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, 2008 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, 2008, 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.
The extremely challenging operating environment that impacted our business in 2008 continued into the first quarter of 2009. Despite this difficult environment, we have kept our focus on two key priorities for our firm: 1) appropriately adjusting our cost structure to enable us to operate through the difficult period, and 2) positioning our firm for when the markets eventually turn positive. In terms of the first priority, we benefited from the cost reduction initiatives implemented in 2008 and exercised strict cost discipline in the first quarter of 2009. We will continue to work to identify additional cost savings opportunities. In terms of the second priority, we believe our firm has an opportunity to capitalize on the turmoil in the competitive landscape and to increase market share by extending our franchise and enhancing our talent base with experienced individuals or teams during these challenging times.
RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2009 For the three months ended March 31, 2009, we recorded pre-tax income of $3.5 million, but an after-tax loss of $2.7 million, or $0.17 per diluted share. We recorded $6.3 million of income tax expense in the first quarter of 2009, which was high compared to pre-tax income because of the distribution of results between the U.S. and non-U.S. entities and approximately $3.0 million of one-time items that increased tax expense. Net revenues for the three months ended March 31, 2009 were $83.9 million, down 12.4 percent from $95.7 million reported in the year-ago period. Higher institutional brokerage revenues were not able to offset the decline in investment banking revenue resulting from weak market conditions.

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 also may 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 continues to suffer, impacts one or more sectors 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.
OUTLOOK FOR THE REMAINDER OF 2009
Global economic and financial market conditions were extraordinarily difficult in 2008 and continued to be challenging through the first quarter of 2009. We anticipate that a challenging environment will persist for the remainder of 2009. Our financial performance depends heavily on investment banking activity, and with the global equity capital markets essentially on hold and advisory activity muted, we anticipate that our results will be negatively impacted. Only one initial public offering was completed industry-wide in the United States during the first quarter of 2009. Additionally, middle market U.S. merger and acquisition activity (transactions of less than $500 million) was well below the average levels of the last two years in both the number and value of completed deals. We anticipate U.S. equity and fixed income trading will continue to perform reasonably well, although we do believe the very favorable fixed income sales and trading results we experienced in the first quarter of 2009 will moderate.
For the three months ended March 31, 2009, non-compensation expenses were $30.0 million, down 20 percent compared to the first quarter of 2008. This decline was a result of actions taken in 2008, continued expense discipline in the first quarter of 2009 and the timing of certain expenses. All expense categories reflected a significant decline or were at similar levels as the year-ago period. We continue to work to identify additional cost savings, however, we anticipate going forward in 2009 that our non-compensation expense run-rate will be higher than it was in the first quarter and will be in the range of approximately $35 million per quarter.

Results of Operations
   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
                                                     March 31,                            For the Three Months Ended
                                                                        2009                       March 31,
(Dollars in thousands)                 2009             2008            v2008               2009                  2008
Revenues:

Investment banking                   $  24,350        $  55,265          (55.9 )%                29.0 %             57.7 %
Institutional brokerage                 55,027           29,812           84.6                   65.6               31.2
Interest                                 7,288           15,159          (51.9 )                  8.7               15.8
Asset management                         3,009            3,973          (24.3 )                  3.6                4.2
Other income/(loss)                     (3,599 )         (1,584 )        127.2                   (4.3 )             (1.7 )


Total revenues                          86,075          102,625          (16.1 )                102.6              107.2

Interest expense                         2,193            6,878          (68.1 )                  2.6                7.2


Net revenues                            83,882           95,747          (12.4 )                100.0              100.0


Non-interest expenses:

Compensation and benefits               50,324           59,277          (15.1 )                 60.0               61.9
Occupancy and equipment                  6,518            8,110          (19.6 )                  7.8                8.5
Communications                           6,099            6,739           (9.5 )                  7.3                7.0
Floor brokerage and clearance            2,882            2,654            8.6                    3.4                2.8
Marketing and business
development                              4,445            6,096          (27.1 )                  5.3                6.4
Outside services                         7,519            8,642          (13.0 )                  9.0                9.0
Restructuring-related expenses               -            2,854            N/M                      -                3.0
Other operating expenses                 2,551            2,464            3.5                    3.0                2.5


Total non-interest expenses             80,338           96,836          (17.0 )                 95.8              101.1


Income/(loss) before income tax
expense/(benefit)                        3,544           (1,089 )          N/M                    4.2               (1.1 )

Income tax expense                       6,269              305            N/M                    7.4                0.4


Net loss                             $  (2,725 )      $  (1,394 )         95.5 %                 (3.2 )%            (1.5 )%

N/M - Not meaningful

For the three months ended March 31, 2009, we recorded pre-tax income of $3.5 million, but an after-tax loss of $2.7 million. Net revenues for the three months ended March 31, 2009, were $83.9 million, a 12.4 percent decline from the year-ago period. For the three months ended March 31, 2009, investment banking revenues decreased 55.9 percent to $24.4 million, compared with revenue of $55.3 million in the prior-year period. The challenging operating environment in 2008, particularly in the latter half of 2008, carried over to the first quarter of 2009 and resulted in reduced investment banking revenues, particularly in equity financings and mergers and acquisitions. In the first quarter of 2009, institutional brokerage revenues increased 84.6 percent to $55.0 million, compared with $29.8 million in the corresponding period in the prior year, due to higher fixed income sales and trading revenues. In the first quarter of 2009, net interest income decreased to $5.1 million, compared with $8.3 million in the first quarter of 2008. The decrease was primarily the result of a decline in net interest income earned on net inventory balances as we significantly reduced our balance sheet exposure in late 2008 and early 2009. For the three months ended March 31, 2009, asset management fees were $3.0 million, compared with $4.0 million in the prior-year period, driven by lower assets under management resulting from declining asset valuations. In the first quarter of 2009, other income decreased to a loss of $3.6 million, compared with a loss of $1.6 million in the prior-year period, primarily due to losses recorded on our principal investments. Non-interest expenses decreased to

$80.3 million for the three months ended March 31, 2009, from $96.8 million in the corresponding period in the prior year, primarily as a result of cost savings actions completed in both 2008 and the first quarter of 2009.
CONSOLIDATED NON-INTEREST EXPENSES
Compensation and Benefits - Compensation and benefits expenses, which are the largest component of our expenses, include salaries, bonuses, benefits, stock-based compensation, employment taxes and other employee costs. A 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 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 March 31, 2009, compensation and benefits expenses decreased 15.1 percent to $50.3 million from $59.3 million in the corresponding period in 2008. This decrease was due to lower salaries and benefits expenses. Compensation and benefits expenses as a percentage of net revenues were 60.0 percent for the first quarter of 2009, compared with 61.9 percent for the first quarter of 2008.
Occupancy and Equipment - In the first quarter of 2009, occupancy and equipment expenses were $6.5 million, compared with $8.1 million for the corresponding period in 2008. The decrease was attributable to a one-time reduction in expense resulting from the consolidation of existing locations and prior investments in technology and equipment becoming fully depreciated.
Communications - Communication expenses include costs for telecommunication and data communication, primarily consisting of expenses for obtaining third-party market data information. For the three months ended March 31, 2009, communications expenses were $6.1 million, compared with $6.7 million for the prior-year period.
Floor Brokerage and Clearance - For the three months ended March 31, 2009, floor brokerage and clearance expenses were $2.9 million, essentially flat compared with $2.7 million for the three months ended March 31, 2008.
Marketing and Business Development - Marketing and business development expenses include travel and entertainment and promotional and advertising costs. In the first quarter of 2009, marketing and business development expenses decreased 27.1 percent to $4.4 million, compared with $6.1 million in the first quarter of 2008. This decrease was due to a decline in travel costs resulting from lower deal activity in the first quarter of 2009, and cost savings actions taken in late 2008 and continued expense discipline in the first quarter of 2009.
Outside Services - Outside services expenses include securities processing expenses, outsourced technology functions, outside legal fees and other professional fees. Outside services expenses decreased to $7.5 million in the first quarter of 2009, compared with $8.6 million for the prior-year period, due to reduced credit facility fees and lower consulting costs.
Restructuring-Related Expense - During the first quarter of 2008, we implemented certain expense reduction measures as a means to better align our cost infrastructure with our revenues. These actions resulted in a pre-tax restructuring charge of $2.9 million, primarily consisting of employee severance costs.
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 first quarter of 2009, other operating expenses were $2.6 million, essentially flat compared with the first quarter of 2008.
Income Taxes - For the three months ended March 31, 2009, our provision for income taxes was $6.3 million, compared with $0.3 million in the prior year period. The $6.3 million of income tax expense recorded in the first quarter of 2009 was high compared to pre-tax income because we did not record a tax benefit related to some foreign subsidiary net operating loss carryforward deductions, and approximately $3 million of one-time items that increased tax expense.

NET REVENUES FROM OPERATIONS (DETAIL)

                                             For the Three Months Ended
                                                      March 31,                  2009
  (Dollars in thousands)                      2009                2008           v2008
  Net revenues:
  Investment banking
  Financing
  Equities                                $       4,063       $      16,518       (75.4 )%
  Debt                                           12,388              19,370       (36.0 )
  Advisory services                               8,815              25,325       (65.2 )

  Total investment banking                       25,266              61,213       (58.7 )

  Institutional sales and trading
  Equities                                       30,662              31,180        (1.7 )
  Fixed income                                   27,805               2,339         N/M

  Total institutional sales and trading          58,467              33,519        74.4

  Asset management                                3,009               3,973       (24.3 )

  Other income/(loss)                            (2,860 )            (2,958 )      (3.3 )

  Total net revenues                      $      83,882       $      95,747       (12.4 )%

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.
Industry-wide market conditions remained weak in the first quarter of 2009, resulting in reduced activity in all areas of investment banking with significant declines in equity financing and advisory services. Given these challenging market conditions, investment banking revenues decreased to $25.3 million in the first quarter of 2009, compared with $61.2 million in the corresponding period in the prior year. For the three months ended March 31, 2009, equity underwriting revenues decreased 75.4 percent to $4.1 million, reflecting the weak market conditions seen across the industry. Only one initial public offering was completed industry-wide in the United States during the first quarter of 2009. Debt financing revenues in the first quarter of 2009 decreased 36.0 percent to $12.4 million. Increased public finance underwriting revenues were more than offset by lower revenues related to public finance remarketing securities, auction-rate securities and derivatives. For the three months ended March 31, 2009, advisory services revenues decreased 65.2 percent to $8.8 million due to a decline in merger and acquisition activity. We completed six advisory transactions during the first quarter of 2009, compared with 17 advisory transactions in the first quarter of 2008. We expect continued market uncertainty to negatively impact our investment banking revenues in 2009.
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 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 March 31, 2009, institutional sales and trading revenues increased 74.4 percent to $58.5 million, driven by strong fixed income sales and trading revenues. Equity institutional sales and trading revenues were $30.7 million in the first quarter of 2009, essentially flat compared with the prior year period. Increased revenues related to convertibles and electronic trading were offset by lower U.S. high touch and Hong Kong equity sales and trading revenue. Performance in the U.S. high touch equities business was solid in the first quarter of 2009, but revenues were lower due to a decline in net commissions earned. Fixed income institutional sales and trading revenues increased to $27.8 million in the first quarter of 2009. The significant increase in revenues was due to a strong performance across municipal and taxable products. Additionally in the first quarter of 2008, we incurred trading losses in our high yield business and our municipal tender option

bond ("TOB") program. We have significantly reduced our exposure in our high yield business and have discontinued our TOB program since that time.
For the three months ended March 31, 2009, asset management fees decreased to $3.0 million compared with $4.0 million in the prior year period, due to a decline in assets under management resulting from a decline in asset valuations. At March 31, 2009, we had $5.5 billion in assets under management compared with $8.3 billion at March 31, 2008.
Other income/loss includes gains and losses from our investments in private equity and venture capital funds, other firm investments and income associated with the forfeiture of stock-based compensation. In the first quarter of 2009, we recorded a loss of $2.9 million, which is flat compared with the prior year period.
Recent Accounting Pronouncements
Recent accounting pronouncements are set forth in Note 3 to our unaudited consolidated financial statements, and are incorporated herein by reference. Critical Accounting Policies
Our accounting and reporting policies comply with generally accepted accounting principles ("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 our Annual Report on Form 10-K for the year-ended December 31, 2008. 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 owned and pledged as collateral, and financial instruments and other inventory positions sold, but not yet purchased, on our 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 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. When available, we use observable market prices, observable market parameters, or broker or dealer prices (bid and ask prices) to derive the fair value of the instrument. 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. Bid prices represent the highest price a buyer is willing to pay for a financial instrument at a particular time. Ask prices represent the lowest price a seller is willing to accept for a financial instrument at a particular time.
A substantial percentage of the fair value of our trading securities owned, trading securities owned and pledged as collateral, and trading securities 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 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. 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 example, we assume that the size of positions that we hold would not be large enough to affect the quoted . . .