PJC Piper Jaffray Companies

MINNEAPOLIS, April 19 /PRNewswire-FirstCall/ -- Piper Jaffray Companies (NYSE:PJC) today announced net income of $23.9 million, or $1.25 per diluted share, for the quarter ended March 31, 2006, up from net income of $7.3 million, or $0.38 per diluted share, for the quarter ended March 31, 2005. Net income for the current quarter included a gain of $6.6 million after tax, or $.35 per diluted share, from the company's ownership of two seats on the New York Stock Exchange, Inc. (NYSE), which were exchanged for cash and shares of the NYSE Group, Inc. in its initial public offering in March 2006. Net income totaled $16.4 million, or $0.87 per diluted share, for the quarter ended Dec. 31, 2005. Business Highlights -- Generated total quarterly net revenues of $227.6 million, up 27.1 percent from the year-ago period -- Recorded a 16.2 percent quarterly pre-tax operating margin -- Announced the signing of a definitive agreement to sell 100% of the Private Client Services branch network and related net assets to UBS AG for total cash consideration of approximately $800 million -- Completed a senior managed $309 million municipal underwriting for the Baltimore Convention Centre Hotel, one of the largest municipal transactions ever for Piper Jaffray measured by par value -- Acted as co-bookrunner on the $239 million Crocs, Inc. IPO, the third best performing consumer transaction in the first quarter -- Added a six-member restructuring team in New York to provide advisory services to financially distressed companies and their creditor and shareholder constituents "We are very pleased to report another strong quarter of financial results and continued margin expansion," said chairman and chief executive officer Andrew S. Duff. "All businesses, including our expanded healthcare franchise in London and our new high yield and structured products initiative, contributed to the year-over-year improvement in top- and bottom-line performance. With the additional capital we will deploy from the sale of the Private Client Services branch network, we will be able to accelerate the momentum in our Capital Markets business." Results of Operations Net Revenues Net revenues for the first quarter were $227.6 million, up 27.1 percent and 10.0 percent from the first quarter of 2005 and the fourth quarter of 2005, respectively. The increase compared to one year ago was driven by strong performance across all revenue types, including a gain related to the company's ownership of two seats on the NYSE. Non-Interest Expenses For the quarter, non-interest expenses were $190.7 million, up 13.8 percent from the first quarter of 2005 and up 4.8 percent compared to the sequential quarter. Compensation expense was $133.1 million, up 21.6 percent and 8.5 percent compared to the prior-year period and the fourth quarter of 2005, respectively. The increase compared to both periods was attributable to increased variable compensation driven by higher net revenues and profitability. Non-compensation expenses were $57.6 million, down slightly compared to both periods. For the quarter, pre-tax operating margin was 16.2 percent, up from 6.4 percent in the comparable prior-year period and 12.1 percent in the preceding quarter. Excluding the gain related to the company's ownership of two NYSE seats, pre-tax operating margin would have been 12.3 percent for the quarter. For the first quarter of 2006, annualized return on average tangible shareholders' equity(1) was 21.1 percent compared to 7.1 percent for the first quarter of 2005 and 15.4 percent for the preceding quarter. Excluding the gain related to the company's ownership of two NYSE seats, annualized return on average tangible shareholders' equity would have been 15.3 percent. Business Segment Review On April 11, 2006 Piper Jaffray Companies announced the signing of a definitive agreement to sell 100 percent of its Private Client Services branch network to UBS AG. The sale is expected to close early in the third quarter. In accordance with U.S. generally accepted accounting principles related to the disposal of long-lived assets, the operations of Private Client Services will be presented in the financial statements as discontinued operations beginning in the second quarter of 2006. The company has completed an analysis of its interest bearing assets and liabilities to determine how they are related to and driven by each business segment. As a result of this analysis, Piper Jaffray has restated net interest of its segments for each of the four quarters of 2005 and the full year of 2004. The restatement did not affect the company's aggregate financial results for those periods. A supplemental schedule showing the restated figures is included at the end of this release. Capital Markets Capital Markets recorded $126.1 million in net revenues for the quarter, up $35.6 million, or 39.4 percent, from the first quarter of 2005. Segment pre-tax operating income for the quarter was $23.8 million, up 137.6 percent compared to the first quarter of 2005. Improved results in all businesses contributed to the increase. Institutional Sales and Trading For the first quarter of 2006, institutional sales and trading net revenues were $55.4 million, up 34.7 percent from the year-ago period and up 18.8 percent compared to the fourth quarter of 2005. -- Equity sales and trading revenues were $32.8 million, an increase of 22.1 percent from the year-ago period and an increase of 16.8 percent compared to the fourth quarter of 2005. The increase compared to both periods was primarily attributable to higher convertibles net revenues and higher revenues in U.S. and U.K. equity sales and trading. -- Fixed income sales and trading revenues were $22.6 million, up 58.5 percent from the year-ago period and up 22.0 percent from the sequential quarter. The increase compared to both periods was mainly driven by high yield and structured products and interest rate products. Investment Banking Total investment banking revenues were $69.8 million, up 43.7 percent compared to the first quarter of 2005 and down 5.0 percent compared to the preceding quarter. -- Equity underwriting revenues were $30.0 million, up 47.7 percent compared to the first quarter of 2005 and up 53.6 percent from the sequential quarter. The increase compared to both periods was mainly due to the completion of more IPOs and follow-on transactions, offset in part by lower revenues from convertible underwritings. -- Advisory services revenues were $24.0 million, up 44.6 percent compared to the first quarter of last year driven by an increased number of transactions. Advisory services revenues declined 28.3 percent compared to a very strong fourth quarter of last year. -- Fixed income underwriting revenues were $15.8 million, up 35.4 percent compared to the first quarter of 2005 mainly driven by the Baltimore Convention Centre underwriting. Underwriting revenues declined 23.0 percent compared to the fourth quarter of 2005, which included higher revenues from structured products. Segment operating expenses for the quarter were $102.3 million, an increase of $21.9 million, or 27.2 percent, from the same period a year ago. The increase is primarily attributable to higher variable compensation expense due to increased net revenue and profitability. For the first quarter of 2006, segment pre-tax operating margin was 18.8 percent, up from 11.1 percent in the same quarter of last year and up 17.9 percent from the sequential quarter. The increase compared to both periods was mainly due to containing non-compensation expenses on increased revenues. Following is a recap of completed deal information for the first quarter of 2006. -- 24 equity offerings, raising a total of $4.0 billion in capital, placing the firm 13th nationally, based on the number of completed transactions. (Source: Dealogic) -- 14 mergers and acquisitions transactions with an aggregate enterprise value of $2.2 billion, ranking the firm 19th nationally, based on the number of completed transactions. (Source: Mergerstat and Piper Jaffray) -- 90 tax-exempt issues with a total par value of $1.4 billion, ranking the firm 6th nationally. In the Upper Midwest, the firm completed 47 public finance issues for the quarter with a total par value of $413 million, again ranking the firm the lead underwriter of Upper Midwest tax-exempt issues. Rankings are based on the number of completed transactions. (Source: Thomson Financial) Private Client Services Private Client Services recorded net revenues of $92.6 million for the quarter, up 2.1 percent compared to the first quarter of 2005 and up 4.8 percent compared to the fourth quarter of last year. Increased revenues from fee-based accounts were offset in part by fewer financial advisors. Segment pre-tax operating income was $8.2 million, up 29.2 percent from the first quarter of 2005 and up 2.1 percent sequentially. The increase compared to both periods was mainly attributable to containing non-compensation expenses on modestly increased revenues. Segment operating expense was $84.4 million for the quarter, essentially unchanged from the first quarter of 2005. Segment pre-tax operating margin was 8.9 percent, up from 7.0 percent in the same quarter of last year and down from 9.1 percent in the fourth quarter of 2005. Corporate Support and Other Corporate Support and Other pre-tax operating income was $6.2 million for the first quarter, compared to a loss of $3.7 million in the year-ago period and a loss of $3.6 million in the fourth quarter of last year. The increase was primarily attributable to a gain related to the company's ownership of two seats on the NYSE, which were exchanged for cash and shares of the NYSE Group, Inc. in its initial public offering in March 2006. Additional Shareholder Information As of As of As of March 31, Dec. 31, March 31, 2006 2005 2005 Full time employees: 2,793 2,871 2,976 Financial advisors: 817 842 866 Client assets: $54 billion $52 billion $50 billion Shareholders' equity: $794.5 million $754.8 million $736.6 million Book value per share: $42.82 $41.10 $38.01 Tangible book value per share: $25.58 $23.66 $21.43 (1) Tangible shareholders' equity equals total shareholders' equity less goodwill and identifiable intangible assets. Annualized return on average tangible shareholders' equity is computed by dividing annualized net earnings by average monthly tangible shareholders' equity. Management believes that annualized return on tangible shareholders' equity is a meaningful measure of performance because 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. Average for the Three Months Three Months Ended Ended As of March 31, 2006 March 31, 2005 March 31, 2006 (Dollars in thousands) Shareholders' equity $771,335 $732,787 $794,512 Deduct: Goodwill and identifiable intangible assets 320,034 321,634 319,834 Tangible shareholders' equity $451,301 $411,153 $474,678 Conference Call Andrew S. Duff, chairman and chief executive officer, and Sandra G. Sponem, chief financial officer, will host a conference call to discuss first quarter 2006 financial results on Wednesday, April 19, 2006, 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 internationally, and referring to conference ID 6993879 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 on April 19, 2006 at the same web address or by calling (800) 642-1687, or (706) 645-9291 internationally. 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 currently operates through two primary revenue-generating segments: Capital Markets and Private Client Services. The sale of the company's Private Client Services branch network, announced April 11, 2006, is currently pending. The company's Capital Markets business generates revenue through two groups, Corporate and Institutional Services and Public Finance Services. 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 currently has approximately 2,800 employees in 107 offices in 23 states across the country and in London. For more information about Piper Jaffray, visit us online at http://www.piperjaffray.com/ . 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) developments in market and economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability, (2) developments in specific sectors of the economy have in the past adversely affected, and may in the future adversely affect, our business and profitability, (3) we may not be able to compete successfully with other companies in the financial services industry who are often larger and better capitalized than we are, (4) we have experienced significant pricing pressure in areas of our business, which may impair our revenues and profitability, (5) our ability to attract, develop and retain highly skilled and productive employees is critical to the success of our business, (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, engage in joint ventures or 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, including outsourced systems, are critical components of our operations, and failure of those systems or other aspects of our operations infrastructure may disrupt our business, cause financial loss and constrain our growth, (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 to our company, (13) regulatory capital requirements may limit 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, (15) the business operations that we conduct outside of the United States subject us to unique risks, (16) we may suffer losses if our reputation is harmed, (17) our stock price may fluctuate as a result of several factors, including but not limited to changes in our revenues and operating results, (18) 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, and (19) other factors identified under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005, and updated 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 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. Since 1895. Member SIPC and NYSE. Piper Jaffray Companies Preliminary Unaudited Results of Operations Percent Inc/(Dec) For the Three Months Ended 1Q06 1Q06 (Amounts in thousands, March 31, Dec. 31, March 31, vs. vs. except per share data) 2006 2005 2005 4Q05 1Q05 Revenues: Commissions and fees $78,300 $72,397 $70,160 8.2 % 11.6 % Principal transactions 38,566 34,732 34,864 11.0 10.6 Investment banking 74,904 78,321 56,322 (4.4) 33.0 Interest 22,587 20,586 15,602 9.7 44.8 Other income 23,660 12,358 10,727 91.5 120.6 Total revenues 238,017 218,394 187,675 9.0 26.8 Interest expense 10,463 11,435 8,607 (8.5) 21.6 Net revenues 227,554 206,959 179,068 10.0 27.1 Non-interest expenses: Compensation and benefits 133,087 122,693 109,402 8.5 21.6 Occupancy and equipment 14,678 14,886 14,027 (1.4) 4.6 Communications 9,443 9,725 10,405 (2.9) (9.2) Floor brokerage and clearance 3,042 4,160 4,203 (26.9) (27.6) Marketing and business development 9,631 9,956 10,650 (3.3) (9.6) Outside services 11,909 13,071 10,639 (8.9) 11.9 Cash award program 1,275 1,004 1,136 27.0 12.2 Other operating expenses 7,608 6,494 7,127 17.2 6.7 Total non-interest expenses 190,673 181,989 167,589 4.8 13.8 Income before income tax expense 36,881 24,970 11,479 47.7 221.3 Income tax expense 13,024 8,607 4,144 51.3 214.3 Net income $23,857 $16,363 $7,335 45.8 % 225.2 % Earnings Per Common Share Basic $1.29 $0.89 $0.38 44.9 % 239.5 % Diluted $1.25 $0.87 $0.38 43.7 % 228.9 % Weighted average number of common shares Basic 18,462 18,365 19,378 0.5 % (4.7)% Diluted 19,146 18,850 19,523 1.6 % (1.9)% Piper Jaffray Companies Preliminary Unaudited Segment Data Percent Inc/(Dec) For the Three Months Ended 1Q06 1Q06 March 31, Dec. 31, March 31, vs. vs. (Dollars in thousands) 2006 2005 2005 4Q05 1Q05 Capital Markets Institutional sales and trading Fixed income $22,615 $18,541 $14,268 22.0 % 58.5 % Equities 32,759 28,058 26,838 16.8 22.1 Total institutional sales and trading 55,374 46,599 41,106 18.8 34.7 Investment banking Underwriting Fixed income 15,752 20,450 11,632 (23.0) 35.4 Equities 30,043 19,562 20,338 53.6 47.7 Advisory services 23,969 33,426 16,574 (28.3) 44.6 Total investment banking 69,764 73,438 48,544 (5.0) 43.7 Other income 922 275 763 235.3 20.8 Net revenues 126,060 120,312 90,413 4.8 39.4 Operating expenses 102,309 98,723 80,418 3.6 27.2 Segment pre-tax operating income $23,751 $21,589 $9,995 10.0 % 137.6 % Segment pre-tax operating margin 18.8 % 17.9 % 11.1 % Private Client Services Net revenues $92,595 $88,345 $90,731 4.8 % 2.1 % Operating expenses 84,399 80,319 84,388 5.1 0.0 Segment pre-tax operating income $8,196 $8,026 $6,343 2.1 % 29.2 % Segment pre-tax operating margin 8.9 % 9.1 % 7.0 % Corporate Support and Other Net revenues $8,899 $(1,698) $(2,076) N/M N/M Operating expenses 2,690 1,943 1,647 38.4 % 63.3 % Segment pre-tax operating income (loss) $6,209 $(3,641) $(3,723) N/M N/M Segment pre-tax operating margin N/M N/M N/M Reconciliation to total income before taxes: Total segment pre-tax operating income $38,156 $25,974 $12,615 46.9 % 202.5 % Cash award program 1,275 1,004 1,136 27.0 12.2 Total income before tax expense $36,881 $24,970 $11,479 47.7 % 221.3 % Pre-tax operating margin 16.2 % 12.1 % 6.4 % N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Segment Data For the Three Months Ended March 31, Dec. 31, Sept. 30, June 30, March 31, (Dollars in thousands) 2006 2005 2005 2005 2005 Capital Markets Institutional sales and trading Fixed income $22,615 $18,541 $15,616 $17,391 $14,268 Equities 32,759 28,058 32,455 30,029 26,838 Total institutional sales and trading 55,374 46,599 48,071 47,420 41,106 Investment banking Underwriting Fixed income 15,752 20,450 15,809 19,758 11,632 Equities 30,043 19,562 18,166 16,960 20,338 Advisory services 23,969 33,426 39,432 11,240 16,574 Total investment banking 69,764 73,438 73,407 47,958 48,544 Other income 922 275 565 868 763 Net revenues 126,060 120,312 122,043 96,246 90,413 Operating expenses 102,309 98,723 101,355 84,726 80,418 Segment pre-tax operating income $23,751 $21,589 $20,688 $11,520 $9,995 Segment pre-tax operating margin 18.8 % 17.9 % 17.0 % 12.0 % 11.1 % Private Client Services Net revenues $92,595 $88,345 $89,236 $85,433 $90,731 Operating expenses 84,399 80,319 81,980 81,983 84,388 Segment pre-tax operating income $8,196 $8,026 $7,256 $3,450 $6,343 Segment pre-tax operating margin 8.9 % 9.1 % 8.1 % 4.0 % 7.0 % Corporate Support and Other Net revenues $8,899 $(1,698) $(1,918) $(2,014) $(2,076) Operating expenses 2,690 1,943 1,956 1,708 1,647 Segment pre-tax operating income (loss) $6,209 $(3,641) $(3,874) $(3,722) $(3,723) Segment pre-tax operating margin N/M N/M N/M N/M N/M Reconciliation to total income before taxes: Total segment pre-tax operating income $38,156 $25,974 $24,070 $11,248 $12,615 Cash award program 1,275 1,004 1,005 1,061 1,136 Restructuring related expense - - - 8,595 - Total income before tax expense $36,881 $24,970 $23,065 $1,592 $11,479 Pre-tax operating margin 16.2 % 12.1 % 11.0 % 0.9 % 6.4 % N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Segment Data For the Year Ended December 31, December 31, (Dollars in thousands) 2005 2004 Capital Markets Institutional sales and trading Fixed income $65,816 $80,188 Equities 117,380 118,150 Total institutional sales and trading 183,196 198,338 Investment banking Underwriting Fixed income 67,649 62,096 Equities 75,026 87,505 Advisory services 100,672 78,066 Total investment banking 243,347 227,667 Other income 2,471 1,678 Net revenues 429,014 427,683 Operating expenses 365,222 363,249 Segment pre-tax operating income $63,792 $64,434 Segment pre-tax operating margin 14.9 % 15.1 % Private Client Services Net revenues $353,745 $363,292 Operating expenses 328,670 332,709 Segment pre-tax operating income $25,075 $30,583 Segment pre-tax operating margin 7.1 % 8.4 % Corporate Support and Other Net revenues $(7,706) $6,523 Operating expenses 7,254 17,202 Segment pre-tax operating income (loss) $(14,960) $(10,679) Segment pre-tax operating margin N/M N/M Reconciliation to total income before taxes: Total segment pre-tax operating income $73,907 $84,338 Cash award program 4,206 4,717 Restructuring related expense 8,595 - Total income before tax expense $61,106 $79,621 Pre-tax operating margin 7.9 % 10.0 % N/M - Not Meaningful DATASOURCE: Piper Jaffray Companies CONTACT: Investor Relations, Jennifer A. Olson-Goude, +1-612 303-6277, or Media Relations, Susan L. Beatty, +1-612-303-5680, both of Piper Jaffray Companies Web site: http://www.piperjaffray.com/

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