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): November 7, 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 November 7, 2013, Cowen Group, Inc., a Delaware corporation (the “Company”) issued a press release announcing its financial results for the third quarter ended September 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 November 7, 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: November 7, 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 Third Quarter Financial Results

 

New York, November 7, 2013 - Cowen Group, Inc. (NASDAQ: COWN) (“Cowen” or “Company”) today announced its operating results for the third quarter ended September 30, 2013.

 

2013 Third Quarter and Nine Month Highlights(1)

 

·                  Cowen Group, Inc. reported third quarter 2013 economic income of $3.7 million compared to an economic loss of $8.9 million in the prior year period.  For the nine months ended September 30, 2013, economic income was $3.9 million versus an economic loss of $9.0 million for the comparable year ago period.

 

·                  Third quarter 2013 revenue rose 40% year over year to $92.1 million.  Nine month 2013 revenue was $248.1 million, an increase of 17% compared to the year ago period.

 

·                  The broker-dealer segment reported another record revenue quarter since the Cowen / Ramius business combination in 2009.  Third quarter 2013 revenue was $62.0 million, an $18.1 million improvement from the prior year quarter.  Nine months 2013 revenue rose 29% year over year to $167.9 million.(2)

 

·                  Assets under management at October 1, 2013 were $9.3 billion.  AUM increased by $234 million during the quarter and is up $1.2 billion since January 1, 2013.

 

·                  The year over year increase in non-compensation expense was primarily due to the inclusion of Dahlman Rose.  For the three and nine months ended September 30, 2013, non compensation expense was $32.3 million and $95.9 million, respectively, compared to $29.9 million and $89.8 million, respectively, for the three and nine months ended September 30, 2012.

 

·                  On November 6th, Cowen’s Board of Directors approved a $15 million increase in the Company’s share repurchase program.

 


(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, “In what continues to be a challenging market, we are proud to report a profitable third quarter and another record revenue quarter.  This is a result of the progress we have made in elevating the results in each of our operating businesses.  The broker dealer benefited from a favorable capital raising environment for equities and had its best quarter for debt raising.  At Ramius, we continue to raise assets, produce solid investment performance and launch new products, including the Ramius Event Driven Equity Fund, our fourth alternative mutual fund.”

 

“In September 2013, Ramius’ legacy multi-strategy funds received a significant distribution from Lehman Brothers International (Europe) (“LBIE”) which was subsequently distributed to the funds’ investors in respect of the Omnibus Trust Asset claims held by our funds.  As a creditor of LBIE, we proactively joined the unsecured creditors’ committee of LBIE and, in coordination with the Administrator, worked diligently for five years towards a novel solution that would ensure that our clients’ assets would be recovered.  The resulting distribution from LBIE was a landmark event of Lehman’s global bankruptcy, and our funds expect to recover in excess of 100% of the value of the claims registered in September 2008.”

 

1



 

2013 Third Quarter GAAP Financial Information and Select Balance Sheet Data

 

For the third quarter 2013, the Company reported a GAAP net income of $3.6 million, or $0.03 per share, as compared to a GAAP net loss of $10.6 million, or $(0.09) per share, in the third 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 September 30, 2013 and 2012, and June 30, 2013 and the nine months ended September 30, 2013 and 2012.

 

Summary GAAP Financial Information

 

 

 

Three Months Ended

 

Nine Months Ended

 

(Dollar amounts in millions, except per

 

September 30,

 

 

 

June 30,

 

 

 

September 30,

 

 

 

share information)

 

2013

 

2012

 

%

 

2013

 

%

 

2013

 

2012

 

%

 

Revenues

 

$

81.4

 

$

57.6

 

41

%

$

81.2

 

%

$

229.8

 

$

174.5

 

32

%

Expenses

 

(91.7

)

(79.1

)

16

%

(86.6

)

6

%

(261.5

)

(233.2

)

12

%

Other income (loss)

 

18.7

 

10.0

 

87

%

8.9

 

110

%

44.6

 

43.4

 

3

%

Income tax benefit (expense)

 

 

(0.2

)

NM

 

(0.2

)

NM

 

(0.3

)

(0.5

)

(42

)%

Net income (loss) from operations

 

$

8.4

 

$

(11.6

)

NM

 

$

3.3

 

150

%

$

12.6

 

$

(15.8

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4.8

 

(1.0

)

NM

 

2.3

 

111

%

10.5

 

(1.2

)

NM

 

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

 

$

3.6

 

$

(10.6

)

NM

 

$

1.1

 

NM

 

$

2.1

 

$

(14.5

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per basic share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

0.03

 

$

(0.09

)

NM

 

$

0.01

 

NM

 

$

0.02

 

$

(0.13

)

NM

 

 

Note: Amounts may not add due to rounding.

 

The Company’s stockholders’ equity as of September 30, 2013, was $511.3 million, or book value per share of $4.35, compared to stockholders’ equity of $506.1 million, or book value per share of $4.29, as of June 30, 2013.  At September 30, 2013, the Company’s tangible book value per share was $3.94 compared to $3.87 as of June 30, 2013.

 

Select Balance Sheet Data

 

(Dollar amounts in millions, except per share

 

September 30,

 

June 30,

 

December 31,

 

information)

 

2013

 

2013

 

2012

 

Stockholders’ equity

 

$

511.3

 

$

506.1

 

$

495.1

 

Tangible stockholders’ equity

 

$

462.2

 

$

455.9

 

453.6

 

Common shares outstanding

 

117.4

 

117.9

 

112.4

 

 

 

 

 

 

 

 

 

Book value per share

 

$

4.35

 

$

4.29

 

$

4.40

 

Tangible book value per share

 

$

3.94

 

$

3.87

 

$

4.04

 

 

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 transaction,  and (iii) excludes certain other acquisition-related and/or reorganization expenses.  In

 

2



 

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 September 30, 2013 and 2012, and June 30, 2013; and the nine months ended September 30, 2013 and 2012.

 

Summary Economic Income (Loss) Financial Information

 

 

 

Three Months Ended

 

Nine Months Ended

 

(Dollar amounts in millions,

 

September 30,

 

 

 

June 30,

 

 

 

September 30,

 

 

 

except per share information)

 

2013

 

2012

 

%

 

2013

 

%

 

2013

 

2012

 

%

 

Revenues

 

$

92.1

 

$

66.0

 

40

%

$

81.1

 

14

%

$

248.1

 

$

211.4

 

17

%

Expenses

 

(84.6

)

(74.6

)

13

%

(78.7

)

NM

 

(237.7

)

(219.5

)

8

%

Net Economic Income (Loss) before non-controlling interests

 

7.5

 

(8.6

)

NM

 

2.4

 

217

%

10.4

 

(8.1

)

NM

 

Economic Income (Loss)

 

$

3.7

 

$

(8.9

)

NM

 

$

1.5

 

149

%

$

3.9

 

$

(9.0

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) per share

 

$

0.03

 

$

(0.08

)

NM

 

$

0.01

 

147

%

$

0.03

 

$

(0.08

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) excluding certain non-cash items

 

$

10.4

 

$

(0.8

)

NM

 

$

8.8

 

18

%

$

25.4

 

$

14.0

 

82

%

 

Note: Amounts may not add due to rounding.

 

2013 Third Quarter Economic Income Review

 

Total Economic Income Revenue

 

Total economic income revenue for the third quarter 2013 was $92.1 million, a 40% increase year over year compared to $66.0 million in the third quarter 2012.  The increase in economic income revenue was primarily the result of an increase in investment banking and brokerage revenue as well as management fees, incentive income and investment income.

 

Economic Income Revenue

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

 

 

June 30,

 

 

 

September 30,

 

 

 

(Dollar amounts in millions)

 

2013

 

2012

 

%

 

2013

 

%

 

2013

 

2012

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment banking

 

$

27.7

 

$

18.7

 

48

%

$

25.6

 

8

%

$

70.4

 

50.6

 

39

%

Brokerage

 

32.0

 

22.7

 

41

%

33.3

 

(4

)%

93.4

 

71.3

 

31

%

Management fees

 

14.3

 

13.4

 

7

%

14.6

 

(2

)%

43.1

 

42.0

 

2

%

Incentive income

 

5.7

 

1.7

 

233

%

3.8

 

50

%

14.6

 

8.3

 

75

%

Investment income

 

12.3

 

9.2

 

35

%

3.6

 

246

%

26.8

 

38.5

 

(31

)%

Other revenue

 

0.1

 

0.4

 

(69

)%

0.3

 

(58

)%

 

0.7

 

NM

 

Total Revenues

 

$

92.1

 

$

66.0

 

40

%

$

81.1

 

14

%

$

248.1

 

$

211.4

 

17

%

 

Note: Amounts may not add due to rounding.

 

3



 

Compensation and Benefits Expense

 

The compensation to economic income revenue ratio declined in the third quarter 2013 to 58% from 70% in the prior year period.  The decrease in the compensation to revenue ratio is the result of a 40% increase in revenues compared to the prior year period versus a 16% increase in total compensation expense.

 

Third quarter 2013 compensation and benefits expense was $53.8 million, a 16% increase compared to $46.2 million in the third 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 third quarter 2013 was 631, an 8% increase compared to the prior year period and 1% lower compared to the second quarter of 2013.

 

Compensation and benefits expense for the third quarter 2013 and 2012 included $4.1 million and $5.7 million, respectively, in share-based compensation expense.  There was no equity award expense related to the 2009 Cowen / Ramius business combination in the third quarter of 2013.  However, in the third quarter 2012, compensation and benefits expense excluded a $1.4 million equity award expense related to the 2009 Cowen / Ramius business combination.

 

Excluding $1.4 million of expenses associated with activities for which the Company is reimbursed and $0.3 million of severance expense, compensation and benefits expense was 57% of revenue in the third quarter 2013.  Excluding these same two items, compensation and benefits expense was 61% and 56% of revenue in the prior year period and second quarter 2013, respectively.

 

Fixed Non-Compensation Expenses

 

Fixed non-compensation expenses in the current quarter increased by 5% to $25.4 million as compared to $24.1 million in the comparable prior year quarter.  This was primarily due to increased occupancy and depreciation and amortization costs due to the Dahlman Rose acquisition completed during the first quarter of 2013 which were only partially offset by lower service fees.

 

Variable Non-Compensation Expenses

 

Variable non-compensation expenses were $6.9 million in the third quarter 2013, up 20% compared to $5.7 million in the third quarter 2012.  This is primarily due to an increase in floor brokerage and trade execution relate to a general revenue increase in the Company’s overall business as well as two acquisitions completed during second and fourth quarter of 2012 and one in the first quarter of 2013.  The increased trading costs are in line with the increase in associated revenues.

 

Alternative Investment Segment (“Ramius”)

 

Assets Under Management

 

As of October 1, 2013, the Company had assets under management of $9.3 billion.  Total AUM increased by $1.2 billion since the start of the year and grew by  $234 million from July 1, 2013.  The third quarter of 2013 included $50 million in net subscriptions and $184 million of net positive performance.

 

Management Fees and Incentive Income

 

In the third quarter 2013, management fees increased $0.9 million from the prior year period to $14.3 million.

 

4



 

The average annualized management fee charged in the third quarter 2013 was 0.62%, as compared to 0.65% in the second quarter and 0.66% in the prior year period.  The third quarter of 2012 figure excludes fees related to cash management assets.

 

Incentive income increased 50% to $5.7 million sequentially from the second quarter 2013 and compares to an incentive fee of $1.7 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 third quarter 2013, investment income was $12.3 million, a $3.2 million increase over the prior year period.  The increase primarily relates to an increase in the Company’s own invested capital driven by increases in performance in certain investment strategies including activist and private investments.

 

Broker-Dealer Segment (“Cowen and Company”)

 

Brokerage

 

Brokerage revenue was $32.0 million in the third quarter 2013, an increase of $9.3 million, or 41%, compared to the third quarter 2012.  The increase in the current quarter was primarily due to the performance of businesses that we acquired as well as continued improvement in overall commissions and trading volume with customers related to the Company’s electronic trading and cash equities businesses.

 

Investment Banking

 

Investment banking revenue was $27.7 million in the third quarter 2013, an increase of $9.0 million, or 48%, compared to $18.7 million in the third quarter 2012.  The increase was primarily due to strong activity in both our equity and debt capital markets products.

 

·                  Equity underwriting revenue was $15.9 million from twenty transactions in the third quarter 2013, as compared to $13.0 million from eleven transactions in the comparable prior year period.   Five transactions were bookrun assignments in the third quarter 2013, compared to four in the prior year period.

 

·                  Debt capital markets revenue was $10.7 million from the completion of seven transactions in the third quarter 2013.  Three transactions were completed in the prior year period totaling $4.4 million.

 

·                  Strategic advisory revenue was $0.7 million in the third quarter 2013, as compared to $1.2 million in the third quarter 2012.  The Company completed one strategic advisory transaction in the third quarter 2013 as compared to one strategic advisory transaction in the prior year period.

 

Share Repurchase Program

 

Cowen today announced that its Board of Directors approved an increase to the Company’s share repurchase program that authorizes Cowen to purchase up to an additional $15 million of Cowen’s Class A common shares from time to time.

 

5



 

The $15 million increase is in addition to the Company’s existing $35 million share purchase program, under which the Company has acquired 8.9 million shares for $25.3 million.  Also, since the program was initially announced in July 2011, the Company has acquired an additional 4.0 million shares as a result of net share settlement relating to the vesting of equity awards.

 

The program permits the company to purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws.  It does not obligate the Company to make any purchases at any specific time or situation.  The program may be suspended or discontinued at any time.  As of September 30, 2013, Cowen had approximately 117.4 million Class A shares outstanding.

 

Earnings Conference Call with Management

 

The Company will host a conference call to discuss its 2013 third quarter financial results on Thursday, November 7, 2013, at 9:00 am EST.  The call can be accessed by dialing 1-866-318-8620 domestic or 1-617-399-5139 international.  The passcode for the call is 51602355.  A replay of the call will be available beginning at 11:00 am EST November 7, 2013 through November 14, 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 86817173.  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.

 

6



 

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

 

7



 

Cowen Group, Inc.

Preliminary Unaudited Condensed Consolidated Statements of Operations

(Dollar amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

27,694

 

$

18,666

 

$

70,431

 

$

50,550

 

Brokerage

 

28,462

 

22,701

 

86,583

 

71,282

 

Management fees

 

9,327

 

8,866

 

28,518

 

28,515

 

Incentive income

 

2,521

 

1,416

 

7,086

 

2,687

 

Interest and dividends

 

10,969

 

3,605

 

30,905

 

14,845

 

Reimbursement from affiliates

 

1,386

 

1,370

 

4,085

 

3,796

 

Other

 

556

 

701

 

1,519

 

2,398

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

255

 

24

 

414

 

115

 

Other

 

190

 

249

 

267

 

359

 

Total revenues

 

81,360

 

57,598

 

229,808

 

174,547

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

53,614

 

47,322

 

145,344

 

137,102

 

Floor brokerage and trade execution

 

4,033

 

3,058

 

13,479

 

10,992

 

Interest and dividends

 

6,133

 

2,056

 

20,287

 

7,107

 

Professional, advisory and other fees

 

4,022

 

3,534

 

10,878

 

11,158

 

Service fees

 

2,351

 

2,807

 

7,615

 

8,198

 

Communications

 

4,670

 

4,522

 

13,423

 

11,775

 

Occupancy and equipment

 

6,752

 

5,808

 

19,019

 

16,594

 

Depreciation and amortization

 

2,624

 

2,427

 

7,786

 

6,945

 

Client services and business development

 

3,493

 

3,510

 

12,251

 

11,089

 

Other

 

3,595

 

3,680

 

10,142

 

10,919

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

96

 

2

 

157

 

22

 

Professional, advisory and other fees

 

230

 

263

 

717

 

1,112

 

Floor brokerage and trade execution

 

91

 

 

196

 

 

Other

 

33

 

65

 

167

 

205

 

Total expenses

 

91,737

 

79,054

 

261,461

 

233,218

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

15,469

 

12,510

 

32,873

 

41,969

 

 

 

 

 

 

 

 

 

 

 

Consolidated Funds net (losses) gains:

 

 

 

 

 

 

 

 

 

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

 

3,096

 

(2,730

)

11,274

 

817

 

Net realized and unrealized (losses) gains on derivatives

 

(32

)

212

 

430

 

626

 

Net (losses) gains on foreign currency transactions

 

168

 

9

 

1

 

(6

)

Total other income (loss)

 

18,701

 

10,001

 

44,578

 

43,406

 

Income (loss) before income taxes

 

8,324

 

(11,455

)

12,925

 

(15,265

)

Income tax (benefit) expense

 

(46

)

163

 

288

 

496

 

Net income (loss)

 

8,370

 

(11,618

)

12,637

 

(15,761

)

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

 

4,759

 

(1,033

)

10,509

 

(1,225

)

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

 

$

3,611

 

$

(10,585

)

$

2,128

 

$

(14,536

)

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

0.03

 

$

(0.09

)

$

0.02

 

$

(0.13

)

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

0.03

 

$

(0.09

)

$

0.02

 

$

(0.13

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

 

 

 

 

Basic

 

118,359

 

114,989

 

116,012

 

114,587

 

Diluted

 

122,708

 

114,989

 

119,891

 

114,587

 

 

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 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.

 

9



 

Cowen Group, Inc.

Unaudited Economic Income (Loss)

(Dollar amounts in thousands)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

27,694

 

$

18,666

 

$

70,431

 

$

50,550

 

Brokerage

 

32,035

 

22,701

 

93,352

 

71,282

 

Management fees

 

14,299

 

13,426

 

43,050

 

42,032

 

Incentive income

 

5,666

 

1,699

 

14,558

 

8,303

 

Investment income

 

12,327

 

9,152

 

26,762

 

38,543

 

Other revenue

 

118

 

381

 

(46

)

694

 

Total revenues

 

92,139

 

66,025

 

248,107

 

211,404

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

53,830

 

46,249

 

146,065

 

133,803

 

Interest and dividends

 

75

 

131

 

271

 

278

 

Fixed non-compensation expenses

 

25,331

 

24,016

 

72,892

 

69,748

 

Variable non-compensation expenses

 

6,873

 

5,720

 

22,786

 

19,733

 

Reimbursement from affiliates

 

(1,461

)

(1,467

)

(4,291

)

(4,018

)

Total expenses

 

84,648

 

74,649

 

237,723

 

219,544

 

Net Economic Income (Loss) before non-controlling Interests

 

7,491

 

(8,624

)

10,384

 

(8,140

)

Non-controlling interests

 

(3,825

)

(301

)

(6,517

)

(900

)

Economic Income (Loss)

 

$

3,666

 

$

(8,925

)

$

3,867

 

$

(9,040

)

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss)

 

$

3,666

 

$

(8,925

)

$

3,867

 

$

(9,040

)

Exclusion of depreciation and amortization expense

 

2,622

 

2,421

 

7,763

 

6,936

 

Exclusion of share-based compensation expense

 

4,095

 

5,704

 

13,803

 

16,113

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

$

10,383

 

$

(799

)

$

25,434

 

$

14,010

 

 

10



 

Cowen Group, Inc.

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

(Dollar amounts in thousands)

 

 

 

Three Months Ended September 30, 2013

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

27,694

 

$

 

$

 

$

27,694

 

Brokerage

 

28,462

 

3,573

(e)

 

32,035

 

Management fees

 

9,327

 

4,697

(a)

275

 

14,299

 

Incentive income

 

2,521

 

3,145

(a)

 

5,666

 

Investment income

 

 

12,327

(c)

 

12,327

 

Interest and dividends

 

10,969

 

(10,969

)(c)

 

 

Reimbursement from affiliates

 

1,386

 

(1,461

)(b)

75

 

 

Other revenue

 

556

 

(438

)(c)

 

118

 

Consolidated Funds

 

445

 

 

(445

)

 

Total revenues

 

81,360

 

10,874

 

(95

)

92,139

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

53,614

 

216

 

 

53,830

 

Interest and dividends

 

6,133

 

(6,058

)(c)

 

75

 

Non-compensation expenses - Fixed

 

 

25,331

(c)(d)

 

25,331

 

Non-compensation expenses - Variable

 

 

6,873

(c)(d)

 

6,873

 

Non-compensation expenses

 

31,540

 

(31,540

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(1,461

)(b)

 

(1,461

)

Consolidated Funds

 

450

 

 

(450

)

 

Total expenses

 

91,737

 

6,639

 

(450

)

84,648

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

15,469

 

(15,469

)(c)

 

 

Consolidated Funds net gains (losses)

 

3,232

 

(2,002

)

(1,230

)

 

Total other income (loss)

 

18,701

 

(17,471

)

(1,230

)

 

 

 

 

 

 

 

 

 

 

 

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

 

8,324

 

42

 

(875

)

7,491

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

(46

)

46

(b)

 

 

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

 

8,370

 

(4

)

(875

)

7,491

 

 

 

 

 

 

 

 

 

 

 

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

 

(4,759

)

59

 

875

 

(3,825

)

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

 

$

3,611

 

$

55

 

$

 

$

3,666

 

 


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.

 

11



 

Cowen Group, Inc.

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

(Dollar amounts in thousands)

 

 

 

Three Months Ended September 30, 2012

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

18,666

 

$

 

$

 

$

18,666

 

Brokerage

 

22,701

 

 

 

22,701

 

Management fees

 

8,866

 

4,198

(a)

362

 

13,426

 

Incentive income

 

1,416

 

283

(a)

 

1,699

 

Investment income

 

 

9,152

(c)

 

9,152

 

Interest and dividends

 

3,605

 

(3,605

)(c)

 

 

Reimbursement from affiliates

 

1,370

 

(1,467

)(b)

97

 

 

Other revenue

 

701

 

(320

)(c)

 

381

 

Consolidated Funds

 

273

 

 

(273

)

 

Total revenues

 

57,598

 

8,241

 

186

 

66,025

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

47,322

 

(1,073

)

 

46,249

 

Interest and dividends

 

2,056

 

(1,925

)(c)

 

131

 

Non-compensation expenses - Fixed

 

 

24,016

(c)(d)

 

24,016

 

Non-compensation expenses - Variable

 

 

5,720

(c)(d)

 

5,720

 

Non-compensation expenses

 

29,346

 

(29,346

)(c)(d)

 

 

Goodwill impairment

 

 

 

 

 

Reimbursement from affiliates

 

 

(1,467

)(b)

 

(1,467

)

Consolidated Funds

 

330

 

 

(330

)

 

Total expenses

 

79,054

 

(4,075

)

(330

)

74,649

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

12,510

 

(12,510

)(c)

 

 

Consolidated Funds net gains (losses)

 

(2,509

)

1,694

 

815

 

 

Total other income (loss)

 

10,001

 

(10,816

)

815

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(11,455

)

1,500

 

1,331

 

(8,624

)

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

163

 

(163

)(b)

 

 

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

 

(11,618

)

1,663

 

1,331

 

(8,624

)

 

 

 

 

 

 

 

 

 

 

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

 

1,033

 

(3

)

(1,331

)

(301

)

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

 

$

(10,585

)

$

1,660

 

$

 

$

(8,925

)

 


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.

 

12



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Nine Months Ended September 30, 2013

(Dollar amounts in thousands)

 

 

 

Nine Months Ended September 30, 2013

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

70,431

 

$

 

$

 

$

70,431

 

Brokerage

 

86,583

 

6,769

(e)

 

93,352

 

Management fees

 

28,518

 

13,661

(a)

871

 

43,050

 

Incentive income

 

7,086

 

7,472

(a)

 

14,558

 

Investment income

 

 

26,762

(c)

 

26,762

 

Interest and dividends

 

30,905

 

(30,905

)(c)

 

 

Reimbursement from affiliates

 

4,085

 

(4,291

)(b)

206

 

 

Other revenue

 

1,519

 

(1,565

)(c)

 

(46

)

Consolidated Funds

 

681

 

 

(681

)

 

Total revenues

 

229,808

 

17,903

 

396

 

248,107

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

145,344

 

721

 

 

146,065

 

Interest and dividends

 

20,287

 

(20,016

)(c)

 

271

 

Non-compensation expenses - Fixed

 

 

72,892

(c)(d)

 

72,892

 

Non-compensation expenses - Variable

 

 

22,786

(c)(d)

 

22,786

 

Non-compensation expenses

 

94,593

 

(94,593

)(c)(d)

 

 

Reimbursement from affiliates

 

 

(4,291

)(b)

 

(4,291

)

Consolidated Funds

 

1,237

 

 

(1,237

)

 

Total expenses

 

261,461

 

(22,501

)

(1,237

)

237,723

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

32,873

 

(32,873

)(c)

 

 

Consolidated Funds net gains (losses)

 

11,705

 

(6,843

)

(4,862

)

 

Total other income (loss)

 

44,578

 

(39,716

)

(4,862

)

 

 

 

 

 

 

 

 

 

 

 

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

 

12,925

 

688

 

(3,229

)

10,384

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

288

 

(288

)(b)

 

 

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

 

12,637

 

976

 

(3,229

)

10,384

 

 

 

 

 

 

 

 

 

 

 

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

 

(10,509

)

763

 

3,229

 

(6,517

)

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

 

$

2,128

 

$

1,739

 

$

 

$

3,867

 

 


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.

 

13



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Nine Months Ended September 30, 2012

(Dollar amounts in thousands)

 

 

 

Nine Months Ended September 30, 2012

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

50,550

 

$

 

$

 

$

50,550

 

Brokerage

 

71,282

 

 

 

71,282

 

Management fees

 

28,515

 

12,367

(a)

1,150

 

42,032

 

Incentive income

 

2,687

 

5,616

(a)

 

8,303

 

Investment income

 

 

38,543

(c)

 

38,543

 

Interest and dividends

 

14,845

 

(14,845

)(c)

 

 

Reimbursement from affiliates

 

3,796

 

(4,018

)(b)

222

 

 

Other revenue

 

2,398

 

(1,704

)(c)

 

694

 

Consolidated Funds

 

474

 

 

(474

)

 

Total revenues

 

174,547

 

35,959

 

898

 

211,404

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

137,102

 

(3,299

)

 

133,803

 

Interest and dividends

 

7,107

 

(6,829

)(c)

 

278

 

Non-compensation expenses - Fixed

 

 

69,748

(c)(d)

 

69,748

 

Non-compensation expenses - Variable

 

 

19,733

(c)(d)

 

19,733

 

Non-compensation expenses

 

87,670

 

(87,670

)(c)(d)

 

 

Goodwill impairment

 

 

 

 

 

Reimbursement from affiliates

 

 

(4,018

)(b)

 

(4,018

)

Consolidated Funds

 

1,339

 

 

(1,339

)

 

Total expenses

 

233,218

 

(12,335

)

(1,339

)

219,544

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

41,969

 

(41,969

)(c)

 

 

Bargain purchase gain

 

 

(e)

 

 

Consolidated Funds net gains (losses)

 

1,437

 

(1,318

)

(119

)

 

Total other income (loss)

 

43,406

 

(43,287

)

(119

)

 

 

 

 

 

 

 

 

 

 

 

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

 

(15,265

)

5,007

 

2,118

 

(8,140

)

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

496

 

(496

)(b)

 

 

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

 

(15,761

)

5,503

 

2,118

 

(8,140

)

 

 

 

 

 

 

 

 

 

 

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

 

1,225

 

(7

)

(2,118

)

(900

)

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

 

$

(14,536

)

$

5,496

 

$

 

$

(9,040

)

 


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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