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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