PJC Piper Jaffray Companies

MINNEAPOLIS, Oct. 18 /PRNewswire-FirstCall/ -- Piper Jaffray Companies (NYSE:PJC) today announced net income from continuing operations of $9.5 million, or $0.50 per diluted share, for the quarter ended Sept. 30, 2006, down from $10.9 million, or $0.57 per diluted share in the year-ago period and up from $7.9 million, or $0.40 per diluted share in the second quarter of 2006. For the quarter ended Sept. 30, 2006, net income including both continuing and discontinued operations was $186.6 million, which includes the gain from the sale of the company's Private Client Services branch network that closed in Aug. 2006. Total net income was up from $15.1 million in the comparable quarter a year ago and $4.1 million in the quarter ending June 30, 2006. For the quarter ended Sept. 30, 2006, diluted earnings per share totaled $9.79, up from $0.79 in the same quarter last year and $0.21 in the sequential quarter. For the first nine months of 2006, net income from continuing operations was $36.2 million, or $1.87 per diluted share, up from $13.2 million, or $0.70 per diluted share, for the year-ago period. Net revenues from continuing operations of $356.3 million year-to-date represent an 18 percent increase over the year-ago period, due to increases across all capital markets businesses. "We are pleased with our third quarter financial results given the more challenging market conditions," said Chairman and Chief Executive Officer Andrew S. Duff. "During the quarter we closed the sale of the Private Client Services branch network, paid off $180 million in subordinated debt and executed a $100 million accelerated share repurchase agreement. We continue to execute our growth strategy with investments in our business and the expansion of our international presence with the addition of locations in Madrid and Shanghai." Results of Continuing Operations Net Revenues For the third quarter of 2006, net revenues from continuing operations totaled $116.1 million, down 3 percent from $120.1 million for the third quarter of 2005 and up 10 percent compared to the second quarter of 2006. Investment Banking For the third quarter of 2006, total investment banking revenues were $72.1 million, down 2 percent, compared to the third quarter of 2005, and up 18 percent compared to the second quarter of 2006. * Equity financing revenues were $27.8 million, up 53 percent compared to the third quarter of 2005, resulting from higher convertibles revenues and higher average revenues per transaction on other equity financings. Compared to the second quarter of 2006, equity financing revenues increased 8 percent, as higher average revenues per transaction more than offset fewer completed equity financings. * Advisory services revenues were $25.4 million, down 36 percent compared to record revenues in the year-ago period. Compared to the second quarter of 2006, advisory services revenues increased 28 percent, mainly driven by higher average revenues per transaction. * Fixed income underwriting revenues were $18.9 million, up 20 percent and 21 percent compared to the year-ago period and the second quarter of 2006, respectively. The improvement in revenues compared to both periods primarily resulted from higher average public finance revenues per transaction. Following is a recap of completed deal information for the third quarter of 2006: * 17 equity financings raising a total of $1.9 billion in capital, and the company was bookrunner on 8 of the equity financings. Of the completed transactions, 12 were U.S. public offerings, placing the company 12th nationally, based on the number of completed transactions. (Source: Dealogic) * 8 mergers and acquisitions transactions with an aggregate enterprise value of $1.2 billion. The number of deals and the enterprise value include disclosed and undisclosed transactions. (Source: Piper Jaffray) * 111 tax-exempt issues with a total par value of $1.5 billion, ranking the company fourth nationally, based on the number of completed transactions. (Source: Thomson Financial) Institutional Sales and Trading For the quarter ended Sept. 2006, institutional sales and trading generated revenues of $43.3 million, down 10 percent from both the same quarter in 2005 and the second quarter of 2006. The main drivers of the declines compared to both periods were more challenging equity market conditions and lower revenues from interest rate products. * Equities sales and trading revenues were $28.6 million, down 12 percent from the year-ago period and down 9 percent compared to the second quarter of 2006. The declines compared to both periods were primarily driven by lower volumes. Partially offsetting the declines in the cash equities business were increased revenues from growth initiatives, specifically, algorithmic and program trading and convertibles. * Fixed income sales and trading revenues were $14.7 million, down 6 percent compared to the year-ago period and down 11 percent compared to the second quarter of 2006. The declines compared to both periods were attributable to lower revenues from interest rate products, which were partially offset by stronger revenues from high-yield and structured products. Non-Interest Expenses For the third quarter of 2006, compensation and benefits expense was $69.1 million, down 5 percent compared to the prior-year period, primarily attributable to decreased variable compensation driven by lower net revenues and profitability. Compared to the second quarter of 2006, compensation and benefits expense increased 14 percent, mainly due to higher variable compensation driven by higher net revenues and profitability and due to investments in personnel. Non-compensation expenses were $32.0 million for the current quarter, essentially flat compared to the third quarter of 2005 and the second quarter of 2006. For the three months ended Sept. 30, 2006, pre-tax operating margin from continuing operations was 13.0 percent, down from 13.2 percent for the year- ago period and up from 11.6 percent for the second quarter of 2006. On Aug. 17, 2006, Piper Jaffray announced that it had entered into an accelerated share repurchase (ASR) agreement to repurchase $100 million of the company's common stock. Piper Jaffray completed the ASR on Oct. 2, 2006, pursuant to which the company repurchased a total of approximately 1.6 million shares of common stock. The ASR is part of a previously announced repurchase program authorized by the company's board of directors to repurchase up to $180 million of common shares commencing with the closing of the company's sale of its Private Client Services branch network on Aug. 11, 2006 and ending on Dec. 31, 2007. Results of Discontinued Operations Discontinued operations include the operating results of the Private Client Services business, the gain on the sale of the Private Client Services branch network, and restructuring and transaction costs incurred in connection with the sale. The sale of the private client branch network to UBS AG closed on Aug. 11, 2006. For the quarter ended Sept. 30, 2006, net income from discontinued operations was $177.1 million, or $9.29 per diluted share, up from $4.2 million, or $0.22 per diluted share, in the third quarter of 2005 and up from a loss of $3.8 million, or $0.19 per diluted share, in the second quarter of 2006. Additional Shareholder Information As of September 30, As of June 30, As of September 30, 2006 2006 2005 Full time employees: 1,134 2,638 2,879 Shareholders' equity: $893 million $807 million $734 million Annualized Return on Average Tangible Shareholders' Equity(1) NM 3.4% 14.8% Book value per share: $52.66 $43.51 $39.96 Tangible book value per share: $38.90 $26.30 $22.51 NM-Not Meaningful (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 Ended Three Months Ended As of (Dollars in thousands) Sept. 30, 2006 Sept. 30, 2005 Sept. 30, 2006 Shareholders' equity $883,007 $729,848 $893,187 Deduct: Goodwill and identifiable intangible assets 276,434 320,834 233,434 Tangible shareholders' equity $606,572 $409,013 $659,753 Conference Call Andrew S. Duff, chairman and chief executive officer, and Thomas P. Schnettler, vice chairman and chief financial officer, will host a conference call to discuss third quarter 2006 financial results on Wednesday, October 18, 2006, at 11 a.m. ET (10 a.m. CT). The call can be accessed via live audio webcast available through the company's web site at http://www.piperjaffray.com/ or by dialing (866) 244-9933, or (706) 758-0864 internationally, and referring to conference ID 7532300 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 October 18, 2006 at the same web address or by calling (800) 642-1687, or (706) 645-9291 internationally. About Piper Jaffray Piper Jaffray Companies is a leading, international middle market investment bank and institutional securities firm, serving the needs of middle market corporations, private equity groups, public entities, nonprofit clients and institutional investors. Founded in 1895, Piper Jaffray provides a comprehensive set of products and services, including equity and debt capital markets products; public finance services; mergers and acquisitions advisory services; high-yield and structured products; institutional equity and fixed- income sales and trading; and equity and high-yield research. With headquarters in Minneapolis, Piper Jaffray has 24 offices across the United States and international locations in London, Madrid and Shanghai. Piper Jaffray & Co. is the firm's principal operating subsidiary. (NYSE:PJC) (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) the expected benefits of the sale of our Private Client Services branch network, including the growth of our Capital Markets business, increased profitability and shareholder returns, may take longer than anticipated to achieve and may not be achieved in their entirety or at all; (2) strategies with respect to the deployment of sale proceeds may take longer than anticipated to be realized or may not be achieved in their entirety or at all; (3) developments in market and economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability, (4) developments in specific sectors of the economy 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 who are often larger and better capitalized than we are, (6) we have experienced significant pricing pressure in areas of our business, which may impair our revenues and profitability, (7) our ability to attract, develop and retain highly skilled and productive employees is critical to the success of our business, (8) our underwriting and market-making activities may place our capital at risk, (9) the volume of anticipated investment banking transactions may differ from actual results, (10) an inability to readily divest or transfer trading positions may result in financial losses to our business, (11) 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, (12) 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, (13) 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 and may not yield the benefits we expect, (14) 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, (15) 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, (16) 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, (17) our exposure to legal liability is significant, and could lead to substantial damages, (18) the business operations that we conduct outside of the United States subject us to unique risks, (19) we may suffer losses if our reputation is harmed, (20) our stock price may fluctuate as a result of several factors, including but not limited to changes in our revenues and operating results, (21) 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 (22) 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. Piper Jaffray Companies Preliminary Unaudited Results of Operations For the Three Months Ended Percent Inc/(Dec) Sept. 30, June 30, Sept. 30, 3Q06 vs. 3Q06 vs. 2006 2006 2005 2Q06 3Q05 (Amounts in thousands, except per share data) Revenues: Investment banking $72,107 $61,236 $73,407 17.8% (1.8)% Institutional brokerage 34,964 40,898 42,476 (14.5) (17.7) Interest 16,663 13,521 11,357 23.2 46.7 Other income 863 (1,262) 949 N/M (9.1) Total revenues 124,597 114,393 128,189 8.9 (2.8) Interest expense 8,490 9,143 8,064 (7.1) 5.3 Net revenues 116,107 105,250 120,125 10.3 (3.3) Non-interest expenses: Compensation and benefits 69,079 60,653 72,649 13.9 (4.9) Occupancy and equipment 6,878 6,718 7,710 2.4 (10.8) Communications 5,761 5,593 5,683 3.0 1.4 Floor brokerage and clearance 3,759 3,373 3,887 11.4 (3.3) Marketing and business development 5,887 6,122 4,827 (3.8) 22.0 Outside services 6,344 6,836 5,237 (7.2) 21.1 Cash award program 512 886 1,004 (42.2) (49.0) Restructuring- related expense - - - N/M N/M Other operating expenses 2,838 2,910 3,319 (2.5) (14.5) Total non- interest expenses 101,058 93,091 104,316 8.6 (3.1) Income from continuing operations before income tax expense 15,049 12,159 15,809 23.8 (4.8) Income tax expense 5,521 4,230 4,871 30.5 13.3 Net income from continuing operations 9,528 7,929 10,938 20.2 (12.9) Discontinued operations: Income/ (loss) from discontinued operations, net of tax 177,085 (3,792) 4,210 N/M 4106.3 Net Income $186,613 $4,137 $15,148 4410.8% 1131.9% Earnings per basic common share Income from continuing operations $0.53 $0.43 $0.58 23.3% (8.6)% Income/(loss) from discontinued operations 9.82 (0.20) 0.22 N/M 4363.6% Earnings per basic common share $10.35 $0.22 $0.80 4,604.6% 1193.8% Earnings per diluted common share Income from continuing operations $0.50 $0.40 $0.57 25.0% (12.3)% Income/(loss) from discontinued operations 9.29 (0.19) 0.22 N/M 4,122.7% Earnings per diluted common share $9.79 $0.21 $0.79 4,561.9% 1,139.2% Weighted average number of common shares Basic 18,031 18,556 18,841 (2.8)% (4.3)% Diluted 19,071 19,669 19,107 (3.0)% (0.2)% N/M - Not meaningful For the Nine Months Ended Sept. 30, Sept. 30, Percent 2006 2005 Inc/(Dec) (Amounts in thousands, except per share data) Revenues: Investment banking $203,107 $169,909 19.5% Institutional brokerage 122,136 121,699 0.4 Interest 44,728 32,015 39.7 Other income 12,131 2,403 404.8 Total revenues 382,102 326,026 17.2 Interest expense 25,786 23,332 10.5 Net revenues 356,316 302,694 17.7 Non-interest expenses: Compensation and benefits 202,656 177,262 14.3 Occupancy and equipment 21,705 22,912 (5.3) Communications 16,737 18,081 (7.4) Floor brokerage and clearance 9,807 11,336 (13.5) Marketing and business development 17,188 15,793 8.8 Outside services 19,472 16,911 15.1 Cash award program 2,673 3,201 (16.5) Restructuring-related expense - 8,595 N/M Other operating expenses 10,185 9,516 7.0 Total non-interest expenses 300,423 283,607 5.9 Income from continuing operations before income tax expense 55,893 19,087 192.8 Income tax expense 19,730 5,854 237.0 Net income from continuing operations 36,163 13,233 173.3 Discontinued operations: Income/(loss) from discontinued operations, net of tax 178,444 10,487 1,601.6 Net Income $214,607 $23,720 804.8% Earnings per basic common share Income from continuing operations $1.97 $0.70 181.4% Income/(loss) from discontinued operations 9.73 0.56 1637.5% Earnings per basic common share $11.70 $1.26 828.6% Earnings per diluted common share Income from continuing operations $1.87 $0.70 167.1% Income/(loss) from discontinued operations 9.25 0.55 1581.8% Earnings per diluted common share $11.12 $1.25 789.6% Weighted average number of common shares Basic 18,348 18,814 (2.5)% Diluted 19,294 19,007 1.5% N/M - Not meaningful Piper Jaffray Companies Preliminary Unaudited Revenue From Continuing Operations (Detail) For the Three Months Ended Percent Inc/(Dec) September 30, June 30, September 30, 3Q06 vs. 3Q06 vs. 2006 2006 2005 2Q06 3Q05 (Dollars in thousands) Institutional sales and trading Fixed income $14,723 $16,621 $15,616 (11.4)% (5.7)% Equities 28,591 31,530 32,455 (9.3) (11.9) Total institutional sales and trading 43,314 48,151 $48,071 (10.0) (9.9) Investment banking Underwriting Fixed income 18,920 15,675 15,809 20.7 19.7 Equities 27,792 25,648 18,166 8.4 53.0 Advisory services 25,395 19,913 39,432 27.5 (35.6) Total investment banking 72,107 61,236 73,407 17.8 (1.8) Other income 686 (4,137) (1,353) N/M N/M Net revenues $116,107 $105,250 $120,125 10.3% (3.3)% N/M - Not meaningful For the Nine Months Ended September 30, September 30, Percent 2006 2005 Inc/(Dec) (Dollars in thousands) Institutional sales and trading Fixed income $53,959 $47,275 14.1% Equities 92,880 89,322 4.0 Total institutional sales and trading 146,839 136,597 7.5 Investment banking Underwriting Fixed income 50,347 47,199 6.7 Equities 83,483 55,464 50.5 Advisory services 69,277 67,246 3.0 Total investment banking 203,107 169,909 19.5 Other income 6,370 (3,812) N/M Net revenues $356,316 $302,694 17.7% N/M - Not meaningful DATASOURCE: Piper Jaffray Companies CONTACT: Jennifer A. Olson-Goude, Investor Relations, +1-612-303-6277, or Rob Litt, Media Relations, +1-612-303-8266, both of Piper Jaffray Companies Web site: http://www.piperjaffray.com/

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