation

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

     The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and reflect all adjustments that in the opinion of management are normal and recurring and that are necessary for a fair statement of the results for the interim periods presented. In accordance with these rules and regulations, certain disclosures that are normally included in annual financial statements have been omitted. The consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

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

Note 2 Summary of Significant Accounting Policies

     Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, for a full description of the Company’s significant accounting policies. Changes to the Company’s significant accounting policies are described below.

Financial Instruments and Other Inventory Positions

     Financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased, are carried at fair value on the consolidated statements of financial condition, with unrealized gains and losses reflected in the consolidated statements of operations. The fair value of a financial instrument is the amount 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 (i.e. the exit price). Securities (both long and short) are recognized on a trade-date basis.

Fair Value Hierarchy

     Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). Prior to January 1, 2008, the Company followed the American Institute of Certified Public Accountants (“AICPA”) Audit and Accounting Guide, Brokers and Dealers in Securities, when determining fair value for financial instruments. SFAS 157 defines 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. SFAS 157 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 our assumptions that market participants would use in pricing the 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 1 — 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 1 are highly liquid instruments with quoted prices such as certain U.S. treasury bonds and U.S. government agency securities, equities listed in active markets and certain firm investments.

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 U.S. treasury bonds and U.S. government agency securities, corporate bonds, certain municipal bonds, certain asset-backed securities and derivatives.

Level III — Instruments that have little to no pricing observability as of the report date. These financial instruments do 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 auction rate municipal securities, certain firm investments, certain asset-backed securities, residual interests in securitizations and certain convertible securities.

Valuation of Financial Instruments

     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, financial instruments and other inventory positions owned and pledged as collateral, 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.

     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 value of a security is derived 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.

     Derivative contracts are financial instruments such as forwards, futures, swaps or option contracts that derive their value from underlying assets, reference rates, indices or a combination of these factors. A derivative contract generally represents future commitments to purchase or sell financial instruments at specified terms on a specified date or to exchange currency or interest payment streams based on the contract or notional amount. Derivative contracts exclude certain cash instruments, such as mortgage-backed securities, interest-only and principal-only obligations and indexed debt instruments that derive their values or contractually required cash flows from the price of some other security or index.

     The 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 statements of operations. Fair value

is determined using quoted market prices when available or pricing models based on the net present value of estimated future cash flows. Management deems the net present value of estimated future cash flows model to provide the best estimate of fair value as most of our derivative products are interest rate products. The valuation models used require inputs including contractual terms, market prices, yield curves, credit curves and measures of volatility.

     The Company does not utilize “hedge accounting” as described within SFAS No. 133. Derivatives are reported on a net-by-counterparty basis when a legal right of offset exists and on a net-by-cross product basis when applicable provisions are stated in a master netting agreement. Cash collateral received or paid is netted on a counterparty basis, provided legal right of offset exists.

Note 3 Recent Accounting Pronouncements

     Effective January 1, 2008, the Company adopted SFAS 157. Prior to January 1, 2008, the Company followed the AICPA Audit and Accounting Guide, Brokers and Dealers in Securities, when determining fair value for financial instruments. SFAS 157 defines fair value as 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, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. Further, SFAS 157 disallows the use of block discounts on positions traded in an active market and nullifies certain guidance regarding the recognition of inception gains on certain derivative transactions. The impact of adopting SFAS 157 in our first quarter of 2008 was not material to our consolidated financial statements. See Note 6, “Fair Value of Financial Instruments” to the consolidated financial statements for additional information.

     Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial assets and liabilities and other eligible items at fair value, which are not otherwise currently allowed to be measured at fair value. Under SFAS 159, the decision to measure items at fair value is made at specified election dates on an irrevocable instrument-by-instrument basis. Entities electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront costs and fees associated with the item for which the fair value option is elected. Entities electing the fair value option are required to distinguish on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. The Company did not make any elections under SFAS 159 to apply fair value to additional financial assets and liabilities.

     Effective January 1, 2008, the Company adopted FSP No. FIN 39-1, “Amendment of FASB Interpretation No. 39” (“FSP FIN 39-1”). FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts,” and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. The adoption of FSP FIN 39-1 did not have a material effect on the consolidated financial statements of the Company.

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) expands the definition of transactions and events that qualify as business combinations; requires that acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in revenue, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs to be expensed as incurred. Adoption of SFAS 141(R) is required for combinations after December 15, 2008. Early adoption and retroactive application of SFAS 141(R) to fiscal years preceding the effective date are not permitted.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 re-characterizes minority interests in consolidated subsidiaries as non-controlling interests and requires the classification of minority interests as a component of equity. Under SFAS 160, a change in control will be measured at fair value, with any gain or loss recognized in earnings. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We are evaluating the impact of SFAS 160 on our consolidated financial statements.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 requires disclosures regarding the location and amounts of derivative instruments in the Company’s financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Company’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods after November 15, 2008. Early application is permitted. Because SFAS 161 impacts the Company’s disclosure and not its accounting treatment for derivative instruments and any related hedged items, the Company’s adoption of SFAS 161 will not impact the consolidated financial statements.

Note 4 Discontinued Operations

     On August 11, 2006, the Company and UBS completed the sale of the Company’s PCS branch network under a previously announced asset purchase agreement. The purchase price under the asset purchase agreement was approximately $750 million, which included $500 million for the branch network and approximately $250 million for the net assets of the branch network, consisting principally of customer margin receivables.

     In accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the results of PCS operations have been classified as discontinued operations for all periods presented. The Company recorded a gain from discontinued operations, net of tax, of $1.4 million for the six months ended June 30, 2008, primarily related to a litigation settlement. The Company may incur discontinued operations expense or income related to changes in litigation reserve estimates for retained PCS litigation matters and for changes in estimates to occupancy and severance restructuring charges if the facts that support the Company’s estimates change.

     In connection with the sale of the Company’s PCS branch network, the Company initiated a plan in 2006 to significantly restructure the Company’s support infrastructure. All restructuring costs related to the sale of the PCS branch network are included within discontinued operations in accordance with SFAS 144. See Note 13 for additional information regarding the Company’s restructuring activities.

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

           Yet Purchased

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

		June 30,				December 31,
(Dollars in thousands)		2008				2007
Financial instruments and other inventory positions owned:
Corporate securities:
Equity securities		$	25,174			$	14,977
Convertible securities			84,399				102,938
Fixed income securities			34,609				64,367
Municipal Securities:
Auction rate municipal securities			85,025				202,500
Variable rate demand notes			43,155				32,542
Other municipal securities			314,671				208,150
Asset-backed securities			56,016				44,006
U.S. government agency securities			84,577				48,074
U.S. government securities			34,052				4,520
Derivative contracts			40,560				56,554
Other			11,456				13,921
		$	813,694			$	792,549
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities		$	46,218			$	66,856
Convertible securities			319				4,764
Fixed income securities			23,994				26,310
Municipal securities			420				11
U.S. government agency securities			5,466				25,752
U.S. government securities			59,055				33,972
Derivative contracts			494				18,388
Other			46,888				48,657
		$	182,854			$	224,710

     At June 30, 2008 and December 31, 2007, financial instruments and other inventory positions owned in the amount of $243.0 million and $242.2 million, respectively, had been pledged as collateral for the Company’s repurchase agreements and secured borrowings.

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

Derivative Contract Financial Instruments

     The Company uses interest rate swaps, interest rate locks, and forward contracts to facilitate customer transactions and as a means to manage risk in certain inventory positions. Interest rate swaps are also used to manage interest rate exposure associated with holding residual interest securities from the Company’s tender option bond program. In addition, the Company enters into total return loan swaps to receive the return on $16.0 million in certain corporate loan assets without transferring actual ownership of the underlying loan to the Company. As of June 30, 2008 and December 31, 2007, the Company was counterparty to notional/contract amounts of $7.8 billion and $7.5 billion, respectively, of derivative instruments.

     The Company’s derivative contracts are recorded at fair value. Fair values for derivative contracts represent amounts estimated to be received from or paid to a counterparty in settlement of these instruments. These derivatives are valued using quoted market prices when available or pricing models based on the net present value of estimated future cash flows. The valuation models used require inputs including contractual terms, market prices, yield curves, credit curves and measures of volatility. Derivatives are reported on a net-by-counterparty basis when legal right of offset exists, and on a net-by-cross product basis 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.

Note 6 Fair Value of Financial Instruments

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

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

     The following table summarizes the valuation of our financial instruments by SFAS 157 pricing observability levels as of June 30, 2008:

														Counterparty
														Collateral
(Dollars in thousands)		Level I (1)				Level II (1)				Level III (1)				Netting (2)				Total
Assets:
Financial instruments and other inventory positions owned:
Non-derivative instruments		$	64,039			$	567,352			$	141,743			$	—			$	773,134
Derivative instruments			—				40,560				—				—				40,560
Total financial instruments and other inventory positions owned:		$	64,039			$	607,912			$	141,743			$	—			$	813,694
Investments		$	81			$	—			$	47,446			$	—			$	47,527
Level III investments for which the Company does not bear economic exposure											(8,097	) (3)
Level III investments for which the Company bears economic exposure										$	39,349
Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Non-derivative instruments		$	65,468			$	115,012			$	1,880			$	—			$	182,360
Derivative instruments			—				15,345				—				(14,851	) (4)			494
Total financial instruments and other inventory positions sold, but not yet purchased:		$	65,468			$	130,357			$	1,880			$	(14,851	)		$	182,854
Investments		$	—			$	—			$	4,341			$	—			$	4,341

     The following table summarizes the changes in fair value carrying values associated with Level III financial instruments during the six months ended June 30, 2008:

		Non-Derivative				Non-Derivative				Investment				Investment
(Dollars in thousands)		Assets				Liabilities				Assets				Liabilities
Balance at December 31, 2007		$	230,703			$	—			$	47,780			$	4,576
Purchases (sales), net			46,906				—				2,785				—
Net transfers in (out)			—				—				—				—
Realized gains (losses) (5)			(1,749	)			—				777				—
Unrealized gains (losses) (5)			1,780				—				(3,819	)			(277	)
Balance at March 31, 2008			277,640				—				47,523				4,299
Purchases (sales), net			(159,318	)			—				(209	)			—
Net transfers in (out)			29,178				1,960				(1,264	)			—
Realized gains (losses) (5)			(190	)			(80	)			—				—
Unrealized gains (losses) (5)			(5,567	)			—				1,396				42
Balance at June 30, 2008		$	141,743			$	1,880			$	47,446			$	4,341

Note 7 Securitizations

     In connection with its tender option bond program, the Company securitizes highly rated municipal bonds. At June 30, 2008 and December 31, 2007, the Company had $339.9 million and $325.6 million, respectively, of par value of municipal bonds in securitization. Each municipal bond is sold into a separate trust that is funded by the sale of variable rate certificates to institutional customers seeking variable rate tax-free investment products. These variable rate certificates reprice weekly. Securitization transactions meeting certain SFAS 140 criteria are treated as sales, with the resulting gain included in institutional brokerage revenue on the consolidated statements of operations. If a securitization does not meet the asset sale requirements of SFAS 140, the transaction is recorded as a borrowing. The Company retains a residual interest in each structure and accounts for the residual interest as a financial instrument owned, which is recorded at fair value on the consolidated statements of financial condition. The fair value of retained interests was $11.5 million and $13.9 million at June 30, 2008 and December 31, 2007, respectively, with a weighted average life of 8.1 years and 8.0 years, respectively. The fair value of retained interests is estimated based on the present value of future cash flows using management’s best estimates of the key assumptions — expected yield, credit losses of 0 percent and a 12 percent discount rate. At June 30, 2008, the sensitivity of the current fair value of retained interests to immediate 10 percent and 20 percent adverse changes in the key economic assumptions was not material. The Company receives a fee to remarket the variable rate certificates derived from the securitizations.

     Certain cash flow activity for the municipal bond securitizations described above includes:

		Six Months Ended
		June 30,
(Dollars in thousands)		2008				2007
Proceeds from new securitizations		$	77,134			$	29,000
Remarketing fees received			65				60
Cash flows received on retained interests			2,952				2,562

     Three securitization transactions at June 30, 2008 and December 31, 2007 did not meet the asset sale requirements of SFAS 140, causing the Company to consolidate these trusts. Accordingly, the Company recorded an asset for the underlying bonds of $47.7 million (par value $47.5 million) and $49.5 million (par value $49.1 million) as of June 30, 2008 and December 31, 2007, respectively, in financial instruments and other inventory positions owned and a liability for the certificates sold by the trusts for $46.8 million and $48.7 million as of June 30, 2008 and December 31, 2007, respectively, in financial instruments and other inventory positions sold, but not yet purchased, on the consolidated statements of financial condition.

     The Company enters into interest rate swap agreements to manage interest rate exposure associated with holding the residual interest securities from its securitizations, which have been recorded at fair value and resulted in a liability of approximately $8.2 million and $11.1 million at June 30, 2008 and December 31, 2007, respectively.

     The Company has contracted with two major third-party financial institutions who act as liquidity providers for the Company’s tender option bond securitized trusts. The Company has agreed to reimburse these parties for any losses associated with providing liquidity to the trusts. The maximum exposure to loss at June 30, 2008 was $315.6 million representing the outstanding amount of all trust certificates. This exposure to loss is mitigated by the underlying bonds in the trusts. These bonds had a market value of approximately $319.7 million at June 30, 2008. The Company believes that the likelihood it will be required to fund the reimbursement agreement obligation under any provision of the arrangement is remote, and accordingly, no liability for such guarantee has been recorded in the accompanying consolidated financial statements.

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

     Amounts receivable from brokers, dealers and clearing organizations at June 30, 2008 and December 31, 2007 included:

		June 30,				December 31,
(Dollars in thousands)		2008				2007
Receivable arising from unsettled securities transactions, net		$	—			$	591
Deposits paid for securities borrowed			49,308				55,257
Receivable from clearing organizations			7,954				8,081
Securities failed to deliver			4,323				7,647
Other			4,543				16,092
		$	66,128			$	87,668

     Amounts payable to brokers, dealers and clearing organizations at June 30, 2008 and December 31, 2007 included:

		June 30,				December 31,
(Dollars in thousands)		2008				2007
Payable arising from unsettled securities transactions, net		$	71,885			$	—
Payable to clearing organizations			23,881				12,648
Securities failed to receive			5,189				11,021
Other			5				6
		$	100,960			$	23,675

     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 9 Other Assets

     Other assets includes investments in partnerships and investments to fund deferred compensation liabilities that are valued at fair value, net deferred tax assets, income tax receivable and prepaid expenses. In addition, other assets includes 55,440 shares of NYSE Euronext, Inc. common stock subject to restrictions on transfer until March 2009. Fair value of these shares are determined based upon quoted market prices with a valuation adjustment for the restriction.

     Other assets at June 30, 2008 and December 31, 2007 included:

		June 30,				December 31,
		2008				2007
Investments		$	47,527			$	47,780
Deferred income tax asset			39,387				41,718
Income taxes receivable			16,210				6,513
Prepaid expenses			9,525				7,596
Other			1,253				4,200
Total other assets		$	113,902			$	107,807

Note 10 Goodwill and Intangible Assets

     The following table presents the changes in the carrying value of goodwill and intangible assets for the six months ended June 30, 2008:

(Dollars in thousands)
Goodwill
Balance at December 31, 2007		$	284,804
Goodwill acquired			—
Impairment losses			—
Balance at June 30, 2008		$	284,804

(Dollars in thousands)
Intangible assets
Balance at December 31, 2007		$	17,144
Intangible assets acquired			—
Amortization of intangible assets			(1,311	)
Impairment losses			—
Balance at June 30, 2008		$	15,833

Note 11 Financing

     The Company has discretionary short-term financing available on both a secured and unsecured basis. In addition, the Company has established arrangements to obtain financing using as collateral the Company’s securities held by its clearing bank and by another broker dealer at the end of each business day. Repurchase agreements are also used as sources of funding.

     On February 19, 2008, the Company expanded its available secured financing by entering into a $600 million revolving credit facility with U.S. Bank N.A. pursuant to which the Company is permitted to request advances to fund certain short-term municipal securities (including auction rate securities and variable rate demand notes). The advances are secured by certain pledged assets of the Company, which consist primarily of certain short-term municipal securities. Interest is paid monthly, and the unpaid principal amount of all advances will be due on August 19, 2008. Advances may be prepaid in whole or in part at any time without penalty. At June 30, 2008, the Company had advances against this line of credit of $13.5 million.

     The Company’s short-term financing bears interest at rates based on the federal funds rate. At June 30, 2008 and 2007, the weighted average interest rate on borrowings was 2.96 percent and 5.69 percent, respectively. At June 30, 2008 and December 31, 2007, no formal compensating balance agreements existed, and the Company was in compliance with all debt covenants related to its financing facilities.

     On December 31, 2007, the Company entered into an agreement whereby U.S. Bank N.A. agreed to provide up to $50 million in temporary subordinated debt upon approval by the Financial Industry Regulatory Authority (“FINRA”).

Note 12 Legal Contingencies

     The Company has been named as a defendant in various legal proceedings arising primarily from securities brokerage and investment banking activities, including certain class actions that primarily allege violations of securities laws and seek unspecified damages, which could be substantial. Also, the Company is involved from time to time in investigations and proceedings by governmental agencies and self-regulatory organizations.

     The Company has established reserves for potential losses that are probable and reasonably estimable that may result from pending and potential complaints, legal actions, investigations and proceedings. The Company’s reserves totaled $7.0 million and $8.4 million at June 30, 2008 and December 31, 2007, respectively. In addition to the Company’s established reserves, U.S. Bancorp, from whom the Company spun-off on December 31, 2003, has agreed to indemnify the Company in an amount up to $17.5 million for certain legal and regulatory matters. Approximately $12.8 million of this amount remained available as of June 30, 2008.

     As part of the asset purchase agreement between UBS and the Company for the sale of the PCS branch network, UBS agreed to assume certain liabilities of the PCS business, including certain liabilities and obligations arising from litigation, arbitration, customer complaints and other claims related to the PCS business. In certain cases, we have agreed to indemnify UBS for litigation matters after UBS has incurred costs of $6.0 million related to these matters and as of the second quarter of 2008, we have exceeded this $6.0 million threshold. In addition, we have retained liabilities arising from regulatory matters and certain litigation relating to the PCS business prior to the sale. The amount of exposure in excess of the $6.0 million indemnification threshold and for other PCS litigation matters deemed to be probable and reasonably estimable are included in the Company’s established reserves. Adjustments to litigation reserves for matters pertaining to the PCS business are included within discontinued operations on the consolidated statements of operations.

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

Note 13 Restructuring

     The Company implemented a specific restructuring plan in 2006 to reorganize the Company’s support infrastructure as a result of the PCS branch network sale to UBS. The following table presents a summary of activity with respect to the restructuring-related liabilities included in other liabilities and accrued expenses on the consolidated statements of financial condition:

		PCS
(Dollars in thousands)		Restructuring
Balance at December 31, 2007		$	14,566
Provisions charged to discontinued operations			(2,000	)
Cash outlays			(2,476	)
Non-cash write-downs			(230	)
Balance at June 30, 2008		$	9,860

Note 14 Shareholders’ Equity

Issuance of Shares

     During the six months ended June 30, 2008, the Company issued 90,140 common shares out of treasury in fulfillment of $3.7 million in obligations under the Piper Jaffray Companies Retirement Plan and issued 341,798 common shares out of treasury as a result of vesting and exercise transactions under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan (the “Incentive Plan”).

Note 15 Earnings Per Share

     Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive restricted stock and stock options. The computation of earnings per share is as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
(Amounts in thousands, except per share data)		2008				2007				2008				2007
Net income/(loss)		$	(3,634	)		$	9,326			$	(7,071	)		$	22,744
Shares for basic and diluted calculations:
Average shares used in basic computation			16,072				17,073				15,951				17,072
Stock options			26				118				37				125
Restricted stock			611				728				683				772
Average shares used in diluted computation			16,709				17,919				16,671				17,969
Earnings per share:
Basic		$	(0.23	)		$	0.55			$	(0.44	)		$	1.33
Diluted			N/A	(1)		$	0.52				N/A	(1)		$	1.27

N/A — Not applicable

Note 16 Stock-Based Compensation

     The Company maintains one stock-based compensation plan, the Incentive Plan. The Incentive Plan permits the grant of equity awards, including non-qualified stock options and restricted stock, to the Company’s employees and directors subject to a limit of 5.5 million shares of common stock. The Company periodically grants shares of restricted stock and options to purchase Piper Jaffray Companies common stock to employees and grants options to purchase Piper Jaffray Companies common stock and shares of Piper Jaffray Companies common stock to its non-employee directors. The Company believes that such awards help align the interests of employees and directors with those of shareholders and serve as an employee retention tool. The awards granted to employees have the following vesting periods: approximately 77 percent of the value of awards have three-year cliff vesting periods, approximately 10 percent of the value of awards vest ratably from 2010 through 2013 on the annual grant date anniversary, and approximately 13 percent of the value of awards cliff vest upon meeting a specific performance-based metric prior to May 2013. The director awards are fully vested upon grant. The maximum term of the stock options granted to employees and directors is ten years. The plan provides for accelerated vesting of the majority of option and restricted stock awards if there is a change in control of the Company (as defined in the plan), in the event of a participant’s death, and at the discretion of the compensation committee of the Company’s board of directors.

     Prior to January 1, 2006, the Company accounted for stock-based compensation under the fair value method of accounting as prescribed by SFAS 123, as amended by SFAS 148. As such, the Company recorded stock-based compensation expense in the consolidated statements of operations at fair value as of the grant date, net of estimated forfeitures.

     Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R) using the modified prospective transition method. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on fair value as of the grant date, net of estimated forfeitures. Because the Company historically expensed all equity awards based on the fair value method, net of estimated forfeitures, SFAS 123(R) did not have a material effect on the Company’s measurement or recognition methods for stock-based compensation.

     Employee and director stock options granted prior to January 1, 2006, were expensed by the Company on a straight-line basis over the option vesting period, based on the estimated fair value of the award on the date of grant using a Black-Scholes option-pricing model. Employee and director stock options granted after January 1, 2006, are 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. At the time it adopted SFAS 123(R), the Company changed the expensing period from the vesting period to the required service period, which shortened the period over which options are expensed for employees who are retiree-eligible on the date of grant or become retiree-eligible during the vesting period. The number of employees that fell within this category at January 1, 2006 was not material. In accordance with SEC guidelines, the Company did not alter the expense recorded in connection with prior option grants for the change in the expensing period.

     Employee restricted stock grants prior to January 1, 2006, are amortized on a straight-line basis over the vesting period based on the market price of Piper Jaffray Companies common stock on the date of grant. Service-based restricted stock grants after January 1, 2006, are valued at the market price of the Company’s common stock on the date of grant and amortized on a straight-line basis over the required service period.

The majority of the Company’s restricted stock grants provide for continued vesting after termination, so long as the employee does not violate certain post-termination restrictions, as set forth in the award agreements or any agreements entered into upon termination. The Company considers the required service period to be the greater of the vesting period or the post-termination restricted period. The Company believes that the post-termination restrictions meet the SFAS 123(R) definition of a substantive service requirement.

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

     The Company recorded compensation expense, net of estimated forfeitures, within continuing operations of $12.1 million and $7.0 million for the three months ended June 30, 2008 and 2007, respectively, and $21.9 million and $12.4 million for the six months ended June 30, 2008 and 2007, respectively, related to employee stock option and restricted stock grants. The tax benefit related to the total compensation cost for stock-based compensation arrangements totaled $4.6 million and $2.7 million for the three months ended June 30, 2008 and 2007, respectively, and $8.4 million and $4.8 million for the six months ended June 30, 2008 and 2007, respectively.

     The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model, which is based on assumptions such as the risk-free interest rate, the dividend yield, the expected volatility and the expected life of the option. The risk-free interest rate assumption is derived from the U.S. treasury bill rate with a maturity equal to the expected life of the option. The dividend yield assumption is derived from the assumed dividend payout over the expected life of the option. The expected volatility assumption for 2008 grants is derived from a combination of Company historical data and industry comparisons. The Company has only been a publicly traded company since the beginning of 2004; therefore, it does not have sufficient historical data to determine an appropriate expected volatility solely from the Company’s own historical data. The expected life assumption is based on an average of the following two factors: 1) industry comparisons; and 2) the guidance provided by the SEC in Staff Accounting Bulletin No. 107, (“SAB 107”). SAB 107 allows the use of an “acceptable” methodology under which the Company can take the midpoint of the vesting date and the full contractual term. The following table provides a summary of the valuation assumptions used by the Company to determine the estimated value of stock option grants in Piper Jaffray Companies common stock for the six months ended June 30:

		2008				2007
Weighted average assumptions in option valuation:
Risk-free interest rates			3.03	%			4.68	%
Dividend yield			0.00	%			0.00	%
Stock volatility factor			33.61	%			32.20	%
Expected life of options (in years)			6.00				6.00
Weighted average fair value of options granted		$	15.73			$	28.57

     The following table summarizes the changes in the Company’s outstanding stock options for the six months ended June 30, 2008:

										Weighted Average
						Weighted				Remaining				Aggregate
		Options				Average				Contractual				Intrinsic
		Outstanding				Exercise Price				Term (Years)				Value
December 31, 2007			470,715			$	44.99				7.1			$	1,988,641
Granted			128,887				41.09
Exercised			(518	)			39.62
Canceled			(3,388	)			42.05
June 30, 2008			595,696			$	44.17				7.1			$	—
Options exercisable at June 30, 2008			404,236			$	42.62				6.2			$	30,165

     As of June 30, 2008, there was $2.4 million of total unrecognized compensation cost related to stock options expected to be recognized over a weighted average period of 2.31 years.

     Cash received from option exercises for the six months ended June 30, 2008 and 2007, was $0.02 million and $2.3 million, respectively. The tax benefit realized for the tax deduction from option exercises totaled $0 and $0.9 million for the six months ended June 30, 2008 and 2007, respectively.

     The following table summarizes the changes in the Company’s non-vested restricted stock for the six months ended June 30, 2008:

						Weighted
		Non-Vested				Average
		Restricted				Grant Date
		Stock				Fair Value
December 31, 2007			1,827,969			$	51.93
Granted			1,982,625				41.22
Vested			(536,041	)			37.73
Canceled			(23,013	)			49.91
June 30, 2008			3,251,540			$	47.76

     As of June 30, 2008, there was $101.9 million of total unrecognized compensation cost related to restricted stock expected to be recognized over a weighted average period of 2.82 years.

     The vesting of stock options and restricted stock generally results in windfall tax benefits or shortfalls. A windfall tax benefit is defined as any corporate income tax benefit realized upon exercise or vesting of an award that exceeds amounts previously recognized in earnings. SFAS 123 (R) states that realized windfall tax benefits are credited to additional-paid-in-capital within the consolidated statement of financial condition. Realized shortfall tax benefits (amounts which are less than that previously recognized in earnings) are first offset against the cumulative balance of windfall tax benefits, if any, and then charged directly to income tax expense. As of June 30, 2008 we had a cumulative windfall tax benefit recorded within additional paid-in capital of $2.9 million.

Note 17 Geographic Areas

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Dollars in thousands)		2008				2007				2008				2007
Net revenues:
United States		$	82,374			$	108,775			$	165,608			$	221,559
Europe			9,173				6,177				14,972				24,821
Asia			3,358				7,624				10,056				13,146
Consolidated		$	94,905			$	122,576			$	190,636			$	259,526

		June 30,				December 31,
(Dollars in thousands)		2008				2007
Long-lived assets:
United States		$	339,678			$	347,885
Europe			2,511				2,909
Asia			20,705				20,080
Consolidated		$	362,894			$	370,874

Note 18 Net Capital Requirements and Other Regulatory Matters

     Piper Jaffray is registered as a securities broker dealer and is a member of various self-regulatory organizations (“SROs”) and securities exchanges. In July of 2007, the National Association of Securities Dealers, Inc. (“NASD”) and the member regulation, enforcement and arbitration functions of the New York Stock Exchange (“NYSE”) consolidated to form FINRA, which now serves as the Company’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 the FINRA 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 debt, dividend payments and other equity withdrawals by Piper Jaffray are subject to certain notification and other provisions of the SEC and FINRA rules. In addition, Piper Jaffray is subject to certain notification requirements related to withdrawals of excess net capital.

     At June 30, 2008, net capital calculated under the SEC rule was $246.2 million, and exceeded the minimum net capital required under the SEC rule by $244.3 million.

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

     Piper Jaffray Ltd., which is a registered United Kingdom broker dealer, is subject to the capital requirements of the U.K. Financial Services Authority (“FSA”). As of June 30, 2008, Piper Jaffray Ltd. was in compliance with the capital requirements of the FSA.

     Piper Jaffray Asia Holdings Limited operates four entities licensed by the Hong Kong Securities and Futures Commission, which are subject to the liquid capital requirements of the Securities and Futures (Financial Resources) Rules promulgated under the Securities and Futures Ordinance. As of June 30, 2008, Piper Jaffray Asia regulated entities were in compliance with the liquid capital requirements of the Hong Kong Securities and Futures Ordinance.

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

     The following information should be read in conjunction with the accompanying 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, 2007 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, 2007, as updated in our subsequent reports filed with the SEC. These reports are available at our web site at www.piperjaffray.com and at the SEC web site at www.sec.gov. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

Executive Overview

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

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

     In 2007, we completed two acquisitions that expanded our asset management and capital markets businesses. On September 14, 2007, we acquired Fiduciary Asset Management, LLC (“FAMCO”), a St. Louis-based asset management firm. On October 2, 2007, we acquired Goldbond Capital Holdings Limited (“Goldbond”), a Hong Kong-based investment bank. The acquisitions resulted in incremental revenues and expenses in the first two quarters of 2008, when compared with the comparable periods in 2007.

     While we plan to continue our focus on revenue growth through expansion of our capital markets and asset management businesses, we remain realistic about the challenging market environment and are carefully evaluating opportunities as they arise. Within our capital markets business, our efforts will be focused on growing our sector expertise, product depth and geographic reach. We expect that future growth from both our businesses will come from a combination of organic growth and acquisitions. In addition, we have begun to use our own capital to a greater extent by engaging in principal activities that leverage our expertise and we intend to increase the amount of capital we have committed to principal activities as opportunities arise. These activities include, among other things, proprietary positions in equity and debt securities of public and private companies, arbitrage trading strategies, proprietary derivative trading and private equity funds. We may also add capital to facilitate these growth initiatives. All of these growth initiatives will require investments in personnel and other expenses, which may have a short-term negative impact on our profitability as it may take time to develop meaningful revenues from them.

RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008

     Net revenues from continuing operations for the three months ended June 30, 2008 were $94.9 million, a decline of 22.6 percent compared with the prior-year period. For the three months ended June 30, 2008, we recorded a net loss from continuing operations of $5.1 million, or $0.32 per share, compared to net income of $10.4 million, or $0.58 per diluted share, for the corresponding period in 2007. For the three months ended June 30, 2008, our net loss, including continuing and discontinued operations, was $3.6 million, or $0.23 per share, compared to net income of $9.3 million, or $0.52 per diluted share, for the prior-year period.

     For the six months ended June 30, 2008, net revenues from continuing operations were $190.6 million, a decline of 26.5 percent compared with the prior-year period. For the six months ended June 30, 2008, net loss from continuing operations totaled $8.5 million, or $0.53 per share, compared to net income of $25.1 million, or $1.40 per diluted share, for the first half of 2007. Net loss, including continuing and discontinued

operations, for the six months ended June 30, 2008, was $7.1 million, or $0.44 per share, compared to net income of $22.7 million, or $1.27 per diluted share, for the prior-year period.

     Challenging market conditions, particularly within the equity capital markets, continued to negatively impact performance in the second quarter of 2008. In the first half of 2008, just 39 IPOs were completed industry-wide, and only seven of those IPOs were small cap growth companies. Our sales and trading businesses recorded increased revenues in the second quarter of 2008 partially mitigating the significantly reduced investment banking revenues.

EXTERNAL FACTORS IMPACTING OUR BUSINESS

     Performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity. Overall market conditions are a product of many factors, which are beyond our control and mostly unpredictable. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions, the volatility of the equity and fixed income markets, 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 also may affect our financial results. For example, our business focuses on specific industry sectors. These sectors may experience growth or downturns independently of general economic and market conditions, or may face market conditions that are disproportionately better or worse than those impacting the economy and markets generally. In either case, 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.

OUTLOOK FOR THE REMAINDER OF 2008

     Market conditions in the first half of 2008 were very difficult as we experienced significantly reduced equity financing opportunities and a difficult market for our high yield and structured products business. Further, the municipal credit markets were under particular stress in the first quarter of 2008, however, we believe the turmoil in the municipal credit markets has largely abated. Weak economic indicators, recession fears and continued turmoil in the credit markets have caused significant market uncertainty and increased volatility. We anticipate these challenging market conditions to persist through the remainder of 2008. Specifically, we anticipate that equity financing activity will remain depressed through the remainder of 2008, and we do not see improvement in the high yield market in the near term. Continued challenging market conditions will likely have an adverse impact on our overall results of operations.

Results of Operations

FINANCIAL SUMMARY

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

														As a Percentage of Net
		For the Three Months Ended												Revenues
		June 30,												For the Three Months Ended
										2008				June 30,
(Dollars in thousands)		2008				2007				v2007				2008				2007
Revenues:
Investment banking		$	32,184			$	74,872				(57.0)	%			33.9	%			61.0	%
Institutional brokerage			51,196				38,597				32.6				54.0				31.5
Interest			13,114				13,816				(5.1	)			13.8				11.3
Asset management			4,697				72				N/M				4.9				0.1
Other loss			(460	)			(364	)			26.4				(0.5	)			(0.3	)
Total revenues			100,731				126,993				(20.7	)			106.1				103.6
Interest expense			5,826				4,417				31.9				6.1				3.6
Net revenues			94,905				122,576				(22.6	)			100.0				100.0
Non-interest expenses:
Compensation and benefits			65,885				71,707				(8.1	)			69.4				58.5
Occupancy and equipment			8,133				8,849				(8.1	)			8.6				7.2
Communications			5,869				5,997				(2.1	)			6.2				4.9
Floor brokerage and clearance			3,899				4,176				(6.6	)			4.1				3.4
Marketing and business development			7,381				6,380				15.7				7.8				5.2
Outside services			11,431				9,122				25.3				12.0				7.4
Other operating expenses			6,603				1,194				N/M				7.0				1.0
Total non-interest expenses			109,201				107,425				1.7	%			115.1				87.6
Income/(loss) from continuing operations before income tax expense/(benefit)			(14,296	)			15,151				N/M				(15.1	)			12.4
Income tax expense/(benefit)			(9,223	)			4,774				N/M				N/M				3.9
Net income/(loss) from continuing operations			(5,073	)			10,377				N/M				(5.3	)			8.5
Discontinued operations:
Income/(loss) from discontinued operations, net of tax			1,439				(1,051	)			N/M				1.5				(0.9	)
Net income/(loss)		$	(3,634	)		$	9,326				N/M				(3.8	)%			7.6	%

N/M — Not meaningful

     For the three months ended June 30, 2008, we recorded a net loss, including continuing and discontinued operations, of $3.6 million. Net revenues from continuing operations for the second quarter of 2008, were $94.9 million, a decrease of 22.6 percent from the year-ago period. For the three months ended June 30, 2008, investment banking revenues decreased 57.0 percent to $32.2 million, compared with revenues of $74.9 million in the prior-year period. The decline in investment banking revenues was primarily driven by significantly lower equity financing activity. For the three months ended June 30, 2008, institutional brokerage revenues increased 32.6 percent to $51.2 million, compared with $38.6 million in the corresponding period in the prior year, due to higher U.S. equity and higher municipal revenues, offset in part by lower

high-yield and structured product revenue. In the second quarter of 2008, net interest income decreased 22.5 percent over the year-ago period to $7.3 million due to increased borrowing levels in 2008. For the three months ended June 30, 2008, asset management fees were $4.7 million. In the second quarter of 2008, other income decreased slightly to a loss of $0.5 million, compared with a loss of $0.4 million in the prior-year period. Non-interest expenses increased to $109.2 million for the three months ended June 30, 2008, from $107.4 million in the corresponding period in the prior year, primarily as a result of increased litigation-related expenses, higher travel and legal fee expenses associated with deals that were not completed and additional expenses from our acquisitions of FAMCO and Goldbond completed in late 2007. This increase was offset in part by a decline in compensation expense.

CONSOLIDATED NON-INTEREST EXPENSES

     Compensation and Benefits - Compensation and benefits expenses, which are the largest component of our expenses, include salaries, bonuses, commissions, benefits, amortization of stock-based compensation, employment taxes and other employee costs. A substantial portion of compensation expense is comprised of variable incentive arrangements, including discretionary bonuses, 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, stock-based compensation amortization and benefits, are more fixed in nature. The timing of bonus payments, which generally occur in February, have a greater impact on our cash position and liquidity, than is reflected in our statements of operations.

     For the three months ended June 30, 2008, compensation and benefits expenses decreased 8.1 percent to $65.9 million, from $71.7 million in the corresponding period in 2007, due to decreased variable compensation costs resulting from lower revenues. This decline was offset in part by additional expense from the acquisitions of FAMCO and Goldbond in September and October of 2007, respectively, and $2.8 million of severance costs recorded in the second quarter of 2008. Compensation and benefits expenses as a percentage of net revenues increased to 69.4 percent for the second quarter of 2008, compared with 58.5 percent for the second quarter of 2007. The increased compensation and benefits ratio was attributable to the severance charge and higher fixed compensation costs over a lower revenue base. We expect that upward pressure on our compensation to revenue ratio will continue through 2008.

     Occupancy and Equipment - In the second quarter of 2008, occupancy and equipment expenses were $8.1 million, compared with $8.8 million for the corresponding period in 2007. The decrease was attributable to $0.9 million of occupancy expenses incurred in the second quarter of 2007 to relocate office space in New York City, offset in part by additional occupancy expenses from our acquisitions of FAMCO and Goldbond in late 2007.

     Communications - Communication expenses include costs for telecommunication and data communication, primarily consisting of expense for obtaining third-party market data information. For the three months ended June 30, 2008, communication expenses were $5.9 million, compared with $6.0 million for the prior-year period.

     Floor Brokerage and Clearance - For the three months ended June 30, 2008, floor brokerage and clearance expenses were $3.9 million, compared with $4.2 million for the three months ended June 30, 2007. In the second quarter of 2008, we incurred lower expenses associated with accessing electronic communication networks.

     Marketing and Business Development - Marketing and business development expenses include travel and entertainment and promotional and advertising costs. In the second quarter of 2008, marketing and business development expenses were $7.4 million, compared with $6.4 million in the prior year period, an increase of 15.7 percent. In the second quarter of 2008, we experienced a greater number of deals that were not completed because of the challenging market conditions than is typical, which resulted in the write-off of certain travel expenses associated with those deals.

     Outside Services - Outside services expenses include securities processing expenses, outsourced technology functions, outside legal fees and other professional fees. Outside services expenses increased 25.3 percent to $11.4 million in the second quarter of 2008, compared with $9.1 million for the prior-year period. This increase was due to the write-off of certain legal fees associated with deals that were not completed due to the challenging market conditions and fees incurred to secure the revolving credit facility that we entered into in the first quarter of 2008, offset in part by a decline in consultancy costs. In the second quarter of 2007, we incurred consultant costs associated with the implementation of our back-office system.

     Other Operating Expenses - Other operating expenses include insurance costs, license and registration fees, expenses related to our charitable giving program, amortization of intangible assets and litigation-related expenses, which consist of the amounts we reserve and/or pay out related to legal and regulatory matters. In the second quarter of 2008, other operating expenses increased to $6.6 million, compared with $1.2 million in the second quarter of 2007. This increase was primarily due to a $2.9 million in litigation-related expenses from a trading-related matter that was partially resolved during the second quarter of 2008. Part of this litigation in which we are a plaintiff, remains pending, and any benefit we may realize will occur in a future period. In addition, in the second quarter of 2008, we incurred increased intangible asset amortization expense as a result of the FAMCO acquisition.

     Income Taxes - For the three months ended June 30, 2008, our provision for income taxes from continuing operations was a benefit of $9.2 million, equating to an effective tax rate of 64.5 percent. For the three months ended June 30, 2007, income taxes from continuing operations were $4.8 million, equating to an effective tax rate of 31.5 percent. The 64.5 percent effective tax rate for the second quarter of 2008 was driven by the large amount of tax-exempt municipal interest income and operating losses.

NET REVENUES FROM CONTINUING OPERATIONS (DETAIL)

		For the Three Months Ended
		June 30,								2008
(Dollars in thousands)		2008				2007				v2007
Net revenues:
Investment banking
Financing
Equities		$	8,705			$	40,075				(78.3	)%
Debt			15,297				25,194				(39.3	)
Advisory services			11,256				11,706				(3.8	)
Total investment banking			35,258				76,975				(54.2	)
Institutional sales and trading
Equities			35,345				28,735				23.0
Fixed income			20,804				17,116				21.5
Total institutional sales and trading			56,149				45,851				22.5
Asset management			4,697				72				N/M
Other loss			(1,199	)			(322	)			272.4
Total net revenues		$	94,905			$	122,576				(22.6	)%

N/M — Not meaningful

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

     For the three months ended June 30, 2008, investment banking revenues decreased 54.2 percent to $35.3 million, compared with $77.0 million in the corresponding period in the prior year due to challenging market conditions, especially within the equity capital markets. Equity financing revenues decreased 78.3 percent to $8.7 million in the second quarter of 2008 due to significantly lower equity financing activity. The equity capital markets were essentially on hold, particularly within our primary industry sectors. During the second quarter of 2008, we completed nine equity financings during the second quarter of 2008, raising $1.5 billion in capital for our clients. We acted as book runner on two of the nine equity financings. In the second quarter of 2007, we completed 37 equity financings raising $4.5 billion in capital for our clients, and acted as book runner on seven of these financings. Fixed income financing revenues in the second quarter of 2008 decreased 39.3 percent from the prior-year period to $15.3 million, primarily due to a lower average spread on completed public finance transactions resulting from a change in business mix. A portion of the fixed income financings completed in the second quarter of 2008 related to transactions to restructure existing debt, which generally have a lower spread. During the second quarter of 2008, we underwrote 97 tax-exempt issues with a par value of $2.5 billion, compared with 138 tax-exempt issues with a par value of $2.2 billion in the prior-year period. Advisory services revenues were $11.3 million in the second quarter of 2008, essentially flat compared with the corresponding period in the prior year.

     Institutional sales and trading revenues comprise all the revenues generated through trading activities, which consist primarily of facilitating customer trades. To assess the profitability of institutional sales and trading 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 in this area may vary from quarter to quarter as a result of changes in trading margins, trading gains and losses, net interest spreads, trading volumes and the timing of transactions based on market opportunities.

     For the three months ended June 30, 2008, institutional sales and trading revenues increased 22.5 percent to $56.1 million, compared with $45.9 million for the three months ended June 30, 2007. Equity institutional sales and trading revenues increased 23.0 percent to $35.3 million in the second quarter of 2008, compared with $28.7 million in the prior-year period. This increase is due to higher revenues from U.S.

equities as a result of higher volumes and proprietary trading strategies, lower trading loss ratios, and incremental revenues from Hong Kong equities, offset slightly by lower revenues from European equities. In the second quarter of 2008, fixed income institutional sales and trading revenues increased 21.5 percent to $20.8 million, compared with the second quarter of 2007, due to increased municipal revenues, offset in part by lower high yield and structured products revenues. During the second quarter of 2008, we were able to capture short-term trading opportunities presented by dislocation in the municipal markets. Market conditions for high yield corporate bonds and structured products continued to be difficult in the second quarter of 2008.

     For the second quarter of 2008, asset management fees were $4.7 million due primarily to the business of FAMCO, which we acquired in September 2007. Asset management fees also include management fees from our private equity funds.

     Other loss includes gains and losses from our investments in private equity and venture capital funds as well as other firm investments. Other loss also includes interest expense not allocated to specific product areas. In the second quarter of 2008, we recorded a loss of $1.2 million, compared with a loss of $0.3 million in second quarter of 2007. The increased loss in the second quarter of 2008 was a result of higher interest expense resulting from increased financing requirements in the second quarter of 2008, as a result of cash disbursements made in late 2007 for stock repurchases and the acquisitions of FAMCO and Goldbond.

DISCONTINUED OPERATIONS

     Discontinued operations include the resolution of certain legal matters and revisions to restructuring estimates related to our Private Client Services (“PCS”) business, which we sold to UBS on August 11, 2006.

     In the second quarter of 2008, discontinued operations recorded net income of $1.4 million, which primarily related to a PCS litigation settlement. A net loss of $1.1 million was recorded in the second quarter of 2007 which included costs related to decommissioning a retail-oriented back-office system, PCS litigation-related expenses and restructuring charges.