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MINNEAPOLIS, April 20 /PRNewswire-FirstCall/ -- Piper Jaffray Companies (NYSE: PJC) today announced net income of $7.3 million, or $0.38 per diluted share, for the quarter ended March 31, 2005, down from net income of $13.8 million, or $0.71 per diluted share, for the quarter ended March 31, 2004. Net income totaled $11.8 million, or $0.61 per diluted share, for the quarter ended Dec. 31, 2004. Net revenues for the first quarter were $179.1 million, down 14.5 percent from the first quarter of 2004 and down 8.0 percent from the fourth quarter of 2004.

"We were very disappointed in our results for the first quarter of 2005," said chairman and chief executive officer Andrew S. Duff. "Reduced institutional sales and trading revenues resulted in lower quarterly earnings for the company. However, our investment banking businesses performed well against the market, and our Private Client Services business continues to make measured progress. We continue to evaluate our businesses to ensure we are directing resources to areas where we can add value to our clients, achieve appropriate profitability and sustain competitive growth."

Results of Operations

Net Revenues

First quarter net revenues declined $30.3 million, or 14.5 percent, from the first quarter of 2004, primarily due to lower principal transactions and investment banking revenue. Compared to the fourth quarter of 2004, net revenues declined 8.0 percent, mainly due to lower principal transaction revenue.

Non-Interest Expenses

For the quarter, non-interest expenses were $167.6 million, down 10.5 percent from the first quarter of 2004. Compensation expense was $109.4 million, a decline of $20.3 million, or 15.7 percent, from the prior year, primarily due to less variable compensation driven by lower net revenues and profitability. Non-compensation expenses were $58.2 million, or up 1.2 percent compared to the first quarter of last year.

Compared to the fourth quarter of 2004, non-interest expenses decreased $8.8 million, or 5.0 percent. Lower variable compensation expense was partially offset by higher benefit costs, as payroll tax limits were reset for the year. Non-compensation expense was lower across all cost categories, with the exception of floor brokerage and clearance expense, which rose due to increased activity from the new algorithmic and program trading business (APT).

For the quarter, pre-tax operating margin was 6.4 percent, down from 10.6 percent in the comparable prior-year period and 9.3 percent in the preceding quarter. For the first quarter of 2005, annualized return on average tangible shareholders' equity(1) was 7.1 percent compared to 14.9 percent for the first quarter of 2004.

During the quarter, Piper Jaffray repurchased 325,000 shares of the company's outstanding common stock at an average price of $40.09. The share repurchase program is being conducted under a 10b5-1 plan, which commenced in early 2005. The remaining authorization under the program is for the repurchase of up to 975,000 shares for a maximum aggregate purchase price of $52.0 million.

Business Segment Review

In early 2005, the company concluded an extensive study of costs included in Corporate Support and Other to determine how these costs related to and were driven by business activities conducted in the Capital Markets and Private Client Services segments. As a result of this study, certain expenses such as human resources, finance and other corporate administration have been reclassified to the segments which use these services. Internally, the company is now managing and allocating resources to its business segments based on these reclassified results. Corporate Support and Other now consists of the results of our private equity business, long-term financing costs and public company-related costs. In connection with this change, Piper Jaffray has restated segment results for each of the four quarters of 2004 and the full year of 2003. 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 $91.9 million in net revenues for the quarter, down $20.1 million, or 17.9 percent, from the first quarter of 2004. Segment pre-tax operating income for the quarter was $11.5 million, down 39.0 percent compared to the prior year. The decline is largely attributable to lower fixed income and equity institutional sales and trading revenue.

Institutional Sales and Trading

Total institutional sales and trading revenue was $42.6 million, down 24.0 percent from the first quarter of last year and 16.1 percent compared to the fourth quarter of 2004. Compared to the first quarter of 2004, rising interest rates and structural changes in the market reduced fixed income sales and trading revenue. Equity sales and trading revenue also declined compared to the same quarter in the previous year as increased equity trading volume was more than offset by lower net commissions per share.

Piper Jaffray's revenue in its institutional sales and trading businesses is largely derived from providing clients with a traditional set of products, such as cash equities and corporate bonds. These businesses are experiencing the effects of structural changes taking hold in the fixed income and equity sales and trading markets. These changes include increased price transparency in the corporate bond market and increased use of electronic trading, which have created additional competitive downward pressure on trading margins, in the case of bonds, and net commissions, in the case of equities. The magnitude of the effect of the recent phase of the Trade Reporting and Compliance Engine (TRACE) requirement, implemented February 2005, on corporate bond trading margins was greater than anticipated. In addition, the company experienced continued downward pressure in 2005 on net commissions in the cash equities business, which was greater than anticipated.

Investment Banking

Total investment banking revenues were $48.5 million, down $6.2 million, or 11.4 percent, compared to the first quarter of 2004.

  • Fixed Income underwriting revenue was lower compared to the first quarter of 2004 due to lower taxable underwriting and fewer completed public finance transactions.
  • Equity underwriting revenue declined $6.6 million, or 24.4 percent, compared to a strong first quarter in the prior-year period. The company completed fewer equity offerings and convertible transactions than in the first quarter of last year.
  • Stronger mergers and acquisitions revenue, driven by a greater aggregate enterprise value of completed transactions, partially offset the decline in underwriting revenue.

Segment operating expenses for the quarter were $80.4 million, a decrease of $12.7 million, or 13.7 percent, from the same period a year ago. The decline in expenses was primarily driven by lower variable compensation expense due to lower net revenue and profitability.

For the first quarter of 2005, segment pre-tax operating margin was 12.5 percent, down from 16.9 percent in the same quarter of last year and 15.4 percent in the fourth quarter of 2004. The decline as compared to both periods was largely due to lower revenues as described above.

Following is a recap of completed deal information for the first quarter of 2005.

  • 19 equity offerings, raising a total of $2.1 billion in capital, and placing the firm 13th nationally, based on the number of completed transactions. Of the 19 transactions, Piper Jaffray lead-managed 9 deals. (Source: Dealogic)
  • 9 mergers and acquisitions transactions with an aggregate enterprise value of $1.4 billion. The number of deals and the enterprise value include disclosed and undisclosed transactions. (Source: Piper Jaffray)
  • 109 tax-exempt issues with a total par value of $1.3 billion, ranking the firm fifth nationally. In the Upper Midwest, the firm completed 62 public finance issues for the quarter with a total par value of $526.2 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 revenue of $89.2 million for the quarter, down $7.2 million, or 7.5 percent, compared to the strong first quarter of 2004. The first quarter of 2005 was impacted by lower private client trading activity and fewer seasoned financial advisors as compared to one year ago. As compared to the fourth quarter of 2004, net revenue was essentially flat. Segment pre-tax operating income was $4.8 million, down 31.5 percent from the first quarter of 2004, and down 16.0 percent from the fourth quarter of 2004.

Segment operating expense was $84.4 million for the quarter, down $5.0 million, or 5.6 percent, from the first quarter of 2004. The decline was primarily attributable to lower variable compensation expense due to lower net revenue. Segment pre-tax operating margin was 5.4 percent, down from 7.3 percent in the same quarter of last year and 6.4 percent in the fourth quarter of 2004. The decline as compared to the first quarter last year was due to lower net revenue and the relatively fixed nature of non-compensation expense.

Corporate Support and Other

Corporate Support and Other pre-tax operating loss was $3.7 million for the first quarter, an increase of $1.0 million over the first quarter of 2004 due to lower gains on investments and a higher interest rate on outstanding subordinated debt.



     Additional Shareholder Information

                              As of March 31, As of Dec. 31,   As of March 31,
                              2005            2004             2004
     Full time employees:     2,976           3,027            3,019
     Financial advisors:      866             860              867
     Client assets:           $50 billion     $51 billion      $51 billion
     Shareholders' equity:    $736.6 million  $725.4 million   $685.0 million
     Book value per share:    $38.01          $37.52           $35.43
     Tangible book value
      per share:              $21.43          $20.88           $19.62

     (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,       March 31,   March 31,
     (Dollars in thousands)                2005           2004        2005

     Shareholders' equity                $732,787       $676,908    $736,618
     Deduct:  Goodwill and identifiable
               intangible assets          321,634        305,635     321,434
     Tangible shareholders' equity       $411,153       $371,273    $415,184

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 2005 financial results on Wednesday, April 20, 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 internationally, and referring to conference ID 5381322 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 20, 2005 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 operates through two primary revenue-generating segments: Capital Markets and Private Client 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 has approximately 3,000 employees in 104 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) developments in market and economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability, (4) we may not be able to compete successfully with other companies in the financial services industry, (5) our underwriting and market-making activities may place our capital at risk, (6) an inability to readily divest or transfer trading positions may result in financial losses to our business, (7) 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, (8) 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, (9) 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, (10) 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, (11) 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, (12) 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, (13) our exposure to legal liability is significant, and could lead to substantial damages and restrictions on our business going forward, (14) we may suffer losses if our reputation is harmed, (15) 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 (16) other factors identified in the document entitled "Risk Factors" filed as Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 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



                                For the Three Months Ended   Percent Inc/(Dec)
    (Amounts in thousands,     March 31, Dec. 31, March 31, 1Q05 vs. 1Q05 vs.
     except per share data)     2005     2004      2004     4Q04     1Q04
    Revenues:

     Commissions and fees       $70,160  $67,255  $69,512    4.3 %    0.9 %
     Principal transactions      34,871   46,394   52,076  (24.8)   (33.0)
     Investment banking          56,315   59,686   64,862   (5.6)   (13.2)
     Interest                    15,602   15,206   13,327    2.6     17.1
     Other income                10,727   13,589   14,400  (21.1)   (25.5)

      Total revenues            187,675  202,130  214,177   (7.2)   (12.4)

     Interest expense             8,607    7,560    4,777   13.8     80.2

      Net revenues              179,068  194,570  209,400   (8.0)   (14.5)

    Non-interest expenses:

     Compensation and benefits  109,402  116,800  129,707   (6.3)   (15.7)
     Occupancy and equipment     14,027   14,683   13,732   (4.5)     2.1
     Communications              10,405   10,470   10,458   (0.6)    (0.5)
     Floor brokerage and
      clearance                   4,203    3,882    4,800    8.3    (12.4)
     Marketing and business
      development                10,650   10,952   10,662   (2.8)    (0.1)
     Outside services            10,639   11,182    9,158   (4.9)    16.2
     Cash award program           1,136    1,158    1,071   (1.9)     6.1
     Other operating expenses     7,127    7,259    7,640   (1.8)    (6.7)

      Total non-interest
       expenses                 167,589  176,386  187,228   (5.0)   (10.5)

    Income before income tax
     expense                     11,479   18,184   22,172  (36.9)   (48.2)

    Income tax expense            4,144    6,375    8,382  (35.0)   (50.6)

    Net income                   $7,335  $11,809  $13,790  (37.9)%  (46.8) %


    Earnings Per Common Share
     Basic                        $0.38    $0.61    $0.71  (37.7)%  (46.5)%
     Diluted                      $0.38    $0.61    $0.71  (37.7)%  (46.5)%

    Weighted average number of
     common shares
       Basic                     19,378   19,333   19,333    0.2 %    0.2 %
       Diluted                   19,523   19,445   19,366    0.4 %    0.8 %





    Piper Jaffray Companies
    Preliminary Unaudited Segment Data


                                              For the Three Months Ended
                                           March 31, December 31, March 31,
    (Dollars in thousands)                     2005        2004       2004
    Capital Markets
      Net revenues                          $91,945    $104,294   $112,044
      Operating expenses                     80,418      88,192     93,142
      Segment pre-tax operating income      $11,527     $16,102    $18,902
      Segment pre-tax operating margin         12.5 %      15.4 %     16.9 %


    Private Client Services
      Net revenues                          $89,199     $88,895    $96,395
      Operating expenses                     84,388      83,166     89,375
      Segment pre-tax operating income       $4,811      $5,729     $7,020
      Segment pre-tax operating margin          5.4 %       6.4 %      7.3 %


    Corporate Support and Other
      Net revenues                          $(2,076)     $1,381       $961
      Operating expenses                      1,647       3,870      3,640
      Segment pre-tax operating loss        $(3,723)    $(2,489)   $(2,679)
      Segment pre-tax operating margin          N/M         N/M        N/M


    Reconciliation to total income
     before taxes:
      Total segment pre-tax operating
       income                               $12,615     $19,342    $23,243
      Cash award program                      1,136       1,158      1,071
      Total income before tax expense       $11,479     $18,184    $22,172
      Pre-tax operating margin                  6.4 %       9.3 %     10.6 %


    N/M - Not Meaningful


    Piper Jaffray Companies
    Preliminary Unaudited Segment Data


                                                     Percent Inc/(Dec)
                                                 1Q05 vs.          1Q05 vs.
    (Dollars in thousands)                         4Q04              1Q04
    Capital Markets
      Net revenues                               (11.8) %          (17.9) %
      Operating expenses                          (8.8)            (13.7)
      Segment pre-tax operating income           (28.4) %          (39.0) %
      Segment pre-tax operating margin


    Private Client Services
      Net revenues                                 0.3  %           (7.5) %
      Operating expenses                           1.5              (5.6)
      Segment pre-tax operating income           (16.0) %          (31.5) %
      Segment pre-tax operating margin


    Corporate Support and Other
      Net revenues                              (250.3) %         (316.0) %
      Operating expenses                         (57.4)            (54.8)
      Segment pre-tax operating loss              49.6  %           39.0  %
      Segment pre-tax operating margin


    Reconciliation to total income
     before taxes:
      Total segment pre-tax operating
       income                                    (34.8) %          (45.7) %
      Cash award program                          (1.9)              6.1
      Total income before tax expense            (36.9) %          (48.2) %
      Pre-tax operating margin


    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)   2005       2004      2004     2004      2004
    Capital Markets
      Net revenues         $91,945  $104,294  $101,348  $113,616  $112,044
      Operating expenses    80,418    88,192    85,539    96,376    93,142
      Segment pre-tax
       operating income    $11,527   $16,102   $15,809   $17,240   $18,902
      Segment pre-tax
       operating margin       12.5 %    15.4 %    15.6 %    15.2 %    16.9 %


    Private Client Services
      Net revenues         $89,199   $88,895   $84,872   $89,506   $96,395
      Operating expenses    84,388    83,166    77,703    82,465    89,375
      Segment pre-tax
       operating income     $4,811    $5,729    $7,169    $7,041    $7,020
      Segment pre-tax
       operating margin        5.4 %     6.4 %     8.4 %     7.9 %     7.3 %


    Corporate Support and
     Other
      Net revenues         $(2,076)   $1,381        $5    $4,181      $961
      Operating expenses     1,647     3,870     3,189     6,503     3,640
      Segment pre-tax
       operating loss      $(3,723)  $(2,489)  $(3,184)  $(2,322)  $(2,679)
      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   $12,615   $19,342   $19,794   $21,959   $23,243
      Royalty fee                -         -         -         -         -
      Cash award program     1,136     1,158     1,219     1,269     1,071
      Total income before
       tax expense         $11,479   $18,184   $18,575   $20,690   $22,172
      Pre-tax operating
       margin                  6.4 %     9.3 %    10.0 %    10.0 %    10.6 %


    N/M - Not Meaningful


    Piper Jaffray Companies
    Preliminary Unaudited Segment Data


                                                    For the Year Ended
                                                December 31,     December 31,
    (Dollars in thousands)                          2004             2003
    Capital Markets
      Net revenues                                $431,302         $430,846
      Operating expenses                           363,249          361,781
      Segment pre-tax operating income             $68,053          $69,065
      Segment pre-tax operating margin                15.8 %           16.0 %


    Private Client Services
      Net revenues                                $359,668         $355,563
      Operating expenses                           332,709          347,657
      Segment pre-tax operating income             $26,959           $7,906
      Segment pre-tax operating margin                 7.5 %            2.2 %


    Corporate Support and Other
      Net revenues                                  $6,528             $321
      Operating expenses                            17,202            8,498
      Segment pre-tax operating loss              $(10,674)         $(8,177)
      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
      Royalty fee                                        -            3,911
      Cash award program                             4,717           24,000
      Total income before tax expense              $79,621          $40,883
      Pre-tax operating margin                        10.0 %            5.2 %


    N/M - Not Meaningful



    Piper Jaffray Companies
    Preliminary Unaudited Supplemental Information

    (Dollars in thousands)   For the Three Months Ended     Percent Inc/(Dec)

    Capital Markets         March 31,  Dec.31,  March 31,  1Q05 vs.  1Q05 vs.
                              2005      2004      2004       4Q04     1Q04
    Institutional Sales
     Fixed Income            $16,318   $24,683   $21,603    (33.9)%  (24.5)%
     Equities                 26,320    26,157    34,511      0.6    (23.7)

    Total Institutional
     Sales                    42,638    50,840    56,114    (16.1)   (24.0)

    Investment Banking
     Underwriting
      Fixed Income            11,632    14,613    14,720    (20.4)   (21.0)
      Equities                20,338    22,863    26,918    (11.0)   (24.4)
     Mergers and
      Acquisitions            16,574    15,432    13,152      7.4     26.0

    Total Investment Banking  48,544    52,908    54,790     (8.2)   (11.4)

    Other Income                 763       546     1,140     39.7    (33.1)

      Capital Markets Net
       Revenues              $91,945  $104,294  $112,044    (11.8)%  (17.9)%

SOURCE Piper Jaffray Companies
04/20/2005
CONTACT: Jennifer A. Olson-Goude, Investor Relations, +1-612-303-6277,
Susan L. Beatty, Public Affairs and Media Relations, +1-612-303-5680, both of
Piper Jaffray Companies
Web site: http://www.piperjaffray.com
(PJC)

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