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 2, 2013

 


 

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 2, 2013, Cowen Group, Inc., a Delaware corporation (the “Company”) issued a press release announcing its financial results for the second quarter ended June 30, 2013, 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 2, 2013.

 

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 2, 2013

By:

/s/ Owen S. Littman

 

 

 

 

 

 

Name:

Owen S. Littman

 

 

Title:

General Counsel

 

4


Exhibit 99.1

 

GRAPHIC

 

Press Release

 

Cowen Group, Inc. Announces 2013 Second Quarter Financial Results

 

New York, August 2, 2013 - Cowen Group, Inc. (NASDAQ: COWN) (“Cowen” or “Company”) today announced its operating results for the second quarter ended June 30, 2013.

 

2013 Second Quarter Highlights(1)

 

·                  Cowen Group, Inc. reported second quarter 2013 economic income of $1.5 million compared to an economic loss of $6.0 million in the prior year period.

 

·                  Second quarter 2013 revenue rose 22% year over year to $81.1 million.

 

·                  The broker-dealer segment reported its highest quarterly revenue since the Cowen / Ramius business combination in 2009.  Second quarter 2013 revenue was $58.8 million,(2) a $16.6 million increase from the year ago period.

 

·                  Brokerage revenue of $33.3 million was its highest quarterly revenue since the second quarter 2009.

 

·                  Investment banking revenue improved to $25.6 million, the highest level since the second quarter 2007.

 

·                  Assets under management at July 1, 2013 were $9.0 billion.  AUM increased by $110 million during the quarter and is up $970 million since January 1, 2013.

 

·                  Fixed non compensation expense declined 3% year over year to $23.8 million.  These figures reflect the first full quarter of Dahlman Rose in second quarter 2013 results.

 

·                  The second quarter 2013 increase in variable non compensation expense reflects the growth in total revenue.  Variable non compensation expense was $8.6 million, an increase of $1.4 million year over year.

 

·                  Second quarter 2013 compensation to revenue ratio was 59% compared to 63% in the prior year period.

 


(1)  All financial highlights are presented on an Economic Income basis.

(2)  Includes broker-dealer segment’s allocation of Investment Income (Loss) and Other Revenue.

 

Peter A. Cohen, Chairman and CEO of Cowen Group said, “We reported a profitable second quarter with economic income of $1.5 million.  The broker-dealer’s banking and equities businesses reported their best revenue quarter in years.  The changes we made in recent years are contributing to our improved results.  Ramius is seeing positive momentum across a number of the capabilities on our platform with solid performance and a strong pipeline of client interest.  Our fixed expenses as a percent of revenue declined year over year, even with a full quarter of Dahlman Rose in the second quarter numbers.  I am encouraged to see results improving across our business units.  However, we have a lot more to accomplish in the upcoming quarters in what continues to be a challenging environment.”

 

1



 

2013 Second Quarter GAAP Financial Information and Select Balance Sheet Data

 

For the second quarter 2013, the Company reported a GAAP net income of $1.1 million, or $0.01 per share, as compared to a GAAP net loss of $7.9 million, or $(0.07) per share, in the second quarter 2012.  The year-over-year increase was primarily due to an increase in revenue.

 

The following table summarizes the Company’s GAAP financial results for the three months ended June 30, 2013 and 2012, and March 31, 2013; and the six months ended June 30, 2013 and 2012.

 

Summary GAAP Financial Information

 

 

 

Three Months Ended

 

Six Months Ended

 

(Dollar amounts in millions, except per

 

June 30,

 

 

 

Mar 31,

 

 

 

June 30,

 

 

 

share information)

 

2013

 

2012

 

%

 

2013

 

%

 

2013

 

2012

 

%

 

Revenues

 

$

81.2

 

$

59.5

 

37

%

$

67.2

 

21

%

$

148.4

 

$

116.9

 

27

%

Expenses

 

(86.6

)

(77.4

)

12

%

(83.1

)

4

%

(169.7

)

(154.2

)

10

%

Other income (loss)

 

8.9

 

7.8

 

15

%

17.0

 

(48

)%

25.9

 

33.4

 

(23

)%

Income tax benefit (expense)

 

(0.2

)

(0.2

)

NM

 

(0.2

)

NM

 

(0.3

)

(0.3

)

%

Net income (loss) from operations

 

$

3.3

 

$

(10.4

)

NM

 

$

0.9

 

NM

 

$

4.3

 

$

(4.1

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2.3

 

(2.4

)

NM

 

3.5

 

NM

 

5.8

 

(0.2

)

NM

 

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

 

$

1.1

 

$

(7.9

)

NM

 

$

(2.6

)

NM

 

$

(1.5

)

$

(4.0

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per basic share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

0.01

 

$

(0.07

)

NM

 

$

(0.02

)

NM

 

$

(0.01

)

$

(0.03

)

NM

 

 

Note: Amounts may not add due to rounding.

 

The Company’s stockholders’ equity as of June 30, 2013, was $506.1 million, or book value per share of $4.29, compared to stockholders’ equity of $503.1 million, or book value per share of $4.35, as of March 31, 2013.  At June 30, 2013, the Company’s tangible book value per share was $3.87 compared to $3.91 as of March 31, 2013.

 

Select Balance Sheet Data

 

(Dollar amounts in millions, except per share

 

June 30,

 

March 31,

 

June 30

 

information)

 

2013

 

2013

 

2012

 

Stockholders’ equity

 

$

506.1

 

$

503.1

 

$

511.9

 

Tangible stockholders’ equity

 

$

456.0

 

$

452.0

 

473.3

 

Common shares outstanding

 

117.9

 

115.7

 

114.2

 

 

 

 

 

 

 

 

 

Book value per share

 

$

4.29

 

$

4.35

 

$

4.48

 

Tangible book value per share

 

$

3.87

 

$

3.91

 

$

4.14

 

 

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 Principles (“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

 

2



 

transaction,  and (iii) excludes certain other acquisition-related and/or reorganization expenses.  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 (Loss) 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 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 June 30, 2013 and 2012, and March 31, 2013; and the six months ended June 30, 2013 and 2012.

 

Summary Economic Income (Loss) Financial Information

 

 

 

Three Months Ended

 

Six Months Ended

 

(Dollar amounts in millions,

 

June 30,

 

 

 

Mar 31,

 

 

 

June 30,

 

 

 

except per share information)

 

2013

 

2012

 

%

 

2013

 

%

 

2013

 

2012

 

%

 

Revenues

 

$

81.1

 

$

66.2

 

22

%

$

74.9

 

8

%

$

156.0

 

$

145.4

 

7

%

Expenses

 

(78.7

)

(71.9

)

9

%

(74.4

)

6

%

(153.1

)

(144.9

)

6

%

Net Economic Income (Loss) before non-controlling interests

 

2.4

 

(5.7

)

NM

 

0.5

 

NM

 

2.9

 

0.5

 

NM

 

Economic Income (Loss)

 

$

1.5

 

$

(6.0

)

NM

 

$

(1.3

)

NM

 

$

0.2

 

$

(0.1

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) per share

 

$

0.01

 

$

(0.05

)

NM

 

$

(0.01

)

NM

 

$

0.00

 

$

0.00

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) excluding certain non-cash items

 

$

8.8

 

$

2.2

 

NM

 

$

6.0

 

NM

 

$

14.8

 

$

14.8

 

%

 

Note: Amounts may not add due to rounding.

 

2013 Second Quarter Economic Income Review

 

Total Economic Income Revenue

 

Total economic income revenue for the second quarter 2013 was $81.1 million, a 22% increase compared to $66.2 million in the second quarter 2012.  The increase in economic income revenue was primarily the result of an increase in investment banking and brokerage revenue, partially offset by a decrease in investment income.

 

Economic Income Revenue

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

 

 

Mar 31,

 

 

 

June 30,

 

 

 

(Dollar amounts in millions)

 

2013

 

2012

 

%

 

2013

 

%

 

2013

 

2012

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment banking

 

$

25.6

 

$

16.3

 

57

%

$

17.2

 

49

%

$

42.7

 

31.9

 

34

%

Brokerage

 

33.3

 

24.6

 

36

%

28.0

 

19

%

61.3

 

48.6

 

26

%

Management fees

 

14.6

 

14.6

 

0

%

14.1

 

3

%

28.8

 

28.6

 

1

%

Incentive income

 

3.8

 

2.6

 

46

%

5.1

 

(27

)%

8.9

 

6.6

 

35

%

Investment income

 

3.6

 

8.3

 

(57

)%

10.9

 

(67

)%

14.4

 

29.4

 

(51

)%

Other revenue

 

0.3

 

(0.1

)

NM

 

(0.4

)

NM

 

(0.2

)

0.3

 

NM

 

Total Revenues

 

$

81.1

 

$

66.2

 

22

%

$

74.9

 

8

%

$

156.0

 

$

145.4

 

7

%

 

Note: Amounts may not add due to rounding.

 

3



 

Compensation and Benefits Expense

 

The compensation to economic income revenue ratio declined in the second quarter 2013 to 59% from 63% in the prior year period.  The decrease in the compensation to revenue ratio is the result of a 15% increase in total compensation and a 22% increase in revenues compared to the prior year period.

 

Second quarter 2013 compensation and benefits expense was $47.7 million, a 15% increase compared to $41.6 million in the second quarter 2012.  The increase is primarily attributable to an increase in headcount due to the acquisition of Dahlman Rose in the first quarter of 2013.  Total headcount at the end of the second quarter 2013 was 636, a 6% increase compared to the prior year period and 1% lower compared to the first quarter of 2013.

 

Compensation and benefits expense for the second quarter 2013 and 2012 included $4.7 million and $5.9 million, respectively, in share-based compensation expense.  There was no equity award expense related to the 2009 Cowen / Ramius business combination in the second quarter of 2013.  However, in the second quarter 2012, compensation and benefits expense excluded $1.7 million related to this equity award expense.

 

Excluding $1.3 million of expenses associated with activities for which the Company is reimbursed and $0.6 million of severance expense, compensation and benefits expense was 56% of revenue in the second quarter 2013.  Excluding these same two items, compensation and benefits expense was 60% and 55% of revenue in the prior year period and first quarter 2013, respectively.

 

Fixed Non-Compensation Expenses

 

Fixed non-compensation expenses in the current quarter decreased by 3% to $23.8 million as compared to $24.5 million in the comparable prior year quarter.  This was primarily due to a reduction in accounting, legal and recruitment fees.  The decrease was partially offset by an increase in occupancy and depreciation and amortization costs related to the Dahlman Rose acquisition.

 

Variable Non-Compensation Expenses

 

Variable non-compensation expenses were $8.6 million in the second quarter 2013, up 20% compared to $7.1 million in the second quarter 2012.  The increase in floor brokerage and trade execution relate to two acquisitions completed during second and fourth quarter of 2012 and one in the first quarter of 2013 which generated increased trading costs and is in line with the increase in associated revenues.  Marketing and business development expenses were higher in the quarter due to increased marketing activity firm wide.

 

Alternative Investment Segment (“Ramius”)

 

Assets Under Management

 

As of July 1, 2013, the Company had assets under management of $9.0 billion.  Total AUM increased by $970 million since the start of the year and grew $110 million from April 1, 2013.  The second quarter of 2013 included $317 million in net subscriptions, $74 million of net positive performance offset by a $281 million reduction in AUM related to currency hedging for Australian dollar-denominated mandates.   $105 million of the AUM growth in the quarter was the result of committed capital for which management fees are not charged until capital is called.

 

4



 

Management Fees and Incentive Income

 

In the second quarter 2013, management fees were $14.6 million, unchanged from the year ago quarter 2012.

 

The average annualized management fee charged in the second quarter 2013 was 0.65%, as compared to 0.67% in the first quarter and 0.71% in the prior year period.  The second quarter of 2012 figure excludes fees related to cash management assets.

 

Incentive income increased to $3.8 million in the second quarter 2013 from an incentive fee of $2.6 million in the prior year period.

 

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.  In the second quarter 2013, investment income decreased by $4.7 million to $3.6 million from $8.3 million in the prior year period.  The decrease primarily relates to a decrease in the performance of the Company’s own invested capital driven by decreases in performance in certain investment strategies including our credit, PIPEs and equities strategies.

 

Broker-Dealer Segment (“Cowen and Company”)

 

Brokerage

 

Brokerage revenue was $33.3 million in the second quarter 2013, an increase of $8.7 million, or 36%, compared to the second quarter 2012.  The increase in the current quarter was primarily due to an increase in commissions earned related to the Company’s electronic trading and cash equities business.  The increase in commission is partially attributable to an increase in the number of stocks covered as a result of the acquisition of Dahlman Rose.

 

Investment Banking

 

Investment banking revenue was $25.6 million in the second quarter 2013, an increase of $9.3 million, or 57%, compared to $16.3 million in the second quarter 2012.  The increase was primarily due to an increase in equity underwriting and debt capital markets activity.

 

·                  Public equity underwriting revenue was $15.9 million from sixteen transactions in the second quarter 2013, as compared to $5.6 million from eleven transactions in the comparable prior year period.   All of the transactions were lead managed assignments in the second quarter 2013, compared to four in the prior year period.

 

·                  Debt capital markets revenue was $6.8 million from the completion of four transactions in the second quarter 2013.  Two transactions were completed in the prior year period totaling $5.6 million.

 

·                  Private placement and registered direct revenue was $0.3 million in the second quarter 2013, as compared to $3.3 million in the second quarter 2012.  The Company completed one private transaction in the second quarter 2013 and three in the year ago quarter.

 

5



 

·                  Strategic advisory revenue was $2.2 million in the second quarter 2013, as compared to $1.7 million in the second quarter 2012.  The Company completed three strategic advisory transactions in the second quarter 2013 as compared to one strategic advisory transaction in the prior year period.

 

Earnings Conference Call with Management

 

The Company will host a conference call to discuss its 2013 second quarter financial results on Friday, August 2, 2013, at 9:00 am EST.  The call can be accessed by dialing 1-800-688-0836 domestic or 1-617-614-4072 international.  The passcode for the call is 30428246.  A replay of the call will be available beginning at 11:00 am EST August 2, 2013 through August 9, 2013.  To listen to the replay of this call, please dial 1-888-286-8010 domestic or 1-617-801-6888 international and enter passcode 65652730.  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 asset management, investment banking, research, and sales and trading services through its two business segments:  Ramius and its affiliates make up the Company’s alternative investment segment, while Cowen and Company and its affiliates make up the Company’s  broker-dealer segment.  Ramius provides alternative asset management solutions to a global client base and manages a significant portion of Cowen’s proprietary capital.  Cowen and Company and its affiliates offer 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

 

Chief Financial Officer

 

Cowen Group, Inc.

 

(212) 845-7919

 

6



 

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,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

25,571

 

$

16,254

 

$

42,737

 

$

31,884

 

Brokerage

 

31,521

 

24,568

 

58,121

 

48,581

 

Management fees

 

9,698

 

9,932

 

19,191

 

19,649

 

Incentive income

 

1,954

 

580

 

4,565

 

1,271

 

Interest and dividends

 

10,521

 

5,868

 

19,842

 

11,240

 

Reimbursement from affiliates

 

1,214

 

1,381

 

2,699

 

2,426

 

Other

 

485

 

831

 

963

 

1,698

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

241

 

30

 

253

 

91

 

Other

 

2

 

25

 

77

 

109

 

Total revenues

 

81,207

 

59,469

 

148,448

 

116,949

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

47,507

 

43,097

 

91,730

 

89,780

 

Floor brokerage and trade execution

 

4,893

 

4,182

 

9,371

 

7,934

 

Interest and dividends

 

7,240

 

3,207

 

13,658

 

4,931

 

Professional, advisory and other fees

 

3,002

 

3,696

 

6,855

 

7,621

 

Service fees

 

2,687

 

3,155

 

5,264

 

5,392

 

Communications

 

3,979

 

3,853

 

8,753

 

7,254

 

Occupancy and equipment

 

6,548

 

5,544

 

12,267

 

10,786

 

Depreciation and amortization

 

2,609

 

2,363

 

5,162

 

4,518

 

Client services and business development

 

4,659

 

3,753

 

8,758

 

7,579

 

Goodwill impairment

 

 

 

 

 

Other

 

3,003

 

3,941

 

6,987

 

7,360

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

106

 

4

 

106

 

20

 

Professional, advisory and other fees

 

92

 

561

 

488

 

849

 

Floor brokerage and trade execution

 

180

 

 

180

 

 

Other

 

107

 

69

 

145

 

140

 

Total expenses

 

86,612

 

77,425

 

169,724

 

154,164

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

4,994

 

9,787

 

16,801

 

29,458

 

Consolidated Funds net (losses) gains:

 

 

 

 

 

 

 

 

 

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

 

3,711

 

(2,417

)

8,781

 

3,547

 

Net realized and unrealized (losses) gains on derivatives

 

158

 

374

 

462

 

414

 

Net (losses) gains on foreign currency transactions

 

48

 

23

 

(167

)

(15

)

Total other income (loss)

 

8,911

 

7,767

 

25,877

 

33,404

 

Income (loss) before income taxes

 

3,506

 

(10,189

)

4,601

 

(3,811

)

Income tax (benefit) expense

 

158

 

191

 

334

 

333

 

Net income (loss) from continuing operations

 

3,348

 

(10,380

)

4,267

 

(4,144

)

Net income (loss)

 

3,348

 

(10,380

)

4,267

 

(4,144

)

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

 

2,255

 

(2,434

)

5,750

 

(193

)

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

 

$

1,093

 

$

(7,946

)

$

(1,483

)

$

(3,951

)

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

0.01

 

$

(0.07

)

$

(0.01

)

$

(0.03

)

Diluted

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

0.01

 

$

(0.07

)

$

(0.01

)

$

(0.03

)

Weighted average shares used in per share data:

 

 

 

 

 

 

 

 

 

Basic

 

117,235

 

114,561

 

115,471

 

114,420

 

Diluted

 

120,901

 

114,561

 

115,471

 

114,420

 

 

7



 

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 consolidated funds, (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction,  and (iii) excludes certain other acquisition-related and/or reorganization expenses.  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 (Loss) 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 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.

 

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.

 

8



 

Cowen Group, Inc.

Unaudited Economic Income (Loss)

(Dollar amounts in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

25,571

 

$

16,254

 

$

42,737

 

$

31,884

 

Brokerage

 

33,300

 

24,568

 

61,317

 

48,581

 

Management fees

 

14,606

 

14,586

 

28,750

 

28,606

 

Incentive income

 

3,766

 

2,583

 

8,892

 

6,605

 

Investment income

 

3,564

 

8,286

 

14,436

 

29,391

 

Other revenue

 

277

 

(71

)

(163

)

313

 

Total revenues

 

81,084

 

66,206

 

155,969

 

145,380

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

47,714

 

41,645

 

92,235

 

87,554

 

Interest and dividends

 

72

 

59

 

196

 

147

 

Fixed non-compensation expenses

 

23,783

 

24,489

 

47,561

 

45,732

 

Variable non-compensation expenses

 

8,562

 

7,138

 

15,913

 

14,013

 

Reimbursement from affiliates

 

(1,410

)

(1,435

)

(2,830

)

(2,551

)

Total expenses

 

78,721

 

71,896

 

153,075

 

144,895

 

Net Economic Income (Loss) before non-controlling Interests

 

2,363

 

(5,690

)

2,894

 

485

 

Non-controlling interests

 

(892

)

(300

)

(2,692

)

(600

)

Economic Income (Loss)

 

$

1,471

 

$

(5,990

)

$

202

 

$

(115

)

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss)

 

$

1,471

 

$

(5,990

)

$

202

 

$

(115

)

Exclusion of depreciation and amortization expense

 

2,601

 

2,361

 

5,142

 

4,515

 

Exclusion of share-based compensation expense

 

4,721

 

5,862

 

9,474

 

10,410

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

$

8,793

 

$

2,233

 

$

14,818

 

$

14,810

 

 

9



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended June 30, 2013

(Dollar amounts in thousands)

 

 

 

Three Months Ended June 30, 2013

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

25,571

 

$

 

$

 

$

25,571

 

Brokerage

 

31,521

 

1,779

(e)

 

33,300

 

Management fees

 

9,698

 

4,622

(a)

286

 

14,606

 

Incentive income

 

1,954

 

1,812

(a)

 

3,766

 

Investment income

 

 

3,564

(c)

 

3,564

 

Interest and dividends

 

10,521

 

(10,521

)(c)

 

 

Reimbursement from affiliates

 

1,214

 

(1,410

)(b)

196

 

 

Other revenue

 

485

 

(208

)(c)

 

277

 

Consolidated Funds

 

243

 

 

(243

)

 

Total revenues

 

81,207

 

(362

)

239

 

81,084

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

47,507

 

207

 

 

47,714

 

Interest and dividends

 

7,240

 

(7,168

)(c)

 

72

 

Non-compensation expenses - Fixed

 

 

23,783

(c)(d)

 

23,783

 

Non-compensation expenses - Variable

 

 

8,562

(c)(d)

 

8,562

 

Non-compensation expenses

 

31,380

 

(31,380

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(1,410

)(b)

 

(1,410

)

Consolidated Funds

 

485

 

 

(485

)

 

Total expenses

 

86,612

 

(7,406

)

(485

)

78,721

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

4,994

 

(4,994

)(c)

 

 

Consolidated Funds net gains (losses)

 

3,917

 

(2,539

)

(1,378

)

 

Total other income (loss)

 

8,911

 

(7,533

)

(1,378

)

 

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

 

3,506

 

(489

)

(654

)

2,363

 

Income taxes (Benefit)

 

158

 

(158

)(b)

 

 

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

 

3,348

 

(331

)

(654

)

2,363

 

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

 

(2,255

)

709

 

654

 

(892

)

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

 

$

1,093

 

$

378

 

$

 

$

1,471

 

 


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.

(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.

(e) Economic Income (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue.

 

10



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended June 30, 2012

(Dollar amounts in thousands)

 

 

 

Three Months Ended June 30, 2012

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

16,254

 

$

 

$

 

$

16,254

 

Brokerage

 

24,568

 

 

 

24,568

 

Management fees

 

9,932

 

4,260

(a)

394

 

14,586

 

Incentive income

 

580

 

2,003

(a)

 

2,583

 

Investment income

 

 

8,286

(c)

 

8,286

 

Interest and dividends

 

5,868

 

(5,868

)(c)

 

 

Reimbursement from affiliates

 

1,381

 

(1,435

)(b)

54

 

 

Other revenue

 

831

 

(902

)(c)

 

(71

)

Consolidated Funds

 

55

 

 

(55

)

 

Total revenues

 

59,469

 

6,344

 

393

 

66,206

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

43,097

 

(1,452

)

 

41,645

 

Interest and dividends

 

3,207

 

(3,148

)(c)

 

59

 

Non-compensation expenses - Fixed

 

 

24,489

(c)(d)

 

24,489

 

Non-compensation expenses - Variable

 

 

7,138

(c)(d)

 

7,138

 

Non-compensation expenses

 

30,487

 

(30,487

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(1,435

)(b)

 

(1,435

)

Consolidated Funds

 

634

 

 

(634

)

 

Total expenses

 

77,425

 

(4,895

)

(634

)

71,896

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

9,787

 

(9,787

)(c)

 

 

Consolidated Funds net gains (losses)

 

(2,020

)

313

 

1,707

 

 

Total other income (loss)

 

7,767

 

(9,474

)

1,707

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(10,189

)

1,765

 

2,734

 

(5,690

)

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

191

 

(191

)(b)

 

 

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

 

(10,380

)

1,956

 

2,734

 

(5,690

)

 

 

 

 

 

 

 

 

 

 

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

 

2,434

 

 

(2,734

)

(300

)

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

 

$

(7,946

)

$

1,956

 

$

 

$

(5,990

)

 


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.

(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.

 

11



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Six Months Ended June 30, 2013

(Dollar amounts in thousands)

 

 

 

Six Months Ended June 30, 2013

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

42,737

 

$

 

$

 

$

42,737

 

Brokerage

 

58,121

 

3,196

(e)

 

61,317

 

Management fees

 

19,191

 

8,962

(a)

597

 

28,750

 

Incentive income

 

4,565

 

4,327

(a)

 

8,892

 

Investment income

 

 

14,436

(c)

 

14,436

 

Interest and dividends

 

19,842

 

(19,842

)(c)

 

 

Reimbursement from affiliates

 

2,699

 

(2,830

)(b)

131

 

 

Other revenue

 

963

 

(1,126

)(c)

 

(163

)

Consolidated Funds

 

330

 

 

(330

)

 

Total revenues

 

148,448

 

7,123

 

398

 

155,969

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

91,730

 

505

 

 

92,235

 

Interest and dividends

 

13,658

 

(13,462

)(c)

 

196

 

Non-compensation expenses - Fixed

 

 

47,561

(c)(d)

 

47,561

 

Non-compensation expenses - Variable

 

 

15,913

(c)(d)

 

15,913

 

Non-compensation expenses

 

63,417

 

(63,417

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(2,830

)(b)

 

(2,830

)

Consolidated Funds

 

919

 

 

(919

)

 

Total expenses

 

169,724

 

(15,730

)

(919

)

153,075

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

16,801

 

(16,801

)(c)

 

 

Consolidated Funds net gains (losses)

 

9,076

 

(5,405

)

(3,671

)

 

Total other income (loss)

 

25,877

 

(22,206

)

(3,671

)

 

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

 

4,601

 

647

 

(2,354

)

2,894

 

Income taxes (Benefit)

 

334

 

(334

)(b)

 

 

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

 

4,267

 

981

 

(2,354

)

2,894

 

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

 

(5,750

)

704

 

2,354

 

(2,692

)

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

 

$

(1,483

)

$

1,685

 

$

 

$

202

 

 


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.

(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.

(e) Economic Income (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue.

 

12



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Six Months Ended June 30, 2012

(Dollar amounts in thousands)

 

 

 

Six Months Ended June 30, 2012

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

31,884

 

$

 

$

 

$

31,884

 

Brokerage

 

48,581

 

 

 

48,581

 

Management fees

 

19,649

 

8,170

(a)

787

 

28,606

 

Incentive income

 

1,271

 

5,334

(a)

 

6,605

 

Investment income

 

 

29,391

(c)

 

29,391

 

Interest and dividends

 

11,240

 

(11,240

)(c)

 

 

Reimbursement from affiliates

 

2,426

 

(2,551

)(b)

125

 

 

Other revenue

 

1,698

 

(1,385

)(c)

 

313

 

Consolidated Funds

 

200

 

 

(200

)

 

Total revenues

 

116,949

 

27,719

 

712

 

145,380

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

89,780

 

(2,226

)

 

87,554

 

Interest and dividends

 

4,931

 

(4,784

)(c)

 

147

 

Non-compensation expenses - Fixed

 

 

45,732

(c)(d)

 

45,732

 

Non-compensation expenses - Variable

 

 

14,013

(c)(d)

 

14,013

 

Non-compensation expenses

 

58,444

 

(58,444

)(c)(d)

 

 

Goodwill impairment

 

 

 

 

 

Reimbursement from affiliates

 

 

(2,551

)(b)

 

(2,551

)

Consolidated Funds

 

1,009

 

 

(1,009

)

 

Total expenses

 

154,164

 

(8,260

)

(1,009

)

144,895

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

29,458

 

(29,458

)(c)

 

 

Bargain purchase gain

 

 

(e)

 

 

Consolidated Funds net gains (losses)

 

3,946

 

(3,012

)

(934

)

 

Total other income (loss)

 

33,404

 

(32,470

)

(934

)

 

 

 

 

 

 

 

 

 

 

 

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

 

(3,811

)

3,509

 

787

 

485

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

333

 

(333

)(b)

 

 

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

 

(4,144

)

3,842

 

787

 

485

 

 

 

 

 

 

 

 

 

 

 

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

 

193

 

(6

)

(787

)

(600

)

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

 

$

(3,951

)

$

3,836

 

$

 

$

(115

)

 


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.

(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.

 

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