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): August 5, 2011

 


 

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 August 5, 2011, Cowen Group, Inc., a Delaware corporation (the “Company”) issued a press release announcing its financial results for the second quarter ended June 30, 2011, 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 August 5, 2011.

 

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: August 5, 2011

By:

/s/ Owen S. Littman

 

 

Name: Owen S. Littman

Title:   General Counsel

 

4


Exhibit 99.1

 

 

Press Release

 

For Immediate Release

 

Cowen Group, Inc. Announces 2011 Second Quarter Financial Results

 

GAAP Net Income Improves by $41.2 Million from Second Quarter 2010;

Economic Income Improves by $18.5 Million from Second Quarter 2010

 

New York, August 5, 2011 - Cowen Group, Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the second quarter ended June 30, 2011.

 

2011 Second Quarter GAAP Financial Information and Select Balance Sheet Data

 

For the second quarter of 2011 the Company reported GAAP net income of $20.0 million, or $0.26 per diluted share, driven by revenues of $59.4 million, other income of $26.7 million and an income tax benefit of $18.0 million. This result compares to a GAAP net loss of ($21.2) million, or ($0.29) per share, on revenues of $55.0 million and other loss of ($6.5) million for the second quarter 2010.  The significant improvement in GAAP net income was primarily due to increased revenues from our two primary operating segments, a bargain purchase gain of $22.2 million on the acquisition of LaBranche & Co. Inc. (“LaBranche”) which closed on June 28, 2011, and a tax benefit of $18.3 million related to the acquisition during the quarter of a Luxembourg captive reinsurance company.  These improvements were partially offset by higher expenses incurred in the second quarter of 2011 relative to the comparable prior period.

 

The table below summarizes the Company’s GAAP financial results for the three months ended June 30, 2011 and 2010 and March 31, 2011.

 

Summary GAAP Financial Information

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

March 31,

 

 

 

(Dollar amounts in millions, except per share information)

 

2011

 

2010

 

D

 

2011

 

D

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

59.4

 

$

55.0

 

8

%

$

64.2

 

(8

)%

Expenses

 

(81.5

)

(71.7

)

14

%

(82.2

)

(1

)%

Other income (loss)

 

26.7

 

(6.5

)

NM

 

19.0

 

40

%

Income tax benefit (expense)

 

18.0

 

(0.6

)

NM

 

(0.2

)

NM

 

Net income (loss)

 

22.5

 

(23.7

)

NM

 

0.9

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

20.0

 

$

(21.2

)

NM

 

$

0.1

 

NM

 

Earnings per diluted share / (Loss per share)

 

$

0.26

 

$

(0.29

)

NM

 

$

0.00

 

NM

 

 

Note: Amounts may not add due to rounding.

 

1



 

The Company’s stockholders’ equity as of June 30, 2011, was $638.0 million, or book value per share of $5.49, compared to stockholders’ equity of $449.3 million, or book value per share of $5.95, as of December 31, 2010.  At June 30, 2011, the Company’s tangible book value per share was $5.11 compared to $5.42 at December 31, 2010. The declines in book value and tangible book value per share were primarily due to the issuance of more than 40 million shares of Cowen Class A common stock in exchange for all of the outstanding shares of LaBranche upon the consummation of the acquisition of LaBranche on June 28, 2011. The table below provides select balance sheet data as of June 30, 2011, March 31, 2011, and December 31, 2010.

 

Select Balance Sheet Data

 

 

 

June 30

 

March  31

 

Dec 31

 

(Dollar amounts in millions, except per share information)

 

2011

 

2011

 

2010

 

Stockholders’ equity

 

$

638.0

 

$

456.6

 

$

449.3

 

Tangible stockholders’ equity

 

$

594.2

 

$

417.4

 

$

409.3

 

Common shares outstanding(1)

 

116.2

 

75.6

 

75.5

 

 

 

 

 

 

 

 

 

Book value per share

 

$

5.49

 

$

6.04

 

$

5.95

 

Tangible book value per share

 

$

5.11

 

$

5.52

 

$

5.42

 

 


(1)

 

The increase in the number of common shares outstanding at June 30, 2011, was the result of the completion of Cowen’s acquisition of LaBranche on June 28, 2011.

 

“I am pleased to report that we recorded our third consecutive quarter of economic income as our operating businesses improved and our balance sheet investment portfolio performed well,” said Peter Cohen, Chairman and CEO.  “During the quarter, our alternative investment management business, Ramius, increased assets under management by nine percent, marking the sixth consecutive quarter of asset increases. Our broker-dealer platform, Cowen and Company, continued to make progress during the second quarter. Our public underwriting revenues thus far in 2011 are already higher than we produced in all of 2010 and, following the addition of a number of skilled professionals, the investment banking and capital markets teams are working increasingly well together to build on current momentum. Finally, the consummation of the LaBranche acquisition provides Cowen with increased liquidity and an improved capital position and we expect to utilize a portion of the acquired capital to execute our recently announced $20 million share repurchase program. This program is intended to enhance shareholder value and, with our shares trading at a discount to tangible book value, we view them as an attractive investment.”

 

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”).  Economic Income financial measures are considered by management to be supplemental to the GAAP results and are intended to provide a more complete presentation of the Company’s 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 (both 2010 and 2011); (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction (both 2010 and 2011); (iii) excludes certain other acquisition-related and/or reorganization expenses (2011 only); and (iv) excludes the bargain purchase gain which resulted from the LaBranche acquisition (2011 only).  In addition, in presenting Economic Income (Loss), the Company reclassifies certain revenues and expenses.  For a more complete

 

2



 

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 provides summary Economic Income (Loss) financial information for the three months ended June 30, 2011 and 2010 and March 31, 2011.

 

Summary Economic Income (Loss) Financial Information

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

March 31,

 

 

 

(Dollar amounts in millions, except per share information)

 

2011

 

2010

 

D

 

2011

 

D

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

82.4

 

$

48.6

 

70

%

$

79.7

 

3

%

Expenses

 

(80.4

)

(66.5

)

21

%

(72.3

)

11

%

Net Economic Income (Loss) before non-controlling interests

 

2.0

 

(17.9

)

NM

 

7.4

 

(73

)%

Economic Income (Loss)

 

$

0.6

 

$

(17.9

)

NM

 

$

7.0

 

(92

)%

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) per diluted share(1)

 

0.01

 

(.25

)

NM

 

0.09

 

(92

)%

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) excluding certain non-cash items

 

$

2.8

 

$

(12.8

)

NM

 

$

12.3

 

(77

)%

 


(1) Consensus earnings that are reported by earnings estimate services, such as First Call, are on this basis.

 

Second Quarter Economic Income and AUM Highlights

 

·                 Economic Income increased by $18.5 million to $0.6 million in the second quarter 2011 from an Economic Loss of $17.9 million in the second quarter 2010, driven by increased revenues across most of our business units, partially offset by higher expenses.

 

·                 Investment banking revenue increased 44% to $14.3 million in the second quarter 2011 on 13 transactions closed during the quarter, from $9.9 million on 12 transactions in the comparable period of 2010.

 

·                Incentive income increased to $5.7 million in the second quarter 2011 from an incentive loss of ($0.5) million in the second quarter 2010.

 

·                 Investment income increased to $22.7 million in the second quarter 2011 from an investment loss of ($2.9) million in the second quarter 2010.  The Company recorded gross investment income of $18.3 million associated with its Luxembourg captive reinsurance acquisition program in the second quarter of 2011.

 

·                 Compensation and benefits expense excluding reimbursed compensation, severance charges and compensation expense related to the 2008 acquisition of Latitude declined to 49% of Economic Income revenue in the second quarter 2011, from 68% in the second quarter 2010, driven by increased revenues.

 

·                Non-compensation expenses increased 20% to $38.8 million in the second quarter 2011 from $32.2 million in the second quarter 2010 due primarily to $4.3 million of expenses associated with the Luxembourg captive reinsurance acquisition program and other increases in variable expenses incurred in the second quarter 2011.

 

·                 Assets under management increased by approximately $917 million to $10.66 billion as of July 1, 2011, as compared to $9.74 billion as of April 1, 2011, including net subscriptions of $839 million and performance-related appreciation in assets under management of $78 million.

 

3



 

2011 Second Quarter Economic Income Review

 

Total Economic Income Revenue

 

Total Economic Income revenue for the second quarter 2011 was $82.4 million, a 70% increase compared to $48.6 million in the second quarter 2010.  The increase in Economic Income revenue was primarily the result of an increase in investment income, investment banking fees, incentive income and management fees, partially offset by a reduction in brokerage revenue.

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

Mar. 31,

 

 

 

(Dollar amounts in millions)

 

2011

 

2010

 

D

 

2011

 

D

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment banking

 

$

14.3

 

$

9.9

 

44

%

$

14.7

 

(2

)%

Brokerage

 

24.6

 

29.8

 

(17

)%

27.6

 

(11

)%

Management fees

 

15.5

 

12.2

 

28

%

14.0

 

11

%

Incentive income

 

5.7

 

(0.5

)

NM

 

5.2

 

10

%

Investment income

 

22.7

 

(2.9

)

NM

 

17.2

 

32

%

Other revenue

 

(0.5

)

0.1

 

NM

 

1.1

 

NM

 

Total Revenues

 

$

82.4

 

$

48.6

 

70

%

$

79.7

 

3

%

 

Note: Amounts may not add due to rounding.

 

Compensation and Benefits Expense

 

Second quarter 2011 compensation and benefits expense was $42.4 million, an 18% increase compared to $35.9 million in the second quarter 2010.  The increase in compensation expense was primarily driven by increased stock compensation expense.

 

The compensation to Economic Income revenue ratio declined to 51% in the current quarter from 74% in the comparable prior year period driven by higher revenues.  Compensation and benefits expense for the second quarter 2011 and 2010 included $5.4 million and $2.4 million, respectively, in share-based and other non-cash deferred compensation expense. Compensation and benefits expense excludes equity award expense related to the 2009 Cowen / Ramius business combination of $1.8 million and $2.7 million in the second quarter 2011 and 2010, respectively.

 

Compensation and benefits expense was 49% of Economic Income revenue in the second quarter 2011, excluding $1.0 million of expenses associated with activities for which the Company is reimbursed, $1.0 million of severance expense and $0.2 million in compensation expenses related to the 2008 acquisition of Latitude.

 

Fixed Non-Compensation Expenses

 

Fixed non-compensation expenses in the current quarter increased by 7% to $26.3 million as compared to $24.7 million in the comparable prior year quarter.  The increase was due to higher professional fees and additional expenses related to the build-out of our data center partially offset by decreases in occupancy and depreciation costs due to the consolidation of our office space.

 

4



 

Variable Non-Compensation Expenses

 

Variable non-compensation expenses were $12.5 million in the second quarter 2011, up 66% compared to $7.6 million in the second quarter 2010.  The increase was primarily due to $4.3 million in professional expenses associated with the Luxembourg captive reinsurance acquisition program and $1.6 million in marketing/syndication expenses associated with certain funds within our alternative investment management business. There were no such expenses incurred in the second quarter 2010.

 

Alternative Investment Management Segment (“Ramius”)

 

Assets Under Management

 

As of July 1, 2011, the Company had assets under management of $10.7 billion, a 9% increase as compared to assets under management of $9.7 billion as of April 1, 2011. The $917 million increase in assets under management during the second quarter of 2011 resulted from $839 million in net subscriptions, and $78 million of net positive performance.

 

Management Fees

 

Management fees were $15.5 million in the second quarter 2011, an increase of 28% compared to $12.2 million in the second quarter 2010.  As compared to the prior year period, the increase in management fees was primarily the result of increased average total assets under management in the second quarter 2011.  This increase was partially offset by certain funds no longer charging management fees to affiliates of UniCredit S.pA, which became effective July 1, 2010.

 

The average annualized management fee charged in the second quarter 2011 was 0.61%, as compared to 0.62% in the second quarter 2010.

 

Incentive Income

 

Incentive income increased to $5.7 million in the second quarter 2011 from an incentive loss of ($0.5) million in the comparable prior year period.  The increase in incentive income was primarily related to a reversal of an accrual pertaining to subordination agreements entered into by the general partners of two real estate funds with those funds’ lead investors as well as a general increase in real estate performance.

 

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 $25.6 million to $22.7 million in the second quarter 2011 from an investment loss of ($2.9) million in the prior year period. The

 

5



 

increase primarily resulted from the recognition of a deferred tax benefit of $18.3 million (gross of expenses of $4.3 million included in variable expenses) pursuant to the acquisition of a Luxembourg captive reinsurance company, which is reflected within investment income in our Economic Income financial presentation, as well as improved performance in certain strategies of the firm’s invested capital.  Investment income in the second quarter of 2010 was negatively impacted by the adverse equity market environment that persisted through the quarter.

 

Broker-Dealer Segment (“Cowen and Company”)

 

Brokerage

 

Brokerage revenue was $24.6 million in the second quarter 2011, a decrease of 17% compared to $29.8 million in the second quarter 2010. The decline was primarily associated with decreased customer activity in the Company’s core customer facilitation business as cash equities volumes have remained at subdued levels thus far in 2011. For comparative purposes, aggregate NYSE and NASDAQ trading volumes declined by 28% during the quarter on a year-over-year basis.(1)

 

In the second quarter 2011, Cowen continued its efforts towards expanding its existing cash equities sales and trading platform into the electronic trading market. Cowen has hired senior professionals in recently-formed Electronic Products, Quantitative Trading Solutions, Institutional Convertible Securities and Equity Options groups.

 

Investment Banking

 

Investment banking revenue was $14.3 million in the second quarter 2011, an increase of $4.4 million, or 44%, compared to $9.9 million in the second quarter 2010.  The increase in revenues was primarily due to increased equity underwriting activities.

 

·                  Equity underwriting revenue was $7.3 million in the second quarter 2011, more than double the $3.5 million reported in the comparable prior year period.

 

·                  Strategic advisory revenue was $5.7 million in the second quarter 2011, an increase of $0.1 million compared to $5.6 million in the second quarter 2010.  The Company completed three strategic advisory transactions in each of the respective periods.

 


(1)  Source: Bloomberg.  Industry-wide volume trend is based on aggregate NYSE and NASDAQ trading volumes.  NYSE activity includes total volume of shares traded for all securities on NYSE using only NYSE volume. NASDAQ activity based on the NASDAQ Composite Total Volume Index.

 

6



 

Earnings Conference Call with Management

 

The Company will host a conference call to discuss its 2011 second quarter financial results on Friday, August 5, 2011, at 9:00 am EST.  The call can be accessed by dialing 1-866-356-4279 domestic or 1-617-597-5394 international.  The passcode for the call is 38607829.  A replay of the call will be available beginning at 12:00 pm August 5, 2011 through August 12, 2011.  To listen to the replay of this call, please dial 1-888-286-8010 domestic or 1-617-801-6888 international and enter passcode 47537753.  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 management, investment banking, research, and sales and trading services through its two business segments: Ramius and its affiliates makes up the Company’s alternative investment management segment, while Cowen and Company is its broker-dealer segment.  Its alternative investment management products, solutions and services include hedge funds, replication products, managed futures funds, fund 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:

 

Peter Poillon

 

 

Cowen Group, Inc.

 

 

(646) 562-1983

 

7



 

Cowen Group, Inc.

Preliminary Unaudited Condensed Consolidated Statements of Operations

(Dollar amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

14,343

 

$

9,938

 

$

29,025

 

$

15,943

 

Brokerage

 

24,607

 

29,793

 

52,198

 

59,369

 

Management fees

 

11,857

 

8,881

 

23,021

 

18,151

 

Incentive income

 

675

 

(100

)

5,056

 

1,994

 

Interest and dividends

 

6,542

 

1,380

 

11,101

 

2,183

 

Reimbursement from affiliates

 

981

 

1,741

 

1,990

 

3,484

 

Other

 

232

 

398

 

922

 

1,020

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

136

 

2,965

 

305

 

8,746

 

Other

 

8

 

4

 

8

 

370

 

Total revenues

 

59,381

 

55,000

 

123,626

 

111,260

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

43,575

 

38,547

 

88,662

 

81,980

 

Floor brokerage and trade execution

 

3,685

 

3,945

 

7,795

 

8,973

 

Interest and dividends

 

3,412

 

621

 

6,021

 

1,067

 

Professional, advisory and other fees

 

10,398

 

2,879

 

17,538

 

5,267

 

Service fees

 

4,366

 

4,034

 

7,978

 

7,853

 

Communications

 

4,342

 

3,153

 

7,235

 

6,454

 

Occupancy and equipment

 

4,991

 

5,845

 

10,113

 

11,474

 

Depreciation and amortization

 

2,011

 

2,390

 

4,069

 

4,884

 

Client services and business development

 

4,132

 

4,379

 

8,809

 

8,544

 

Other

 

(259

)

4,710

 

4,034

 

12,092

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

40

 

(177

)

87

 

1,390

 

Professional, advisory and other fees

 

613

 

831

 

1,073

 

1,509

 

Floor brokerage and trade execution

 

 

285

 

 

994

 

Other

 

219

 

243

 

341

 

447

 

Total expenses

 

81,525

 

71,685

 

163,755

 

152,928

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

(329

)

249

 

16,953

 

1,774

 

Bargain purchase gain

 

22,244

 

 

22,244

 

 

Consolidated Funds net (losses) gains:

 

 

 

 

 

 

 

 

 

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

 

4,971

 

(8,211

)

7,314

 

11,006

 

Net realized and unrealized (losses) gains on derivatives

 

(84

)

720

 

(525

)

500

 

Net (losses) gains on foreign currency transactions

 

(117

)

777

 

(273

)

52

 

Total other income (loss)

 

26,685

 

(6,465

)

45,713

 

13,332

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

4,541

 

(23,150

)

5,584

 

(28,336

)

Income tax (benefit) expense

 

(17,954

)

599

 

(17,791

)

333

 

Net income (loss)

 

22,495

 

(23,749

)

23,375

 

(28,669

)

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

 

(2,458

)

2,552

 

(3,256

)

(5,504

)

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

 

$

20,037

 

$

(21,197

)

$

20,119

 

$

(34,173

)

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.26

 

$

(0.29

)

$

0.27

 

$

(0.47

)

Diluted

 

$

0.26

 

$

(0.29

)

$

0.26

 

$

(0.47

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

 

 

 

 

Basic

 

76,330

 

72,693

 

75,600

 

72,601

 

Diluted

 

77,898

 

72,693

 

76,889

 

72,601

 

 

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 (both 2010 and 2011); (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction (both 2010 and 2011); (iii) excludes certain other acquisition-related and/or reorganization expenses (2011 only); and (iv) excludes the bargain purchase gain which resulted from the LaBranche acquisition (2011 only).  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:

 

9



 

·                  Depreciation and amortization,

·                  Share-based and other non-cash deferred compensation expense, and

·                  Real estate related incentive fee losses due to certain claw back and subordination agreements with investors in certain real estate funds.

 

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.

 

10



 

Cowen Group, Inc.

Unaudited Economic Income (Loss)

(Dollar amounts in thousands)

 

 

 

Three Months Ended 

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

14,343

 

$

9,938

 

$

29,025

 

$

15,943

 

Brokerage

 

24,607

 

29,793

 

52,198

 

59,369

 

Management fees

 

15,539

 

12,160

 

29,586

 

24,774

 

Incentive income

 

5,697

 

(450

)

10,860

 

1,532

 

Investment income

 

22,700

 

(2,912

)

39,909

 

8,509

 

Other revenue

 

(481

)

82

 

573

 

155

 

Total revenues

 

82,405

 

48,611

 

162,151

 

110,282

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

42,367

 

35,878

 

85,104

 

77,198

 

Interest and dividends

 

218

 

353

 

435

 

469

 

Fixed non-compensation expenses

 

26,276

 

24,650

 

47,863

 

49,115

 

Variable non-compensation expenses

 

12,506

 

7,556

 

21,454

 

16,342

 

Reimbursement from affiliates

 

(989

)

(1,897

)

(2,158

)

(3,784

)

Total expenses

 

80,378

 

66,540

 

152,698

 

139,340

 

Net Economic Income (Loss) before non-controlling Interests

 

2,027

 

(17,929

)

9,453

 

(29,058

)

Non-controlling interests

 

(1,465

)

 

(1,940

)

 

Economic Income (Loss)

 

$

562

 

$

(17,929

)

$

7,513

 

$

(29,058

)

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss)

 

$

562

 

$

(17,929

)

$

7,513

 

$

(29,058

)

Exclusion of depreciation and amortization expense

 

2,011

 

2,390

 

4,069

 

4,884

 

Exclusion of share-based and other non-cash deferred compensation expense

 

5,435

 

2,424

 

9,505

 

4,473

 

Exclusion of real estate related incentive fee (gain) loss

 

(5,214

)

350

 

(5,996

)

461

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

$

2,795

 

$

(12,765

)

$

15,092

 

$

(19,240

)

 

11



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended June 30, 2011

(Dollar amounts in thousands)

 

 

 

Three Months Ended June 30, 2011

 

 

 

 

 

Adjustments

 

 

 

 

 

GAAP

 

Other

 

Funds

 

Economic

 

 

 

Income

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

14,343

 

 

 

$

14,343

 

Brokerage

 

24,607

 

 

 

24,607

 

Management fees

 

11,857

 

3,216

(a)

466

 

15,539

 

Incentive income

 

675

 

5,022

(a)

 

5,697

 

Investment income

 

 

22,700

(c)

 

22,700

 

Interest and dividends

 

6,542

 

(6,542

)(c)

 

 

Reimbursement from affiliates

 

981

 

(989

)(b)

8

 

 

Other revenue

 

232

 

(713

)(c)

 

(481

)

Consolidated Funds

 

144

 

 

(144

)

 

Total revenues

 

59,381

 

22,694

 

330

 

82,405

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

43,575

 

(1,208

)

 

42,367

 

Interest and dividends

 

3,412

 

(3,194

)(c)

 

218

 

Non-compensation expenses - Fixed

 

 

26,276

(c)

 

26,276

 

Non-compensation expenses - Variable

 

 

12,506

(c)(d)

 

12,506

 

Non-compensation expenses

 

33,666

 

(33,666

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(989

)(b)

 

(989

)

Consolidated Funds

 

872

 

 

(872

)

 

Total expenses

 

81,525

 

(275

)

(872

)

80,378

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

(329

)

329

(c)

 

 

Bargain purchase gain

 

22,244

 

(22,244

)(e)

 

 

Consolidated Funds net gains (losses)

 

4,770

 

(2,575

)

(2,195

)

 

Total other income (loss)

 

26,685

 

(24,490

)

(2,195

)

 

 

 

 

 

 

 

 

 

 

 

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

 

4,541

 

(1,521

)

(993

)

2,027

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

(17,954

)

17,954

(b)

 

 

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

 

22,495

 

(19,475

)

(993

)

2,027

 

 

 

 

 

 

 

 

 

 

 

(Income) loss attributable to non-controlling interests

 

(2,458

)

 

993

 

(1,465

)

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

 

$

20,037

 

$

(19,475

)

 

$

562

 

 


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 for which the investments are recorded under the equity method of accounting for investments.

(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.

(e)          Economic Income excludes the bargain purchase gain which resulted from the LaBranche acquisition.

 

12



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended June 30, 2010

(Dollar amounts in thousands)

 

 

 

Three Months Ended June 30, 2010

 

 

 

 

 

Adjustments

 

 

 

 

 

GAAP

 

Other

 

Funds

 

Economic

 

 

 

Income

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

9,938

 

 

 

$

9,938

 

Brokerage

 

29,793

 

 

 

29,793

 

Management fees

 

8,881

 

2,480

(a)

799

 

12,160

 

Incentive income

 

(100

)

(350

)(a)

 

(450

)

Investment Income

 

 

(2,912

)(c)

 

(2,912

)

Interest and dividends

 

1,380

 

(1,380

)(c)

 

 

Reimbursement from affiliates

 

1,741

 

(1,896

)(b)

155

 

 

Other Revenue

 

398

 

(316

)(c)

 

82

 

Consolidated Funds

 

2,969

 

 

(2,969

)

 

Total revenues

 

55,000

 

(4,374

)

(2,015

)

48,611

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

38,547

 

(2,669

)

 

35,878

 

Interest and dividends

 

621

 

(268

)(c)

 

353

 

Non-compensation expenses - Fixed

 

 

24,650

(c)

 

24,650

 

Non-compensation expenses - Variable

 

 

7,556

(c)(d)

 

7,556

 

Non-compensation expenses

 

31,335

 

(31,335

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(1,897

)(b)

 

(1,897

)

Consolidated Funds

 

1,182

 

 

(1,182

)

 

Total expenses

 

71,685

 

(3,963

)

(1,182

)

66,540

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

249

 

(249

)(c)

 

 

Consolidated Funds net gains (losses)

 

(6,714

)

3,329

 

3,385

 

 

Total other income (loss)

 

(6,465

)

3,080

 

3,385

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(23,150

)

2,669

 

2,552

 

(17,929

)

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

599

 

(599

)(b)

 

 

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

 

(23,749

)

3,268

 

2,552

 

(17,929

)

 

 

 

 

 

 

 

 

 

 

(Income) loss attributable to non-controlling interests

 

2,552

 

 

(2,552

)

 

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

 

$

(21,197

)

$

3,268

 

 

$

(17,929

)

 


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 for which the investments are recorded under the equity method of accounting for investments.

(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.

 

13



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Six Months Ended June 30, 2011

(Dollar amounts in thousands)

 

 

 

Six Months Ended June 30, 2011

 

 

 

 

 

Adjustments

 

 

 

 

 

GAAP

 

Other

 

Funds

 

Economic

 

 

 

Income

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

29,025

 

 

 

$

29,025

 

Brokerage

 

52,198

 

 

 

52,198

 

Management fees

 

23,021

 

5,586

(a)

979

 

29,586

 

Incentive income

 

5,056

 

5,804

(a)

 

10,860

 

Investment Income

 

 

39,909

(c)

 

39,909

 

Interest and dividends

 

11,101

 

(11,101

)(c)

 

 

Reimbursement from affiliates

 

1,990

 

(2,158

)(b)

168

 

 

Other Revenue

 

922

 

(349

)(c)

 

573

 

Consolidated Funds

 

313

 

 

(313

)

 

Total revenues

 

123,626

 

37,691

 

834

 

162,151

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

88,662

 

(3,558

)

 

85,104

 

Interest and dividends

 

6,021

 

(5,586

)(c)

 

435

 

Non-compensation expenses - Fixed

 

 

47,863

(c)

 

47,863

 

Non-compensation expenses - Variable

 

 

21,454

(c)(d)

 

21,454

 

Non-compensation expenses

 

67,571

 

(67,571

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(2,158

)(b)

 

(2,158

)

Consolidated Funds

 

1,501

 

 

(1,501

)

 

Total expenses

 

163,755

 

(9,556

)

(1,501

)

152,698

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

16,953

 

(16,953

)(c)

 

 

Bargain purchase gain

 

22,244

 

(22,244

)(e)

 

 

Consolidated Funds net gains (losses)

 

6,516

 

(2,865

)

(3,651

)

 

Total other income (loss)

 

45,713

 

(42,062

)

(3,651

)

 

 

 

 

 

 

 

 

 

 

 

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

 

5,584

 

5,185

 

(1,316

)

9,453

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

(17,791

)

17,791

(b)

 

 

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

 

23,375

 

(12,606

)

(1,316

)

9,453

 

 

 

 

 

 

 

 

 

 

 

(Income) loss attributable to non-controlling interests

 

(3,256

)

 

1,316

 

(1,940

)

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

 

$

20,119

 

$

(12,606

)

 

$

7,513

 

 


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 for which the investments are recorded under the equity method of accounting for investments.

(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.

(e)

Economic Income excludes the bargain purchase gain which resulted from the LaBranche acquisition.

 

14



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Six Months Ended June 30, 2010

(Dollar amounts in thousands)

 

 

 

Six Months Ended June 30, 2010

 

 

 

 

 

Adjustments

 

 

 

 

 

GAAP

 

Other

 

Funds

 

Economic

 

 

 

Income

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

15,943

 

 

 

$

15,943

 

Brokerage

 

59,369

 

 

 

59,369

 

Management fees

 

18,151

 

4,929

(a)

1,694

 

24,774

 

Incentive income

 

1,994

 

(462

)(a)

 

1,532

 

Investment Income

 

 

8,509

(c)

 

8,509

 

Interest and dividends

 

2,183

 

(2,183

)(c)

 

 

Reimbursement from affiliates

 

3,484

 

(3,784

)(b)

300

 

 

Other Revenue

 

1,020

 

(865

)(c)

 

155

 

Consolidated Funds

 

9,116

 

 

(9,116

)

 

Total revenues

 

111,260

 

6,144

 

(7,122

)

110,282

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

81,980

 

(4,782

)

 

77,198

 

Interest and dividends

 

1,067

 

(598

)(c)

 

469

 

Non-compensation expenses - Fixed

 

 

49,115

(c)

 

49,115

 

Non-compensation expenses - Variable

 

 

16,342

(c)(d)

 

16,342

 

Non-compensation expenses

 

65,541

 

(65,541

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(3,784

)(b)

 

(3,784

)

Consolidated Funds

 

4,340

 

 

(4,340

)

 

Total expenses

 

152,928

 

(9,248

)

(4,340

)

139,340

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

1,774

 

(1,774

)(c)

 

 

Consolidated Funds net gains (losses)

 

11,558

 

(8,836

)

(2,722

)

 

Total other income (loss)

 

13,332

 

(10,610

)

(2,722

)

 

 

 

 

 

 

 

 

 

 

 

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

 

(28,336

)

4,782

 

(5,504

)

(29,058

)

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

333

 

(333

)(b)

 

 

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

 

(28,669

)

5,115

 

(5,504

)

(29,058

)

 

 

 

 

 

 

 

 

 

 

(Income) loss attributable to non-controlling interests

 

(5,504

)

 

5,504

 

 

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

 

$

(34,173

)

$

5,115

 

 

$

(29,058

)

 


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 for which the investments are recorded under the equity method of accounting for investments.

(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.

 

15