PJC Piper Jaffray Companies

Piper Jaffray Companies Announces 2004 Second Quarter Results MINNEAPOLIS, July 21 /PRNewswire-FirstCall/ -- Piper Jaffray Companies (NYSE:PJC) today announced net income of $13.0 million, or $.67 per diluted share, for the quarter ended June 30, 2004, up from $8.6 million, or $.45 per diluted share, for the year-ago period. Net income totaled $13.8 million, or $0.71 per diluted share in the first quarter of 2004. Net revenues for the second quarter were $207.3 million, essentially unchanged from the second quarter of 2003 and unchanged sequentially. For the first six months, net income and earnings per diluted share approximately doubled from the year-ago period at $26.8 million and $1.38, respectively. Net revenues of $416.7 million year-to-date represent an 11.3 percent increase over the year-ago period, primarily due to significantly improved equity investment banking revenues. "We faced a more challenging market environment in our fixed income business and softer private client activity, which constrained growth in revenues and earnings," said Chairman and CEO Andrew S. Duff. "However, we experienced stronger activity in mergers and acquisitions and continued healthy equity underwriting for the quarter." Results of Operations Net Revenues Overall, second quarter net revenues were relatively unchanged compared to the year-ago period, but the revenue mix shifted significantly, to equity- related products from fixed income products. A $10.5 million rise in investment banking revenues was offset by a $10.0 million decrease in principal transactions, primarily due to a decline in fixed income institutional sales and trading. The fixed income business achieved record revenues in the second quarter of last year driven by high-yield corporate bonds where the firm has proprietary research capabilities. Commissions and fees remained essentially flat with the second quarter of last year, but declined sequentially $3.7 million, or 5.4 percent, from the first quarter of 2004 driven by softer individual investor activity. Non-Interest Expenses For the quarter, non-interest expenses were $186.6 million, a 2.6 percent decrease from the second quarter of 2003. Compensation expenses were $127.7 million, consistent with last year. Non-compensation expenses were $58.9 million, down $5.6 million or 8.7 percent compared to the second quarter of last year. The decrease was attributed to lower loan losses related to certain forgivable employee loans, offset in part by new public company costs and higher expenses associated with increased equity deal activity. For the quarter, pre-tax operating margin was 10.0 percent, up from 6.5 percent for the year-ago period and down slightly from 10.6 percent for the first quarter of 2004. Business Segment Review Capital Markets Capital Markets recorded $113.6 million in net revenues for the quarter, relatively unchanged from the year-ago period. Segment pre-tax operating income for the quarter decreased $5.6 million, or 21.8 percent, to $20.0 million compared to the second quarter of 2003. A $13.2 million rise in fees from mergers and acquisitions and a $3.1 million increase in equity underwriting were offset primarily by a $12.0 million decline in fixed income institutional sales and trading and a $3.7 million decrease in fixed income underwriting. The increase in M&A primarily stemmed from a significant transaction that closed in the quarter. Lower fixed income institutional sales were driven by a substantially reduced institutional client order flow and reduced trading profits due to the uncertainty around rising interest rates during the second quarter of 2004. Equity trading volumes declined in the second quarter from the first quarter, resulting in a $4.2 million sequential decrease in equity institutional sales. Also compared to the preceding quarter, equity underwriting decreased by $6.0 million due to the timing of some deals. Segment operating expenses were $93.6 million for the quarter, up 4.1 percent over the year-ago period. The increase was driven by spending on technology, expansion of research coverage and additional expenses associated with stronger equity deal activity. Segment pre-tax operating margin was 17.6 percent, below the prior year quarter but in line with annual historical margins. The number and value of deals completed for both equity underwriting and M&A transactions significantly improved over the same quarter last year. Following is a recap of completed deals and the industry rankings (based on the number of transactions completed) during the second quarter of 2004. -- 25 equity offerings, raising a total of $3.1 billion in capital, and placing the firm 13th nationally. These results compare to completion of 10 equity offerings in the same quarter last year for a total of $1.6 billion in capital raised. (Source: Dealogic) -- 11 M&A transactions with an enterprise value of $2.6 billion, ranking ninth among all advisors. In the same period last year the firm completed five transactions with an enterprise value of $0.7 billion. Among middle market advisors (excluding investment banks with average deal size greater than $500 million), the firm ranked third nationally. (Source: Mergerstat) -- 111 tax-exempt issues with a total par value of $1.2 billion, ranking the firm fourth nationally. In the second quarter of last year, the firm completed 160 tax-exempt issues nationally, with a total par value of $2.2 billion. In the Upper Midwest, the firm completed 73 public finance issues during the quarter for a total par value of $.6 billion, ranking the firm the lead underwriter of Upper Midwest tax-exempt issues. (Source: Thomson Financial) Private Client Services Private Client Services recorded $88.1 million in net revenues for the quarter, representing a 0.8 percent decrease from the same quarter last year. Net revenues declined 7.8 percent from a stronger first quarter, primarily due to lower private client demand for equities amid concern over inflation, rising interest rates and geopolitical events. Segment pre-tax operating income was $11.8 million, up significantly from $0.8 million in the year-ago period. Segment operating expenses were $76.3 million, which was 13.3 percent below the year-ago period, primarily due to lower loan losses related to certain forgivable employee loans. The year-ago period included an $8.8 million loan loss reserve for anticipated attrition related to implementing a new compensation plan for financial advisors. Segment pre-tax operating margin was 13.4 percent for the quarter, up from 0.9 percent in the year-ago period and 12.8 percent in the first quarter of 2004. Corporate Support and Other Corporate Support and Other pre-tax operating loss was $9.9 million for the second quarter compared to a loss of $12.0 million in the year-ago period and a loss of $8.7 million in the preceding quarter. Second quarter results included a net $1.0 million gain on a venture investment in a company we recently took public. Additional Shareholder Information As of As of As of June 30, 2004 March 31, 2004 June 30, 2003 Full Time Employees: 3,043 3,019 3,023 Financial Advisors: 850 867 924 Client Assets: $49 billion $51 billion $48 billion Shareholders' equity: $700.7 million $685.0 million $619.7 million Book value per share: $36.24 $35.43 $32.24 Tangible book value per share: $20.43 $19.62 $16.34 Conference Call Andrew S. Duff, Chairman and CEO, and Sandra G. Sponem, Chief Financial Officer, will host a conference call to discuss second quarter 2004 financial results on Wednesday, July 21, 2004, at 11 a.m. Eastern Time (10 a.m. Central Time). To access the call, please dial (800) 374-0255, or (706) 643-7489 international, and refer to conference ID 8526038 and the leader's name, Jennifer Olson-Goude. Callers should dial in at least 15 minutes early to receive instructions. A replay of the conference call will be available through midnight Friday, Aug. 13, 2004 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 for more than 108 years. 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 may experience increased costs resulting from decreased purchasing power and size compared to that previously provided by our association with U.S. Bancorp, (2) we compete with U.S. Bancorp with respect to clients we both serviced prior to our spin-off from U.S. Bancorp and may not be able to retain these clients, (3) the continued ownership of U.S. Bancorp common stock and options by our executive officers and some of our directors will create, or will appear to create, conflicts of interest, (4) we have agreed to certain restrictions to preserve the tax treatment of the spin-off, which reduce our strategic and operating flexibility, (5) 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, (6) 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, (7) developments in market and economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability, (8) we may not be able to compete successfully with other companies in the financial services industry, (9) our underwriting and market-making activities may place our capital at risk, (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) 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, (14) 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, (15) 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, (16) our exposure to legal liability is significant, and could lead to substantial damages and restrictions on our business going forward, (17) we may suffer losses if our reputation is harmed, (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 in the document entitled "Risk Factors" filed as Exhibit 99.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 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 Percent Inc/(Dec) For the Three Months Ended 2Q04 2Q04 (Amounts in thousands, June 30, March 31, June 30, vs. vs. except per share data) 2004 2004 2003 1Q04 2Q03 Revenues: Commissions and fees $65,776 $69,512 $65,445 (5.4)% 0.5% Principal transactions 50,243 52,076 60,267 (3.5) (16.6) Investment banking 68,180 64,862 57,652 5.1 18.3 Interest 11,088 12,463 11,811 (11.0) (6.1) Other income 16,407 14,400 15,202 13.9 7.9 Total revenues 211,694 213,313 210,377 (0.8) 0.6 Interest expense 4,391 3,913 5,327 12.2 (17.6) Net revenues 207,303 209,400 205,050 (1.0) 1.1 Non-interest expenses: Compensation and benefits 127,690 129,707 127,070 (1.6) 0.5 Occupancy and equipment 13,683 13,732 12,596 (0.4) 8.6 Communications 10,712 10,458 9,538 2.4 12.3 Floor brokerage and clearance 4,559 4,800 5,904 (5.0) (22.8) Marketing and business development 11,131 10,662 9,362 4.4 18.9 Outside services 9,922 9,158 8,358 8.3 18.7 Cash award program 1,269 1,071 - 18.5 N/M Royalty fee - - 1,033 N/M N/M Other operating expenses 7,647 7,640 17,761 0.1 (56.9) Total non-interest expenses 186,613 187,228 191,622 (0.3) (2.6) Income before income tax expense 20,690 22,172 13,428 (6.7) 54.1 Income tax expense 7,710 8,382 4,806 (8.0) 60.4 Net income $12,980 $13,790 $8,622 (5.9)% 50.5% Earnings per common share Basic $0.67 $0.71 $0.45 (5.6)% 48.9% Diluted $0.67 $0.71 $0.45 (5.6)% 48.9% Weighted average number of common shares Basic 19,333 19,333 19,223 0.0% 0.6% Diluted 19,395 19,366 19,223 0.1% 0.9% N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Results of Operations For the Six Months Ended (Amounts in thousands, except per June 30, June 30, Percent share data) 2004 2003 Inc/(Dec) Revenues: Commissions and fees $135,288 $125,342 7.9% Principal transactions 102,319 110,534 (7.4) Investment banking 133,042 95,758 38.9 Interest 23,551 23,307 1.0 Other income 30,807 30,070 2.5 Total revenues 425,007 385,011 10.4 Interest expense 8,304 10,754 (22.8) Net revenues 416,703 374,257 11.3 Non-interest expenses: Compensation and benefits 257,397 235,976 9.1 Occupancy and equipment 27,415 26,674 2.8 Communications 21,170 18,484 14.5 Floor brokerage and clearance 9,359 11,827 (20.9) Marketing and business development 21,793 18,708 16.5 Outside services 19,080 16,992 12.3 Cash award program 2,340 - N/M Royalty fee - 1,979 N/M Other operating expenses 15,287 23,214 (34.1) Total non-interest expenses 373,841 353,854 5.6 Income before income tax expense 42,862 20,403 110.1 Income tax expense 16,092 7,088 127.0 Net income $26,770 $13,315 101.1% Earnings per common share Basic $1.38 $0.69 100.0% Diluted $1.38 $0.69 100.0% Weighted average number of common shares Basic 19,333 19,206 0.7% Diluted 19,380 19,206 0.9% N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Segment Data Percent Inc/(Dec) For the Three Months Ended 2Q04 2Q04 June 30, March 31, June 30, vs. vs. (Dollars in thousands) 2004 2004 2003 1Q04 2Q03 Capital Markets Net revenues $113,598 $111,880 $115,551 1.5% (1.7)% Operating expenses 93,565 92,241 89,921 1.4 4.1 Segment pre-tax operating income $20,033 $19,639 $25,630 2.0% (21.8)% Segment operating margin 17.6% 17.6% 22.2% Private Client Services Net revenues $88,071 $95,542 $88,738 (7.8)% (0.8)% Operating expenses 76,251 83,272 87,941 (8.4) (13.3) Segment pre-tax operating income $11,820 $12,270 $797 (3.7)% 1,383.1% Segment operating margin 13.4% 12.8% 0.9% Corporate Support and Other Net revenues $5,634 $1,978 $761 184.8% 640.3% Operating expenses 15,528 10,644 12,727 45.9 22.0 Segment pre-tax operating loss $(9,894) $(8,666) $(11,966) 14.2% (17.3)% Segment operating margin N/M N/M N/M Reconciliation to total income before taxes: Total segment pre-tax operating income $21,959 $23,243 $14,461 (5.5)% 51.8% Royalty fee - - 1,033 N/M N/M Cash award program 1,269 1,071 - 18.5 N/M Total income before tax expense $20,690 $22,172 $13,428 (6.7)% 54.1% Pre-tax operating margin 10.0% 10.6% 6.5% N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Segment Data For the Six Months Ended June 30, June 30, Percent (Dollars in thousands) 2004 2003 Inc/(Dec) Capital Markets Net revenues $225,478 $199,293 13.1% Operating expenses 185,806 165,520 12.3 Segment pre-tax operating income $39,672 $33,773 17.5% Segment operating margin 17.6% 16.9% Private Client Services Net revenues $183,613 $173,604 5.8% Operating expenses 159,523 166,341 (4.1) Segment pre-tax operating income $24,090 $7,263 231.7% Segment operating margin 13.1% 4.2% Corporate Support and Other Net revenues $7,612 $1,360 459.7% Operating expenses 26,172 20,014 30.8 Segment pre-tax operating loss $(18,560) $(18,654) (0.5)% Segment operating margin N/M N/M Reconciliation to total income before taxes: Total segment pre-tax operating income $45,202 $22,382 102.0 Royalty fee - 1,979 N/M Cash award program 2,340 - N/M Total income before tax expense $42,862 $20,403 110.1% Pre-tax operating margin 10.3% 5.5% N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Supplemental Information (Dollars in thousands) For the Three Months Ended Percent Inc/(Dec) Capital Markets June 30, March 31, June 30, 2Q04 vs. 2Q04 vs. 2004 2004 2003 1Q04 2Q03 Institutional Sales Fixed Income $18,876 $19,296 30,901 (2.2)% (38.9)% Equities 30,268 34,487 31,909 (12.2) (5.1) Total Institutional Sales 49,144 53,783 62,810 (8.6) (21.8) Investment Banking Underwriting Fixed Income 14,540 14,721 18,276 (1.2) (20.4) Equities 20,888 26,918 17,800 (22.4) 17.3 Mergers and Acquisitions 26,399 13,152 13,167 100.7 100.5 Total Investment Banking 61,827 54,791 49,243 12.8 25.6 Net Interest 3,151 2,306 2,571 36.6 22.6 Other Income (524) 1,000 927 (152.4) (156.5) Capital Markets Net Revenues $113,598 $111,880 $115,551 1.5% (1.7)% Piper Jaffray Companies Preliminary Unaudited Supplemental Information (Dollars in thousands) For the Six Months Ended Capital Markets June 30, June 30, Percent 2004 2003 Inc/(Dec) Institutional Sales Fixed Income $38,172 53,742 (29.0)% Equities 64,755 59,093 9.6 Total Institutional Sales 102,927 112,835 (8.8) Investment Banking Underwriting Fixed Income 29,261 31,135 (6.0) Equities 47,806 22,334 114.1 Mergers and Acquisitions 39,551 26,416 49.7 Total Investment Banking 116,618 79,885 46.0 Net Interest 5,457 4,542 20.1 Other Income 476 2,031 (76.6) Capital Markets Net Revenues $225,478 $199,293 13.1% DATASOURCE: Piper Jaffray Companies CONTACT: Jennifer A. Olson-Goude, Investor Relations, +1-612-303-6277, or Dana H. Wade, Public Affairs and Media Relations, +1-415-277-1556, both of Piper Jaffray Companies Web site: http://www.piperjaffray.com/

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