PJC Piper Jaffray Companies

Piper Jaffray Companies Announces 2004 Third Quarter Results MINNEAPOLIS, Oct. 20 /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 Sept. 30, 2004, down from $16.0 million, or $0.83 per diluted share, for the year-ago period. Net income totaled $13.0 million, or $0.67 per diluted share in the second quarter of 2004. Net revenues for the third quarter were $186.2 million, down 11.6 percent and 10.2 percent from the third quarter of 2003 and the second quarter of 2004, respectively. For the first nine months, net income improved 31.3 percent to $38.5 million, and earnings per diluted share rose 30.1 percent to $1.99 compared to the year-ago period. Net revenues increased to $602.9 million year-to-date, up 3.1 percent over the first nine months of 2003. "Our third quarter results reflect the continued challenging market conditions," said chairman and chief executive officer Andrew S. Duff. "Despite the short-term market challenges, we remain focused on positioning our firm for long-term, profitable growth. In that regard, during the quarter we were very pleased to announce the definitive agreement to acquire Vie Securities, LLC, which we believe will enable us to fulfill the increasing client demand for automated, cost-effective equity execution services." Results of Operations Net Revenues Due to challenging market conditions, third quarter net revenues declined $24.5 million, or 11.6 percent, from the year-ago period, in which the firm recorded its strongest quarterly revenues for 2003. Revenues from principal transactions decreased by $11.8 million, or 22.8 percent, primarily driven by lower fixed-income institutional sales and trading activity. The fixed-income business had achieved near-record revenues in the third quarter of 2003, driven by high-yield corporate bonds where the firm has proprietary research capabilities. Third quarter investment banking revenues declined by $9.8 million, or 13.1 percent, due to fewer equity underwriting transactions, which were relatively strong in the year-ago period due to a rebound from soft markets in the first half of 2003. Commissions and fees declined by $2.6 million compared to the third quarter of 2003 as a result of reduced private client activity and fewer financial advisors. Compared to the second quarter of 2004, net revenues declined $21.1 million. Contributing to the decline were lower revenues in Private Client Services, institutional sales and trading, and equity investment banking. Non-Interest Expenses For the quarter, non-interest expenses were $167.7 million, down 9.3 percent from the third quarter of 2003 due mainly to lower variable compensation costs. Non-compensation expenses were $53.5 million, an improvement of 3.5 percent compared to the third quarter of 2003. Lower litigation-related expenses were offset by increases from investments in technology and additional expenses to support expanded fixed-income sales and trading capabilities and new public company costs. Compared to the second quarter of 2004, non-interest expenses improved 10.2 percent, primarily due to lower variable compensation costs. For the quarter, pre-tax operating margin was 10.0 percent, down from the 12.3 percent recorded for the year-ago period but consistent with the pre-tax margin for the prior quarter. Business Segment Review Capital Markets Capital Markets recorded $101.3 million in net revenues for the quarter, down $19.0 million, or 15.8 percent, from the year-ago period. Segment pre- tax operating income for the quarter decreased 31.0 percent to $17.3 million compared to the third quarter of 2003, in which Capital Markets recorded its strongest quarterly revenues for 2003. Fixed-income institutional sales and trading revenues declined by $8.6 million, as the third quarter of last year had very strong results in high-yield corporate bonds where the firm has proprietary research capabilities. Equity underwriting declined $8.2 million from the third quarter of 2003; equity underwriting revenues had rebounded in the year-ago period relative to soft markets in the first half of 2003. Public finance underwriting and mergers and acquisitions revenues were consistent with the year-ago period. Compared to the second quarter of 2004, Capital Markets revenues declined $12.3 million, or 10.8 percent. The primary contributor of the decline was institutional sales and trading revenues, which softened by $9.7 million due to lower trading volumes during the summer months. Segment operating expenses for the quarter were $84.0 million, a decrease of $11.3 million, or 11.8 percent, from the same period a year ago, primarily driven by lower variable compensation expenses. Segment pre-tax operating margin was 17.1 percent, a decline from the 20.8 percent recorded in the year-ago period. The decline was primarily due to lower revenues. Despite the challenging markets, the firm maintained or improved its industry rankings for completed deals. Public finance underwriting was the most active in terms of both the number of transactions and par amount since the second quarter of 2003. Following is a recap of completed deals and industry rankings (based on the number of transactions completed) during the third quarter of 2004. -- 19 equity offerings, raising a total of $3.2 billion in capital, and placing the firm 10th nationally. These results compare to completion of 24 equity offerings in the same quarter last year for a total of $3.5 billion in capital raised. (Source: Dealogic) -- 13 M&A transactions with an enterprise value of $2.0 billion, ranking ninth among all advisors. In the same period last year the firm completed 13 transactions with an enterprise value of $1.9 billion. Among middle market advisors (which excludes investment banks with average deal size greater than $500 million), the firm ranked second nationally. (Source: Mergerstat) -- 140 tax-exempt issues with a total par value of $1.5 billion, ranking the firm fourth nationally. In the third quarter of last year, the firm completed 115 tax-exempt issues nationally, with a total par value of $1.2 billion. In the Upper Midwest, the firm completed 80 public finance issues during the quarter with a total par value of $0.6 billion, ranking the firm the lead underwriter of Upper Midwest tax-exempt issues. (Source: Thomson Financial) Private Client Services Private Client Services recorded net revenues of $83.7 million, down $6.0 million, or 6.6 percent, compared to the third quarter of 2003 due to lower private client activity and fewer financial advisors. Net revenues slowed 4.9 percent compared to second quarter of 2004 as private client activity decreased due to uncertainties in the financial markets and the slower summer trading months. Segment pre-tax operating income was $12.1 million, down 3.6 percent from the third quarter of 2003 and up 2.4 percent compared to the second quarter of 2004. Segment operating expenses were $71.6 million for the quarter, a 7.1 percent improvement from the year-ago period, primarily due to reduced variable compensation costs. Segment pre-tax operating margin was 14.5 percent, up from both the 14.0 percent margin in the third quarter of 2003 and the 13.4 percent margin for the second quarter of 2004. Corporate Support and Other Corporate Support and Other pre-tax operating loss was $9.6 million for the third quarter, an improvement of $1.0 million over the third quarter of 2003 and essentially unchanged from the second quarter of 2004. Additional Shareholder Information As of Sept. 30, As of June 30, As of Sept. 30, 2004 2004 2003 Full Time Employees: 3,029 3,043 2,994 Financial Advisors: 853 850 883 Client Assets: $49 billion $49 billion $48 billion Shareholders' equity: $715.0 million $700.7 million $634.4 million Book value per share: $36.98 $36.24 $32.94 Tangible book value per share: $21.17 $20.43 $17.07 Conference Call Andrew S. Duff, chairman and chief executive officer, and Sandra G. Sponem, chief financial officer, will host a conference call to discuss third quarter 2004 financial results on Wednesday, Oct. 20, 2004, at 11 a.m. ET (10 a.m. CT). The call can be accessed via live audio webcast available through the firm's web page, http://www.piperjaffray.com/ , or by dialing (800) 374-0255, or (706) 643-7489 international, and refer to conference ID 1077232 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 Oct. 20 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 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) 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, (14) 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, (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, (16) 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, (17) our exposure to legal liability is significant, and could lead to substantial damages and restrictions on our business going forward, (18) we may suffer losses if our reputation is harmed, (19) 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, (20) 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 June 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 Percent Inc/(Dec) For the Three Months Ended 3Q04 3Q04 (Amounts in September 30, June 30, September 30, vs. vs. thousands, except 2004 2004 2003 2Q04 3Q03 per share data) Revenues: Commissions and fees $61,187 $65,776 $63,797 (7.0)% (4.1)% Principal transactions 39,813 50,243 51,592 (20.8) (22.8) Investment banking 65,204 68,180 74,992 (4.4) (13.1) Interest 10,667 11,088 10,358 (3.8) 3.0 Other income 13,571 16,407 14,161 (17.3) (4.2) Total revenues 190,442 211,694 214,900 (10.0) (11.4) Interest expense 4,217 4,391 4,225 (4.0) (0.2) Net revenues 186,225 207,303 210,675 (10.2) (11.6) Non-interest expenses: Compensation and benefits 114,197 127,690 129,455 (10.6) (11.8) Occupancy and equipment 14,968 13,683 13,623 9.4 9.9 Communications 10,558 10,712 9,100 (1.4) 16.0 Floor brokerage and clearance 4,068 4,559 5,700 (10.8) (28.6) Marketing and business development 9,723 11,131 8,576 (12.6) 13.4 Outside services 11,215 9,922 9,763 13.0 14.9 Cash award program 1,219 1,269 - (3.9) N/M Royalty fee - - 1,128 N/M N/M Other operating expenses 1,702 7,647 7,476 (77.7) (77.2) Total non-interest expenses 167,650 186,613 184,821 (10.2) (9.3) Income before income tax expense 18,575 20,690 25,854 (10.2) (28.2) Income tax expense 6,806 7,710 9,824 (11.7) (30.7) Net income $11,769 $12,980 $16,030 (9.3)% (26.6)% Earnings per common share Basic $0.61 $0.67 $0.83 (9.0)% (26.5)% Diluted $0.61 $0.67 $0.83 (9.0)% (26.5)% Weighted average number of common shares Basic 19,333 19,333 19,260 0.0 % 0.4 % Diluted 19,387 19,395 19,260 (0.0)% 0.7 % N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Results of Operations For the Nine Months Ended September 30, September 30, Percent (Amounts in thousands, except per 2004 2003 Inc/(Dec) share data) Revenues: Commissions and fees $196,475 $189,139 3.9 % Principal transactions 142,132 162,126 (12.3) Investment banking 198,246 170,750 16.1 Interest 34,218 33,665 1.6 Other income 44,378 44,231 0.3 Total revenues 615,449 599,911 2.6 Interest expense 12,521 14,979 (16.4) Net revenues 602,928 584,932 3.1 Non-interest expenses: Compensation and benefits 371,594 365,431 1.7 Occupancy and equipment 42,383 40,297 5.2 Communications 31,728 27,584 15.0 Floor brokerage and clearance 13,427 17,527 (23.4) Marketing and business development 31,516 27,284 15.5 Outside services 30,295 27,355 10.7 Cash award program 3,559 - N/M Royalty fee - 3,107 N/M Other operating expenses 16,989 30,090 (43.5) Total non-interest expenses 541,491 538,675 0.5 Income before income tax expense 61,437 46,257 32.8 Income tax expense 22,898 16,912 35.4 Net income $38,539 $29,345 31.3 % Earnings per common share Basic $1.99 $1.53 30.1 % Diluted $1.99 $1.53 30.1 % Weighted average number of common shares Basic 19,333 19,224 0.6 % Diluted 19,383 19,224 0.8 % N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Segment Data Percent Inc/(Dec) For the Three Months Ended 3Q04 3Q04 September 30, June 30, September 30, vs. vs. (Dollars in thousands) 2004 2004 2003 2Q04 3Q03 Capital Markets Net revenues $101,282 $113,598 $120,323 (10.8)% (15.8)% Operating expenses 83,984 93,565 95,248 (10.2) (11.8) Segment pre-tax operating income $17,298 $20,033 $25,075 (13.7)% (31.0)% Segment operating margin 17.1% 17.6% 20.8% Private Client Services Net revenues $83,727 $88,071 $89,688 (4.9)% (6.6)% Operating expenses 71,623 76,251 77,137 (6.1) (7.1) Segment pre-tax operating income $12,104 $11,820 $12,551 2.4 % (3.6)% Segment operating margin 14.5% 13.4% 14.0% Corporate Support and Other Net revenues $1,216 $5,634 $664 (78.4)% 83.1 % Operating expenses 10,824 15,528 11,308 (30.3) (4.3) Segment pre-tax operating loss $(9,608) $(9,894) $(10,644) (2.9)% (9.7)% Segment operating margin N/M N/M N/M Reconciliation to total income before taxes: Total segment pre-tax operating income $19,794 $21,959 $26,982 (9.9)% (26.6)% Royalty fee - - 1,128 N/M N/M Cash award program 1,219 1,269 - (3.9) N/M Total income before tax expense $18,575 $20,690 $25,854 (10.2)% (28.2)% Pre-tax operating margin 10.0% 10.0% 12.3% N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Segment Data For the Nine Months Ended September 30, September 30, Percent (Dollars in thousands) 2004 2003 Inc/(Dec) Capital Markets Net revenues $326,760 $319,616 2.2 % Operating expenses 269,790 260,768 3.5 Segment pre-tax operating income $56,970 $58,848 (3.2)% Segment operating margin 17.4% 18.4% Private Client Services Net revenues $267,340 $263,292 1.5 % Operating expenses 231,146 243,478 (5.1) Segment pre-tax operating income $36,194 $19,814 82.7 % Segment operating margin 13.5% 7.5% Corporate Support and Other Net revenues $8,828 $2,024 336.2 % Operating expenses 36,996 31,322 18.1 Segment pre-tax operating loss $(28,168) $(29,298) (3.9)% Segment operating margin N/M N/M Reconciliation to total income before taxes: Total segment pre-tax operating income $64,996 $49,364 31.7 % Royalty fee - 3,107 N/M Cash award program 3,559 - N/M Total income before tax expense $61,437 $46,257 32.8 % Pre-tax operating margin 10.2% 7.9% N/M - Not Meaningful Piper Jaffray Companies Preliminary Unaudited Supplemental Information Percent Inc/(Dec) For the Three Months Ended 3Q04 3Q04 September 30, June 30, September 30, vs. vs. (Dollars in thousands) 2004 2004 2003 2Q04 3Q03 Capital Markets Institutional Sales Fixed Income $13,154 $18,876 $21,717 (30.3)% (39.4)% Equities 26,318 30,268 29,789 (13.1) (11.7) Total Institutional Sales 39,472 49,144 51,506 (19.7) (23.4) Investment Banking Underwriting Fixed Income 18,223 14,540 18,727 25.3 (2.7) Equities 16,836 20,888 25,066 (19.4) (32.8) Mergers and Acquisitions 23,083 26,399 22,454 (12.6) 2.8 Total Investment Banking 58,142 61,827 66,247 (6.0) (12.2) Net Interest 3,196 3,151 2,362 1.4 35.3 Other Income 472 (524) 208 190.1 126.9 Capital Markets Net Revenues $101,282 $113,598 $120,323 (10.8)% (15.8)% Piper Jaffray Companies Preliminary Unaudited Supplemental Information For the Nine Months Ended September 30, September 30, Percent (Dollars in thousands) 2004 2003 Inc/(Dec) Capital Markets Institutional Sales Fixed Income $51,326 $75,459 (32.0)% Equities 91,073 88,882 2.5 Total Institutional Sales 142,399 164,341 (13.4) Investment Banking Underwriting Fixed Income 47,484 49,862 (4.8) Equities 64,642 47,400 36.4 Mergers and Acquisitions 62,634 48,870 28.2 Total Investment Banking 174,760 146,132 19.6 Net Interest 8,653 6,904 25.3 Other Income 948 2,239 (57.7) Capital Markets Net Revenues $326,760 $319,616 2.2 % 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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