UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): May 4, 2012

 


 

COWEN GROUP, INC.

(Exact Name of Registrant as Specified in Charter)

 


 

Delaware

 

001-34516

 

27-0423711

(State or Other Jurisdiction
of Incorporation)

 

(Commission File Number)

 

(I.R.S. Employer
Identification No.)

 

599 Lexington Avenue

New York, NY 10022

(Address of Principal Executive Offices and Zip Code)

 

Registrant’s telephone number, including area code: (212) 845-7900

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02. Results of Operations and Financial Condition.

 

On May 4, 2012, Cowen Group, Inc., a Delaware corporation (the “Company”) issued a press release announcing its financial results for the first quarter ended March 31, 2012, a copy of which is attached hereto as Exhibit 99.1.

 

The information in Exhibit 99.1 is furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

 

2



 

Item 9.01. Financial Statements and Exhibits.

 

(d)  

 

Exhibit

 

 

 

99.1

 

Press Release issued by the Company dated May 4, 2012.

 

3



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

COWEN GROUP, INC.

 

 

Date: May 4, 2012

By:

/s/ Owen S. Littman

 

 

Name:

Owen S. Littman

 

 

Title:

General Counsel

 

4


Exhibit 99.1

 

GRAPHIC

 

Press Release

 

For Immediate Release

 

Cowen Group, Inc. Announces 2012 First Quarter Financial Results

 

New York, May 4, 2012 - Cowen Group, Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the first quarter ended March 31, 2012.

 

2012 First Quarter Highlights

 

GAAP:

 

·      GAAP net income was $4.0 million compared to $0.1 million in the prior year period and a net loss of $(79.9) million in the fourth quarter 2011.

 

·      GAAP revenue was $57.5 million compared to $64.2 million in the prior year period and $49.5 million in the fourth quarter 2011.

 

·      Book value per share increased to $4.54 at the end of the 2012 first quarter from $4.46 at December 31, 2011.

 

Economic Income:

 

·      Economic Income was $5.9 million compared to $7.0 million in the prior year period and an Economic Loss of $(33.2) million in the fourth quarter 2011.

 

·      Broker-dealer segment revenue was $40.0 million compared to $41.8 million in the prior year period and $33.8 million in the fourth quarter 2011.

 

·      Alternative Investment segment revenue was $39.1 million compared to $38.0 million in the prior year period and $36.4 million in the fourth quarter 2011.

 

·      Total non-compensation expenses were $28.2 million, an 8% decrease compared to $30.8 million in the prior year period and a 22% decrease compared to $36.3 million in the fourth quarter 2011.

 

“We reported positive first quarter results and an economic income cash gain of over $12 million,” said Peter Cohen, Chairman and Chief Executive Officer. “We continued to make progress in the first quarter, particularly at our broker-dealer.  Our early 2012 performance is a result of the changes we started to implement in 2011.  We increased broker-dealer segment revenues by 19% and grew hedge fund assets by 13% from the fourth quarter, and generated over $20 million in investment income on our invested capital.  We also reduced non-compensation expenses by over 20% compared to the fourth quarter and achieved our run-rate 2012 expense reduction target for the first quarter.  While we have more work to do, the results for the first quarter show progress.”

 

2012 First Quarter GAAP Financial Information and Select Balance Sheet Data

 

For the first quarter 2012, the Company reported GAAP net income of $4.0 million, or $0.03 per share, compared to GAAP net income of $0.1 million, or $0.00 per share, in the first quarter 2011.  The year-over-year increase in GAAP net income was primarily due to a 35% increase in other income, which includes net gains on securities, derivatives and other investments, and a 7% decrease in total expenses, partially offset by a 10% decrease in revenue.

 

1



 

The following table summarizes the Company’s GAAP financial results for the three months ended March 31, 2012 and 2011, and December 31, 2011.

 

Summary GAAP Financial Information

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

Dec 31,

 

 

 

 

 

2012

 

2011

 

%

 

2011

 

%

 

(Dollar amounts in millions, except per share information)

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

57.5

 

$

64.2

 

(10

)%

$

49.5

 

16

%

Expenses

 

(76.7

)

(82.2

)

(7

)%

(125.4

)

(39

)%

Other income (loss)

 

25.6

 

19.0

 

35

%

20.6

 

24

%

Income tax benefit (expense)

 

(0.1

)

(0.2

)

(50

)%

2.4

 

NM

 

Net income (loss) from continuing operations

 

$

6.2

 

$

0.9

 

NM

 

$

(52.9

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from discontinued operations, net of tax

 

 

 

NM

 

(23.6

)

NM

 

Net income (loss) loss attributable to noncontrolling interests in consolidated subsidiaries

 

2.2

 

0.8

 

NM

 

3.4

 

(35

)%

Net income (loss) attributable to Cowen Group, Inc.

 

$

4.0

 

$

0.1

 

NM

 

$

(79.9

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

0.03

 

$

0.00

 

NM

 

$

(0.49

)

NM

 

Income (loss) from discontinued operations

 

$

 

$

 

NM

 

$

(0.21

)

NM

 

 

Note: Amounts may not add due to rounding.

 

The Company’s stockholders’ equity as of March 31, 2012, was $517.5 million, or book value per share of $4.54, compared to stockholders’ equity of $508.5 million, or book value per share of $4.46, as of December 31, 2011.  At March 31, 2012, the Company’s tangible book value per share was $4.32 compared to $4.23 at December 31, 2011.

 

Select Balance Sheet Data

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

(Dollar amounts in millions, except per share information)

 

 

 

 

 

Stockholders’ equity

 

$

517.5

 

$

508.5

 

Tangible stockholders’ equity

 

$

492.2

 

$

482.7

 

Common shares outstanding

 

114.0

 

114.0

 

 

 

 

 

 

 

Book value per share

 

$

4.54

 

$

4.46

 

Tangible book value per share

 

$

4.32

 

$

4.23

 

 

Economic Income (Loss)

 

Throughout the remainder of this press release the Company presents Economic Income financial measures that are not prepared in accordance with Generally Accepted Accounting Principals (“GAAP”).   In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds, (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction,  (iii) excludes certain other acquisition-related and/or reorganization expenses, and (iv) excludes goodwill impairment.  In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income revenues also include management fees, incentive income and investment income earned through the Company’s investment as a general partner in certain real estate entities and the Company’s investment in

 

2



 

the Value and Opportunity business. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

 

For a more complete description of Economic Income (Loss) and a reconciliation of GAAP net income (loss) to Economic Income (Loss) for the periods presented and additional information regarding the reconciling adjustments, please see the “Non-GAAP Financial Measures” section of this press release.

 

The table below summarizes the Company’s Economic Income financial results for the three months ended March 31, 2012 and 2011, and December 31, 2011.

 

Summary Economic Income (Loss) Financial Information

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

Dec 31,

 

 

 

 

 

2012

 

2011

 

%

 

2011

 

%

 

(Dollar amounts in millions, except per share information)

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

79.2

 

$

79.7

 

(1

)%

$

70.2

 

13

%

Expenses

 

(73.0

)

(72.3

)

1

%

(100.1

)

(27

)%

Net Economic Income (Loss) before non-controlling interests

 

6.2

 

7.4

 

(16

)%

(29.9

)

NM

 

Economic Income (Loss)

 

$

5.9

 

$

7.0

 

(16

)%

$

(33.2

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) per share

 

$

0.05

 

$

0.09

 

(44

)%

(0.29

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) excluding certain non-cash items

 

$

12.6

 

$

12.2

 

3

%

$

(26.2

)

NM

 

 

Note: Amounts may not add due to rounding.

 

2012 First Quarter Economic Income Review

 

Total Economic Income Revenue

 

Total Economic Income revenue for the first quarter 2012 was $79.2 million, a 1% decrease compared to $79.7 million in the first quarter 2011.  The decrease in Economic Income revenue was primarily the result of a decrease in brokerage revenue and incentive income, partially offset by an increase in investment income and investment banking fees.

 

Economic Income Revenue

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

Dec 31,

 

 

 

 

 

2012

 

2011

 

%

 

2011

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollar amounts in millions)

 

 

 

 

 

 

 

 

 

 

 

Investment banking

 

$

15.6

 

$

14.7

 

6

%

$

11.1

 

41

%

Brokerage

 

24.0

 

27.6

 

(13

)%

21.0

 

14

%

Management fees

 

14.0

 

14.0

 

0

%

19.2

 

(27

)%

Incentive income

 

4.0

 

5.2

 

(23

)%

0.1

 

NM

 

Investment income

 

21.1

 

17.2

 

23

%

18.5

 

14

%

Other revenue

 

0.4

 

1.1

 

(64

)%

0.2

 

NM

 

Total Revenues

 

$

79.2

 

$

79.7

 

(1

)%

$

70.2

 

13

%

 

Note: Amounts may not add due to rounding.

 

3



 

Compensation and Benefits Expense

 

First quarter 2012 compensation and benefits expense was $45.9 million, a 7% increase compared to $42.7 million in the first quarter 2011.  The change was primarily attributable to an increase in the amortization of deferred compensation and investments in new professionals offset by a decrease in severance expense.  Average headcount in the first quarter 2012 increased by 6% compared to the prior year period, but decreased by 4% compared to fourth quarter 2011.  Total headcount at the end of the first quarter was 572.

 

The compensation to Economic Income revenue ratio increased to 58% in the current quarter from 54% in the prior year period.  Compensation and benefits expense for the first quarter 2012 and 2011 included $4.5 million and $3.2 million, respectively, in share-based compensation expense.  Compensation and benefits expense excludes equity award expense related to the 2009 Cowen / Ramius business combination of $1.4 million and $3.9 million in the first quarter 2012 and 2011, respectively.

 

Compensation and benefits expense was 56% of Economic Income revenue in the first quarter 2012, excluding $1.3 million of expenses associated with activities for which the Company is reimbursed and $0.6 million of severance expense.  Excluding these same two items, compensation and benefits expense was 50% and 78% of Economic Income revenue in the prior year period and fourth quarter 2011, respectively.

 

Fixed Non-Compensation Expenses

 

Fixed non-compensation expenses in the current quarter decreased by 2% to $21.2 million as compared to $21.6 million in the comparable prior year quarter.  The decrease was primarily related to a decrease in service fees and occupancy and equipment expenses related to cost cutting efforts made in 2011 to reduce excess services and space.  This decrease was partially offset by an increase in other costs relating to the real estate business and the Value and Opportunity business (subsequent to the spin off in the second quarter of 2011).

 

Variable Non-Compensation Expenses

 

Variable non-compensation expenses were $6.9 million in the first quarter 2012, down 23% compared to $8.9 million in the first quarter 2011.  The decrease was primarily due to syndication costs related to a capital raise by an alternative investment asset fund in the first quarter of 2011 and decreased conference related expenses.

 

Alternative Investment Segment (“Ramius”)

 

Assets Under Management

 

As of April 1, 2012, the Company had assets under management of $10.2 billion, a 1% decrease compared to assets under management of $10.3 billion as of January 1, 2012. The $109 million decrease in assets under management during the first quarter of 2012 included $292 million in net redemptions, partially offset by $183 million of net positive performance.

 

4



 

The decrease in assets under management was primarily due to redemptions in our lower fee paying cash management and alternative solutions advisory businesses.  These redemptions were partially offset by asset growth in our single strategy hedge fund products.

 

Management Fees

 

Management fees were $14.0 million in the first quarter 2012, flat compared to the first quarter 2011.  There was a decline in management fees attributable to our healthcare royalty funds and our two discontinued multi-strategy hedge funds. The decrease in healthcare royalty management fees in the current year is due to an increase in committed capital, in the prior year quarter, that resulted in recognizing cumulative retrospective management fees.  These decreases were offset by an increase in management fees relating to our Ramius Trading Strategies funds and our single strategy hedge fund products.

 

The average annualized management fee charged in the first quarter 2012 was 0.55%, as compared to 0.71% in the 2011 fourth quarter and 0.61% in the prior year period.

 

Incentive Income

 

Incentive income decreased to $4.0 million in the first quarter 2012 from $5.2 million in the comparable prior year period.  The decrease in incentive income was primarily related to a decrease in incentive fees earned on our real estate funds and single strategy hedge fund products of $0.7 million and $0.4 million, respectively.

 

Investment Income

 

Investment income represents net revenues generated on our invested capital and includes interest and dividend income received or accrued as well as realized and unrealized gains/losses recognized during the period. Investment income increased by $3.9 million to $21.1 million in the first quarter 2012 from $17.2 million in the prior year period. The increase in investment income was primarily related to our investment in the Value and Opportunity fund.

 

Broker-Dealer Segment (“Cowen and Company”)

 

Brokerage

 

Brokerage revenue was $24.0 million in the first quarter 2012, a decrease of 13% compared to $27.6 million in the first quarter 2011 due to decreases in the Company’s core cash equity business.

 

On April 5, Cowen completed its previously-announced acquisition of Algorithmic Trading Management, LLC (“ATM”) , a provider of global, multi-asset class algorithmic execution trading models.  The acquisition of ATM, which positions Cowen to offer algorithmic trading execution services and direct market access, is expected to increase the Company’s revenue footprint with institutional clients.

 

5



 

Investment Banking

 

Investment banking revenue was $15.6 million in the first quarter 2012, an increase of $0.9 million, or 6%, compared to $14.7 million in the first quarter 2011.  The increase in revenues was primarily due to an increase in public equity underwriting.

 

·                  Public equity underwriting revenue was $11.9 million from sixteen transactions in the first quarter 2012, as compared to $11.3 million from twelve transactions in the comparable prior year period.  Of these transactions, the Company completed six lead managed assignments in the first quarter 2012, compared to three in the prior year period.

 

·                  Strategic advisory revenue was $1.5 million in the first quarter 2012, as compared to $0.9 million in the first quarter 2011.  The Company completed one strategic advisory transaction in first quarter 2012 as compared to two strategic advisory transactions in the prior year period.

 

·                  Private placement and registered direct revenue was $0.9 million in both the first quarter 2012 and the first quarter 2011.  The Company completed one private transaction in each of the respective periods.

 

·                  Debt capital markets revenue was $1.3 million in the first quarter 2012, as compared to $1.5 million in the first quarter 2011.  The Company completed two debt capital markets transactions in the current quarter compared to one transaction in the prior year period.

 

6



 

Earnings Conference Call with Management

 

The Company will host a conference call to discuss its 2012 first quarter financial results on Friday, May 4, 2012, at 9:00 am EST.  The call can be accessed by dialing 1-866-730-5766 domestic or 1-857-350-1590 international.  The passcode for the call is 66763619.  A replay of the call will be available beginning at 11:00 am EST May 4, 2012 through May 11, 2012.  To listen to the replay of this call, please dial 1-888-286-8010 domestic or 1-617-801-6888 international and enter passcode 67607269.  The call can also be accessed through live audio webcast or by delayed replay on the Company’s website at www.cowen.com.

 

About Cowen Group, Inc.

 

Cowen Group, Inc. is a diversified financial services firm and, together with its consolidated subsidiaries, provides alternative investment, investment banking, research, and sales and trading services through its two business segments: Ramius and its affiliates makes up the Company’s alternative investment segment, while Cowen and Company is its broker-dealer segment.  Its alternative investment products, solutions and services include hedge funds, replication products, managed futures funds, funds of funds, real estate, health care royalty funds and cash management services.  Cowen and Company offers industry focused investment banking for growth-oriented companies, domain knowledge-driven research and a sales and trading platform for institutional investors. Founded in 1918, the firm is headquartered in New York and has offices located in major financial centers around the world.

 

Cautionary Note Regarding Forward-Looking Statements

 

This press release contains forward-looking statements.  Forward-looking statements provide the Company’s current expectations or forecasts of future events.  Forward-looking statements include statements about the Company’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts.  Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements.  The Company’s actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as filed with the Securities and Exchange Commission.  The Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are available at our website at www.cowen.com and at the Securities and Exchange Commission website at www.sec.gov.  Unless required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this press release.

 

SOURCE:

Cowen Group, Inc.

CONTACT:

Stephen Lasota

 

Cowen Group, Inc.

 

(212) 845-7919

 

7



 

Cowen Group, Inc.

Preliminary Unaudited Condensed Consolidated Statements of Operations

(Dollar amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Revenues

 

 

 

 

 

Investment banking

 

$

15,630

 

$

14,682

 

Brokerage

 

24,013

 

27,591

 

Management fees

 

9,717

 

11,164

 

Incentive income

 

691

 

4,381

 

Interest and dividends

 

5,372

 

4,559

 

Reimbursement from affiliates

 

1,045

 

1,009

 

Other

 

867

 

690

 

Consolidated Funds

 

 

 

 

 

Interest and dividends

 

61

 

169

 

Other

 

84

 

 

Total revenues

 

57,480

 

64,245

 

Expenses

 

 

 

 

 

Employee compensation and benefits

 

46,683

 

45,087

 

Floor brokerage and trade execution

 

3,752

 

4,110

 

Interest and dividends

 

1,724

 

2,609

 

Professional, advisory and other fees

 

3,925

 

7,140

 

Service fees

 

2,237

 

3,612

 

Communications

 

3,401

 

2,893

 

Occupancy and equipment

 

5,242

 

5,707

 

Depreciation and amortization

 

2,155

 

2,058

 

Client services and business development

 

3,826

 

4,677

 

Other

 

3,419

 

3,710

 

Consolidated Funds

 

 

 

 

 

Interest and dividends

 

16

 

46

 

Professional, advisory and other fees

 

288

 

460

 

Floor brokerage and trade execution

 

 

 

Other

 

71

 

122

 

Total expenses

 

76,739

 

82,231

 

Other income (loss)

 

 

 

 

 

Net (losses) gains on securities, derivatives and other investments

 

19,671

 

17,283

 

Consolidated Funds net (losses) gains:

 

 

 

 

 

Net realized and unrealized (losses) gains on investments and other transactions

 

5,964

 

2,343

 

Net realized and unrealized (losses) gains on derivatives

 

40

 

(441

)

Net (losses) gains on foreign currency transactions

 

(38

)

(156

)

Total other income (loss)

 

25,637

 

19,029

 

 

 

 

 

 

 

Income (loss) before income taxes

 

6,378

 

1,043

 

Income tax (benefit) expense

 

142

 

163

 

Net income (loss)

 

6,236

 

880

 

Net (income) loss attributable to noncontrolling interests in consolidated subsidiaries

 

2,241

 

798

 

Net income (loss) attributable to Cowen Group, Inc. stockholders

 

$

3,995

 

$

82

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

Basic

 

$

0.03

 

$

0.00

 

Diluted

 

$

0.03

 

$

0.00

 

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

Basic

 

114,281

 

74,160

 

Diluted

 

115,663

 

76,083

 

 

8



 

Non-GAAP Financial Measures

 

In addition to the results presented above in accordance with generally accepted accounting principles, or GAAP, the Company presents financial measures that are non-GAAP measures, such as Economic Income (Loss) and Economic Income (Loss) excluding certain non-cash items.  The Company believes that these non-GAAP measures, viewed in addition to, and not in lieu of, the Company’s reported GAAP results, provide useful information to investors regarding its performance and overall results of operations.  These metrics are an integral part of the Company’s internal reporting to measure the performance of its businesses and the overall effectiveness of senior management.  Reconciliations to comparable GAAP measures are available in the accompanying schedules.  The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other public companies, and are not identical to corresponding measures used in our various agreements or public filings.

 

Economic Income (Loss)

 

Economic Income (Loss) may not be comparable to similarly titled measures used by other public companies. Cowen uses Economic Income (Loss) as a measure of its operating performance, not as a measure of liquidity. Economic Income (Loss) should not be considered in isolation or as a substitute for operating income, net income, operating cash flows, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. As a result of the adjustments made to arrive at Economic Income (Loss) described below, Economic Income (Loss) has limitations in that it does not take into account certain items included or excluded under GAAP, including its consolidated funds. Economic Income (Loss) is considered by management as a supplemental measure to the GAAP results to provide a more complete understanding of its performance as management measures it.

 

The primary differences between GAAP net income (loss) and Economic Income (Loss) are that in reporting Economic Income (Loss), the Company: (i) eliminates the impact of consolidation for any of our funds; (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction; (iii) excludes certain other acquisition-related and/or reorganization expenses (including the discontinued operations of LaBranche); and (iv) excludes goodwill impairment. In addition, in presenting Economic Income (Loss), the Company reclassifies aggregate investment income to Revenues. This amount represents the income the Company has earned in investing its equity capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For GAAP purposes, these items are included in each of their respective line items.  Economic Income revenues also include management fees, incentive income and investment income earned through the Company’s investment as a general partner in certain real estate entities. For GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income expenses are reduced by reimbursement from affiliates, whereas for GAAP purposes such reimbursed expenses are shown as part of revenue.

 

Additionally, we have reported in this press release our Economic Income (Loss) excluding certain non-cash expenses.  For this measure, we have adjusted Economic Income (Loss) by the following non-cash expense items:

 

·                  Depreciation and amortization, and

·                  Share-based compensation expense.

 

Management believes that the non-GAAP calculation of Economic Income (Loss) excluding certain non-cash items will allow for a better understanding of the Company’s operating results.

 

9



 

Cowen Group, Inc.

Unaudited Economic Income (Loss)

(Dollar amounts in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Revenues

 

 

 

 

 

Investment banking

 

$

15,630

 

$

14,682

 

Brokerage

 

24,013

 

27,591

 

Management fees

 

14,020

 

14,047

 

Incentive income

 

4,022

 

5,163

 

Investment income

 

21,105

 

17,209

 

Other revenue

 

384

 

1,054

 

Total revenues

 

79,174

 

79,746

 

Expenses

 

 

 

 

 

Employee compensation and benefits

 

45,909

 

42,737

 

Interest and dividends

 

88

 

217

 

Fixed non-compensation expenses

 

21,243

 

21,587

 

Variable non-compensation expenses

 

6,875

 

8,948

 

Reimbursement from affiliates

 

(1,116

)

(1,169

)

Total expenses

 

72,999

 

72,320

 

Net Economic Income (Loss) before non-controlling Interests

 

6,175

 

7,426

 

Non-controlling interests

 

(300

)

(475

)

Economic Income (Loss)

 

$

5,875

 

$

6,951

 

 

 

 

 

 

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss)

 

$

5,875

 

$

6,951

 

Exclusion of depreciation and amortization expense

 

2,155

 

2,058

 

Exclusion of share-based compensation expense

 

4,548

 

3,238

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

$

12,578

 

$

12,247

 

 

10



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended March 31, 2012

(Dollar amounts in thousands)

 

 

 

Three Months Ended March 31, 2012

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

15,630

 

$

 

$

 

$

15,630

 

Brokerage

 

24,013

 

 

 

24,013

 

Management fees

 

9,717

 

3,910

(a)

393

 

14,020

 

Incentive income

 

691

 

3,331

(a)

 

4,022

 

Investment income

 

 

21,105

(c)

 

21,105

 

Interest and dividends

 

5,372

 

(5,372

)(c)

 

 

Reimbursement from affiliates

 

1,045

 

(1,116

)(b)

71

 

 

Other revenue

 

867

 

(483

)(c)

 

384

 

Consolidated Funds

 

145

 

 

(145

)

 

Total revenues

 

57,480

 

21,375

 

319

 

79,174

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

46,683

 

(774

)

 

45,909

 

Interest and dividends

 

1,724

 

(1,636

)(c)

 

88

 

Non-compensation expenses - Fixed

 

 

21,243

(c)(d)

 

21,243

 

Non-compensation expenses - Variable

 

 

6,875

(c)(d)

 

6,875

 

Non-compensation expenses

 

27,957

 

(27,957

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(1,116

)(b)

 

(1,116

)

Consolidated Funds

 

375

 

 

(375

)

 

Total expenses

 

76,739

 

(3,365

)

(375

)

72,999

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

Net gains (losses) on securities, derivatives and other investments

 

19,671

 

(19,671

)(c)

 

 

Consolidated Funds net gains (losses)

 

5,966

 

(3,325

)

(2,641

)

 

Total other income (loss)

 

25,637

 

(22,996

)

(2,641

)

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and non-controlling interests

 

6,378

 

1,744

 

(1,947

)

6,175

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

142

 

(142

)(b)

 

 

Economic Income (Loss) / Net income (loss) before non-controlling interests

 

6,236

 

1,886

 

(1,947

)

6,175

 

 

 

 

 

 

 

 

 

 

 

(Income) loss attributable to non-controlling interests in consolidated subsidiaries

 

(2,241

)

(6

)

1,947

 

(300

)

Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc. Stockholders

 

$

3,995

 

$

1,880

 

$

 

$

5,875

 

 

Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:  The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income. Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 


Other Adjustments:

 

(a) Economic Income recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and activist business.

 

11



 

(b) Economic Income excludes income taxes as management does not consider this item when evaluating the performance of the segment. Also, reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

(c) Economic Income recognizes Company income from proprietary trading net of related expenses.

(d) Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

 

12



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended March 31, 2011

(Dollar amounts in thousands)

 

 

 

Three Months Ended March 31, 2011

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

14,682

 

$

 

$

 

$

14,682

 

Brokerage

 

27,591

 

 

 

27,591

 

Management fees

 

11,164

 

2,369

(a)

514

 

14,047

 

Incentive income

 

4,381

 

782

(a)

 

5,163

 

Investment income

 

 

17,209

(c)

 

17,209

 

Interest and dividends

 

4,559

 

(4,559

)(c)

 

 

Reimbursement from affiliates

 

1,009

 

(1,168

)(b)

159

 

 

Other revenue

 

690

 

364

(c)

 

1,054

 

Consolidated Funds

 

169

 

 

(169

)

 

Total revenues

 

64,245

 

14,997

 

504

 

79,746

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

45,087

 

(2,350

)

 

42,737

 

Interest and dividends

 

2,609

 

(2,392

)(c)

 

217

 

Non-compensation expenses - Fixed

 

 

21,587

(c)(d)

 

21,587

 

Non-compensation expenses - Variable

 

 

8,948

(c)(d)

 

8,948

 

Non-compensation expenses

 

33,907

 

(33,907

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(1,169

)(b)

 

(1,169

)

Consolidated Funds

 

628

 

 

(628

)

 

Total expenses

 

82,231

 

(9,283

)

(628

)

72,320

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

Net gains (losses) on securities, derivatives and other investments

 

17,283

 

(17,283

)(c)

 

 

Consolidated Funds net gains (losses)

 

1,746

 

(291

)

(1,455

)

 

Total other income (loss)

 

19,029

 

(17,574

)

(1,455

)

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes and non-controlling interests

 

1,043

 

6,706

 

(323

)

7,426

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

163

 

(163

)(b)

 

 

Economic Income (Loss) / Net income (loss) before non-controlling interests

 

880

 

6,869

 

(323

)

7,426

 

 

 

 

 

 

 

 

 

 

 

(Income) loss attributable to non-controlling interests in consolidated subsidiaries

 

(798

)

 

323

 

(475

)

Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc. Stockholders

 

$

82

 

$

6,869

 

$

 

$

6,951

 

 

Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:    The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income. Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 


Other Adjustments:

 

(a) Economic Income recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities.

 

13



 

(b) Economic Income excludes goodwill impairment and income taxes as management does not consider this item when evaluating the performance of the segment. Also, reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

(c) Economic Income recognizes Company income from proprietary trading net of related expenses.

(d) Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

 

14