PJC Piper Jaffray Companies

Piper Jaffray Companies Announces 2004 Fourth Quarter and Year-end Results Full year earnings per diluted share increase 93 percent to $2.60 Return on tangible shareholders' equity(1) improves to 12.9 percent Company announces a share repurchase program MINNEAPOLIS, Jan. 26 /PRNewswire-FirstCall/ -- Piper Jaffray Companies (NYSE:PJC) today announced net income of $11.8 million, or $0.61 per diluted share, for the quarter ended Dec. 31, 2004, up from a net loss of $3.3 million, or ($0.17) per diluted share, for the quarter ended Dec. 31, 2003. Net income also totaled $11.8 million, or $0.61 per diluted share in the third quarter of 2004. Net revenues for the fourth quarter were $194.6 million, down 3.6 percent from the fourth quarter of 2003 and up 4.5 percent over the third quarter of 2004. For the full year, net income improved to $50.3 million, compared to $26.0 million in the prior year. Earnings per diluted share rose 92.6 percent to $2.60 compared to the prior year. Net revenues increased to $797.5 million for the full year, up $10.8 million or 1.4 percent over 2003. Return on tangible shareholders' equity(1) improved to 12.9 percent compared to 8.0 percent for the prior year. "We reported respectable performance for our first year as a new public company," said chairman and chief executive officer Andrew S. Duff. "We stemmed the negative trend in private client revenues and substantially increased our equity underwriting and merger and acquisition revenues. We also made solid progress on margin improvement and significantly enhanced our return on tangible shareholders' equity." The company also announced today that its board of directors has authorized the repurchase of up to 1.3 million shares of the company's outstanding common stock for a maximum aggregate purchase price of $65.0 million. The principal purpose of the share repurchase program is to manage the company's equity capital relative to the growth of its business and to offset the dilutive effect of employee equity-based compensation. The repurchase program will be conducted under a 10b5-1 plan and will commence early in 2005, ending Dec. 31, 2005. As of Dec. 31, 2004, Piper Jaffray Companies had 19.9 million common shares outstanding. Results of Operations Net Revenues Fourth quarter net revenues declined $7.2 million, or 3.6 percent, from the prior year period, primarily due to lower equity institutional sales and trading activity. Compared to the third quarter of 2004, net revenues rose 4.5 percent driven by increased private client activity, improved fixed-income institutional sales and trading activity and stronger equity underwriting revenue. Offsetting these increases were softer public finance and merger and acquisition revenues. For the year, net revenues were $797.5 million, an increase of $10.8 million, or 1.4 percent. Substantially stronger equity underwriting and mergers and acquisitions revenues more than offset weaker fixed income institutional sales and trading performance. Non-Interest Expenses For the quarter, non-interest expenses were $176.4 million, down 14.9 percent from the fourth quarter of 2003. Compensation expense was $116.8 million, essentially flat with the prior year. Non-compensation expenses were $59.6 million, a decrease of $30.6 million, or 33.9 percent. The decrease from the prior year in non-compensation expenses was due largely to three items: -- a $24.0 million charge in the fourth quarter of last year for cash awards granted as part of the spin-off from U.S. Bancorp, -- a $4.1 million charge in the fourth quarter of last year for disposal of software related to the implementation of a new fixed income trading system, and -- reduced litigation-related expenses. Compared to the third quarter of 2004, non-interest expenses increased 5.2 percent, primarily due to higher litigation-related expenses. For the year, non-interest expenses were $717.9 million, down $28.0 million or 3.8 percent. Compensation expense was $488.4 million, up 1.2 percent compared to last year. Non-compensation expenses were $229.5 million, down 12.9 percent from the prior year. This decline was due to several factors: -- reduced litigation-related expenses, -- reduced clearing and transaction costs due to management of electronic communications network (ECN) fees and floor brokerage expenses, -- the $8.8 million increase in the 2003 allowance for financial advisor loan losses, which was reduced by $2.1 million in 2004, -- the $4.1 million charge in 2003 for disposal of software, -- the $24.0 million charge in 2003 for cash awards related to the spin- off, compared to a charge of $4.7 million in 2004, -- elimination of a $3.9 million royalty fee charged to Piper Jaffray by U.S. Bancorp for the use of trade names and trademarks. These reductions in expenses were partially offset by an increase in costs related to being a stand-alone public company. For the quarter, pre-tax operating margin was 9.3 percent, an improvement from a negative margin of (2.7) percent in the prior year. For the year, pre- tax operating margin was 10.0 percent, or nearly double the 5.2 percent margin achieved in 2003. Business Segment Review Capital Markets Fourth Quarter Capital Markets recorded $104.4 million in net revenues for the quarter, down $6.4 million, or 5.7 percent, from the prior year. Segment pre-tax operating income for the quarter was $17.4 million, down 2.7 percent compared to the fourth quarter of 2003. The decline in revenue was due to lower equity institutional sales and trading revenues driven by lower volumes and higher trading losses. Compared to the third quarter of 2004, net revenues improved 3.1 percent. Fixed-income institutional sales and trading revenues improved 52.3 percent mainly due to increased trading volumes and trading profits, and equity underwriting revenues rose by 35.8 percent due to earning a higher proportion of deal fees. These improvements in revenue were offset in large part by lower mergers and acquisitions revenue, which declined $7.7 million, or 33.1 percent, due to lower transaction values. Public finance revenues also declined by 19.8 percent in comparison to a strong prior quarter. Segment operating expenses for the quarter were $87.0 million, a decrease of $5.9 million, or 6.3 percent, from the same period a year ago, primarily driven by the $4.1 million charge in 2003 for disposal of software related to the implementation of a new fixed income trading system. For the quarter, segment pre-tax operating margin was 16.7 percent, up from 16.2 percent recorded in the same quarter last year. Full Year For the year, Capital Markets recorded net revenue of $431.1 million, essentially unchanged compared to 2003. Weaker fixed income institutional sales and trading activity was offset by significantly stronger equity underwriting and mergers and acquisitions activity, which increased 24.6 percent and 23.4 percent, respectively. Segment pre-tax operating income was $74.4 million, down $2.4 million, or 3.1 percent from the prior year. Segment operating expenses were $356.7 million, up slightly compared to 2003. Segment pre-tax operating margin was 17.3 percent, compared to 17.8 percent last year. For the year, the firm maintained or improved its ranking in equity underwriting and public finance. Following is a recap of completed deals and industry rankings (based on the number of transactions completed) for the full year of 2004. -- 93 equity offerings, raising a total of $12.6 billion in capital, and placing the firm 13th nationally. These results compare to a ranking of 14th last year with the completion of 61 equity offerings for a total of $8.2 billion in capital raised. (Source: Dealogic) -- 49 M&A transactions with an enterprise value of $6.8 billion, ranking 10th among all advisors. Last year the firm completed 38 transactions with an enterprise value of $5.1 billion. Among middle-market advisors (a group that excludes investment banks with average deal size greater than $500 million), the firm ranked first nationally. (Source: Thomson Financial) -- 502 tax-exempt issues with a total par value of $5.9 billion, ranking the firm fourth nationally. Last year the firm ranked fifth and completed 507 tax-exempt issues nationally, with a total par value of $5.7 billion. In the Upper Midwest, the firm completed 286 public finance issues for the year with a total par value of $2.4 billion, again ranking the firm the lead underwriter of Upper Midwest tax-exempt issues. (Source: Thomson Financial) Private Client Services Fourth Quarter Private Client Services recorded net revenues of $87.8 million for the quarter, down $1.0 million, or 1.1 percent, compared to the fourth quarter of 2003. Net revenues rose 4.9 percent compared to the third quarter of 2004 as private client activity strengthened after the presidential election concluded. Segment pre-tax operating income was $11.8 million, up 41.5 percent from the fourth quarter of 2003. Segment operating expenses were $76.0 million for the quarter, a 5.5 percent improvement from the prior year period, primarily due to lower litigation-related expenses. Segment pre-tax operating margin was 13.5 percent, up from the 9.4 percent margin in the fourth quarter of 2003. Full Year For the year, segment net revenues were $355.2 million, up 0.9 percent compared to the prior year. Segment pre-tax operating income was $48.0 million, an improvement of $19.9 million, or 70.5 percent, over 2003. Segment operating expenses were $307.1 million, an improvement of $16.8 million, or 5.2 percent, driven by lower litigation-related expenses and a reduction in financial advisor loan losses. Segment pre-tax operating margin was 13.5 percent, compared to 8.0 percent for 2003. Corporate Support and Other Corporate Support and Other pre-tax operating loss was $9.9 million for the fourth quarter, an increase of $3.1 million over the fourth quarter of 2003. For the full year, pre-tax operating loss was $38.1 million compared to a loss of $36.1 million last year. The increase in pre-tax operating loss for both periods was due primarily to new public company costs. Additional Shareholder Information As of As of As of Dec. 31, Sept. 30, Dec. 31, 2004 2004 2003 Full time employees: 3,027 3,029 2,991 Financial advisors: 860 853 874 Client assets: $51 billion $49 billion $50 billion Shareholders' equity: $725.4 million $715.0 million $669.8 million Return on average tangible shareholders' equity:(1) 12.9 percent 9.4 percent 8.0 percent Book value per share: $37.52 $36.98 $34.64 Tangible book value per share: $20.88 $21.17 $18.84 (1) Tangible shareholders' equity equals total shareholders' equity less goodwill and identifiable intangible assets. Return on average tangible shareholders' equity is calculated by dividing trailing 12- month net income, for each period presented, by the average quarterly tangible common equity for the trailing 12-month period. Management believes that return on tangible shareholders' equity is a meaningful measure of performance as it reflects the tangible equity deployed in our businesses. This measure excludes the portion of our shareholders' equity attributable to goodwill and identifiable intangible assets. The majority of our goodwill is a result of the 1998 acquisition of our predecessor company, Piper Jaffray Companies Inc., and its subsidiaries by U.S. Bancorp. The following table sets forth a reconciliation of shareholders' equity to tangible shareholders' equity. Shareholders' equity is the most directly comparable GAAP financial measure to tangible shareholders' equity. (dollars in thousands) Average for the 12-Month Period Year Ended Ended Year Ended As of December September December December 31, 30, 31, 31, 2004 2004 2003 2004 Shareholders' equity 699,163 680,958 629,466 725,428 Deduct: Goodwill and identifiable intangible assets (308,875) (305,635) (305,635) (321,834) Tangible shareholders' equity 390,288 375,323 323,831 403,594 Conference Call Andrew S. Duff, chairman and chief executive officer, and Sandra G. Sponem, chief financial officer, will host a conference call to discuss fourth quarter and full year 2004 financial results on Wednesday, Jan. 26, 2005, at 11 a.m. ET (10 a.m. CT). The call can be accessed via live audio webcast available through the firm's web site at http://www.piperjaffray.com/ or by dialing (866) 244-9933, or (706) 758-0864 international, and refer to conference ID 3118115 and the leader's name, Andrew Duff. Callers should dial in at least 15 minutes early to receive instructions. A replay of the conference call will be available beginning at approximately 1 p.m. ET Jan. 26 at the same web address or by calling (800) 642-1687 or (706) 645-9291 international. About Piper Jaffray Companies Piper Jaffray Companies (NYSE:PJC) is a focused securities firm dedicated to delivering superior financial advice, investment products and transaction execution within selected sectors of the financial services marketplace. The company operates through two primary revenue-generating segments: Capital Markets and Private Client Services. Investment Research, an independent group reporting to the CEO, supports clients of both segments. Through its chief operating subsidiary, Piper Jaffray & Co., the firm has served corporations, government and non-profit entities, institutional investors and the financial advisory needs of private individuals since 1895. Headquartered in Minneapolis, Piper Jaffray has approximately 3,000 employees in 111 offices in 23 states across the country and in London. For more information about Piper Jaffray, visit us online at http://www.piperjaffray.com/ . Since 1895. Member SIPC and NYSE. Cautionary Note Regarding Forward-Looking Statements This press release contains forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward-looking statements cover, among other things, the future prospects of Piper Jaffray Companies. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including the following: (1) we have agreed to certain restrictions to preserve the tax treatment of our spin-off from U.S. Bancorp, which reduce our strategic and operating flexibility, (2) we have agreed to indemnify U.S. Bancorp for taxes and related losses resulting from any actions we take that cause the spin-off to fail to qualify as a tax- free transaction, (3) the separation and distribution agreement entered into between U.S. Bancorp and us contains cross-indemnification obligations of U.S. Bancorp and us that either party may be unable to satisfy, (4) developments in market and economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability, (5) we may not be able to compete successfully with other companies in the financial services industry, (6) our underwriting and market-making activities may place our capital at risk, (7) an inability to readily divest or transfer trading positions may result in financial losses to our business, (8) use of derivative instruments as part of our risk management techniques may place our capital at risk, while our risk management techniques themselves may not fully mitigate our market risk exposure, (9) an inability to access capital readily or on terms favorable to us could impair our ability to fund operations and could jeopardize our financial condition, (10) we may make strategic acquisitions of businesses or may divest or exit existing businesses, which could cause us to incur unforeseen expense and have disruptive effects on our business but may not yield the benefits we expect, (11) our technology systems are critical components of our operations and the failure of those systems may disrupt our business, cause financial loss and constrain our growth, (12) our business is subject to extensive regulation that limits our business activities, and a significant regulatory action against our company may have a material adverse financial effect or cause significant reputational harm, (13) regulatory capital requirements may adversely affect our ability to expand or maintain present levels of our business or impair our ability to meet our financial obligations, (14) our exposure to legal liability is significant, and could lead to substantial damages and restrictions on our business going forward, (15) we may suffer losses if our reputation is harmed, (16) provisions in our certificate of incorporation and bylaws and of Delaware law may prevent or delay an acquisition of our company, which could decrease the market value of our common stock, (17) other factors identified in the document entitled "Risk Factors" filed as Exhibit 99.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, and in our subsequent reports filed with the SEC. These reports are available at our Web site at http://www.piperjaffray.com/ and at the SEC's Web site at http://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. Piper Jaffray Companies Preliminary Unaudited Results of Operations For the Year Ended (Amounts in thousands, except per December 31, December 31, Percent share data) 2004 2003 Inc/(Dec) Revenues: Commissions and fees $263,730 $256,747 2.7 % Principal transactions 188,526 215,191 (12.4) Investment banking 257,932 229,945 12.2 Interest 47,469 45,276 4.8 Other income 57,967 59,082 (1.9) Total revenues 815,624 806,241 1.2 Interest expense 18,126 19,511 (7.1) Net revenues 797,498 786,730 1.4 Non-interest expenses: Compensation and benefits 488,394 482,397 1.2 Occupancy and equipment 57,066 58,025 (1.7) Communications 42,198 37,599 12.2 Floor brokerage and clearance 17,309 22,755 (23.9) Marketing and business development 42,468 39,030 8.8 Outside services 41,477 38,511 7.7 Cash award program 4,717 24,000 (80.3) Royalty fee - 3,911 N/M Other operating expenses 24,248 39,619 (38.8) Total non-interest expenses 717,877 745,847 (3.8) Income before income tax expense 79,621 40,883 94.8 Income tax expense 29,273 14,884 96.7 Net income $50,348 $25,999 93.7 % Earnings per common share Basic $2.60 $1.35 92.6 % Diluted $2.60 $1.35 92.6 % Weighted average number of common shares Basic 19,333 19,237 0.5 % Diluted 19,399 19,237 0.8 % N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Results of Operations Percent Inc/(Dec) For the Three Months Ended 4Q04 4Q04 (Amounts in thousands, Dec. 31, Sept. 30, Dec. 31, vs. vs. except per share data) 2004 2004 2003 3Q04 4Q03 Revenues: Commissions and fees $67,255 $61,187 $67,608 9.9 % (0.5) % Principal transactions 46,394 39,813 53,065 16.5 (12.6) Investment banking 59,686 65,204 59,195 (8.5) 0.8 Interest 13,251 10,667 11,611 24.2 14.1 Other income 13,589 13,571 14,851 0.1 (8.5) Total revenues 200,175 190,442 206,330 5.1 (3.0) Interest expense 5,605 4,217 4,532 32.9 23.7 Net revenues 194,570 186,225 201,798 4.5 (3.6) Non-interest expenses: Compensation and benefits 116,800 114,197 116,966 2.3 (0.1) Occupancy and equipment 14,683 14,968 17,728 (1.9) (17.2) Communications 10,470 10,558 10,015 (0.8) 4.5 Floor brokerage and clearance 3,882 4,068 5,228 (4.6) (25.7) Marketing and business development 10,952 9,723 11,746 12.6 (6.8) Outside services 11,182 11,215 11,156 (0.3) 0.2 Cash award program 1,158 1,219 24,000 (5.0) (95.2) Royalty fee - - 804 N/M N/M Other operating expenses 7,259 1,702 9,529 326.5 (23.8) Total non-interest expenses 176,386 167,650 207,172 5.2 (14.9) Income (loss) before income tax expense (benefit) 18,184 18,575 (5,374) (2.1) N/M Income tax expense (benefit) 6,375 6,806 (2,028) (6.3) N/M Net income (loss) $11,809 $11,769 $(3,346) 0.3 % N/M Earnings Per Common Share Basic $0.61 $0.61 $(0.17) 0.0 % N/M Diluted $0.61 $0.61 $(0.17) 0.0 % N/M Weighted average number of common shares Basic 19,333 19,333 19,273 0.0 % 0.3 % Diluted 19,445 19,387 19,273 0.3 % 0.9 % N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Segment Data Percent Inc/(Dec) For the Three Months Ended 4Q04 4Q04 Dec. 31, Sept. 30, Dec. 31, vs. vs. (Dollars in thousands) 2004 2004 2003 3Q04 4Q03 Capital Markets Net revenues $104,375 $101,282 $110,739 3.1 % (5.7) % Operating expenses 86,953 83,984 92,835 3.5 (6.3) Segment pre-tax operating income $17,422 $17,298 $17,904 0.7 % (2.7) % Segment pre-tax operating margin 16.7 % 17.1 % 16.2 % Private Client Services Net revenues $87,836 $83,727 $88,821 4.9 % (1.1) % Operating expenses 75,996 71,623 80,453 6.1 (5.5) Segment pre-tax operating income $11,840 $12,104 $8,368 (2.2) % 41.5 % Segment pre-tax operating margin 13.5 % 14.5 % 9.4 % Corporate Support and Other Net revenues $2,359 $1,216 $2,238 94.0 % 5.4 % Operating expenses 12,279 10,824 9,080 13.4 35.2 Segment pre-tax operating loss $(9,920) $(9,608) $(6,842) 3.2 % 45.0 % Segment pre-tax operating margin N/M N/M N/M Reconciliation to total income (loss) before taxes: Total segment pre-tax operating income $19,342 $19,794 $19,430 (2.3) % (0.5) % Royalty fee - - 804 N/M N/M Cash award program 1,158 1,219 24,000 (5.0) (95.2) Total income (loss) before tax expense (benefit) $18,184 $18,575 $(5,374) (2.1) % N/M % Pre-tax operating margin 9.3 % 10.0 % (2.7)% N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Segment Data For the Year Ended December 31, December 31, Percent (Dollars in thousands) 2004 2003 Inc/(Dec) Capital Markets Net revenues $431,135 $430,355 0.2 % Operating expenses 356,743 353,606 0.9 Segment pre-tax operating income $74,392 $76,749 (3.1)% Segment pre-tax operating margin 17.3 % 17.8 % Private Client Services Net revenues $355,176 $352,113 0.9 % Operating expenses 307,142 323,933 (5.2) Segment pre-tax operating income $48,034 $28,180 70.5 % Segment pre-tax operating margin 13.5 % 8.0 % Corporate Support and Other Net revenues $11,187 $4,262 162.5 % Operating expenses 49,275 40,397 22.0 Segment pre-tax operating loss $(38,088) $(36,135) 5.4 % Segment pre-tax operating margin N/M N/M Reconciliation to total income before taxes: Total segment pre-tax operating income $84,338 $68,794 22.6 % Royalty fee - 3,911 N/M Cash award program 4,717 24,000 (80.3) Total income before tax expense $79,621 $40,883 94.8 % Pre-tax operating margin 10.0 % 5.2 % N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Supplemental Information (Dollars in thousands) Percent Inc/(Dec) For the Three Months Ended 4Q04 4Q04 Capital Markets Dec. 31, Sept. 30, Dec. 31, vs. vs. 2004 2004 2003 3Q04 4Q03 Institutional Sales Fixed Income $23,066 $15,150 $22,801 52.3 % 1.2 % Equities 26,229 26,318 33,421 (0.3) (21.5) Total Institutional Sales 49,295 41,468 56,222 18.9 (12.3) Investment Banking Underwriting Fixed Income 14,613 18,223 14,900 (19.8) (1.9) Equities 22,863 16,836 22,802 35.8 0.3 Mergers and Acquisitions 15,432 23,083 14,388 (33.1) 7.3 Total Investment Banking 52,908 58,142 52,090 (9.0) 1.6 Net Interest 1,619 1,200 943 34.9 71.7 Other Income 553 472 1,484 17.2 (62.7) Capital Markets Net Revenues $104,375 $101,282 $110,739 3.1 % (5.7) % Piper Jaffray Companies Preliminary Unaudited Supplemental Information (Dollars in thousands) For the Year Ended Capital Markets December 31, December 31, Percent 2004 2003 Inc/(Dec) Institutional Sales Fixed Income $79,752 $101,865 (21.7) % Equities 117,302 122,303 (4.1) Total Institutional Sales 197,054 224,168 (12.1) Investment Banking Underwriting Fixed Income 62,097 64,762 (4.1) Equities 87,505 70,202 24.6 Mergers and Acquisitions 78,066 63,258 23.4 Total Investment Banking 227,668 198,222 14.9 Net Interest 4,912 4,242 15.8 Other Income 1,501 3,723 (59.7) Capital Markets Net Revenues $431,135 $430,355 0.2 % DATASOURCE: Piper Jaffray Companies CONTACT: Investor Relations, Jennifer A. Olson-Goude, +1-612-303-6277, or Public Affairs and Media Relations, Dana H. Wade, +1-415-277-1556, both of Piper Jaffray Companies Web site: http://www.piperjaffray.com/

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