NEW YORK, Nov. 14, 2011 /PRNewswire/ -- CIFC
Corp. (NASDAQ: DFR) (“CIFC” or “the Company”) announced its
results of operations for its third quarter ended September 30, 2011.
(Logo: http://photos.prnewswire.com/prnh/20111114/NY06218LOGO
)
Third Quarter 2011 Highlights
- Adjusted Earnings Before Taxes for the quarter ended
September 30, 2011 totaled
$5.8 million compared to $0.5 million for the quarter ended September 30, 2010. The increase is primarily due
to the April 2011 merger with
Commercial Industrial Finance Corp. (the “Merger”), which
significantly increased our assets under management and related
investment advisory fees. Adjusted Earnings Before Taxes is a
non-GAAP financial measure.
- GAAP net loss attributable to CIFC Corp. was $5.9 million, or $0.29 of diluted net loss per share, for the
quarter ended September 30, 2011
compared to net loss attributable to CIFC Corp. of $8.0 million, or $0.70 of diluted net loss per share, for the
quarter ended September 30, 2010.
Based on several factors, including the recent Merger, there is a
lack of comparability with the prior year quarter.
- The Company is now, after giving effect to the Merger, one of
the largest senior secured corporate loan asset management firms
globally, with assets under management (“AUM”) from collateralized
loan obligations (“CLOs”) totaling $10.7
billion as of September 30,
2011.
Third Quarter & YTD 2011 Financial Overview
Discussing the quarter, Peter
Gleysteen, the Company’s Chief Executive Officer, said, "I
am very pleased that CIFC is beginning to achieve the anticipated
benefits of the recent merger. In particular, investment advisory
fees from our management of CLOs and CDOs increased to $11.9 million in the quarter just ended compared
to $6.6 million in the prior year’s
comparable quarter. Adjusted Earnings Before Taxes for the quarter
ended September 30, 2011 totaled
$5.8 million compared to $0.5 million for the quarter ended September 30, 2010.
We are making excellent progress in rationalizing the Company’s
cost structure as a single organization. In addition, we have
re-focused the merged Company on its core business of managing CLOs
and other investment products based on our industry leading
expertise in corporate credit obligations. We have exited
proprietary trading and expect to continue to exit other non-core
activities and to re-allocate capital to support investment
products with the potential to generate investment advisory fees
from third parties.
I am excited by CIFC’s strong prospects for organic growth in
our core business. Our increased scale, industry-leading
track record plus our outstanding professionals position us well to
develop and distribute new investment products based on our
expertise in corporate credit. We are also well positioned to
participate in ongoing industry consolidation.”
Adjusted Earnings Before Taxes (Non-GAAP)
Adjusted Earnings Before Taxes is a non-GAAP financial measure
that management utilizes to evaluate and analyze the Company’s
performance. This non-GAAP financial measure was developed by
management in the period after the Merger as management
re-evaluated the Company’s internal management reporting given the
Company’s shift to focus on its core investment management
operations. Adjusted Earnings Before Taxes replaces Core Earnings,
a non-GAAP measure we previously disclosed, as management believes
that Core Earnings is no longer a useful metric. We believe
Adjusted Earnings Before Taxes better reflects the nature and
substance of the business and the economic benefits driven by
advisory fee revenues from the management of client funds, which
are primarily CLOs. The calculation of Adjusted Earnings Before
Taxes eliminates the net results of Consolidated Variable Interest
Entities, the impact of certain non-cash items, non-recurring
items, special charges and all components of net other income
(expense) from net income (loss) attributable to CIFC Corp., the
most comparable GAAP financial measure. A reconciliation between
net income (loss) and Adjusted Earnings Before Taxes is set forth
in Exhibits 1.1 to 1.4 to this press release.
Adjusted Earnings Before Taxes provided herein may not be
comparable to similar measures presented by other companies, as it
is a non-GAAP financial measure that is not based on a
comprehensive set of accounting rules or principles and therefore,
may be defined differently by other companies. In addition,
Adjusted Earnings Before Taxes should be considered an addition to,
not as a substitute for, or superior to, financial measures
determined in accordance with GAAP.
Net Revenues
Investment Advisory Fees
During the three and nine months ended September 30, 2011 and 2010, we earned investment
advisory fees from our management of CLOs, collaterized debt
obligations (“CDOs”), separately managed accounts and other
investment products. Investment advisory fees from our management
of CLOs and CDOs totaled $11.9
million and $28.1 million for
the three and nine months ended September
30, 2011, respectively, and $6.6
million and $19.7 million for
the three and nine months ended September
30, 2010, respectively. Other investment advisory fees from
our management of separately managed accounts and other investment
products totaled $0.1 million and
$0.4 million for the three and nine
months ended September 30, 2011,
respectively, and $0.2 million and $0.6 million for the three and nine months ended
September 30, 2010, respectively. As
of September 30, 2011, we no longer manage any separately
managed accounts.
Net Interest income
Net interest income represents the difference between the
interest income we earn on our proprietary investments and the cost
of our borrowings, net of hedges, if any. Net interest income
also includes the distributions received on our investments in CLOs
we manage (including DFR Middle Market CLO Ltd. (“DFR MM CLO”)) and
our historical investments in residential-mortgage backed
securities (“RMBS”). Interest income on investments in CLOs
increased by $3.0 million and
$3.6 million for the three and nine
months ended September 30, 2011,
respectively, as compared to the same periods in 2010. These
increases are primarily driven by increases in distributions from
our investments in the DFR MM CLO which amounted to $3.0 million and $10.0
million, respectively, for the three and nine months ended
September 30, 2011 and $0.2 million and $8.1
million, respectively, for the same periods in 2010. The
increases in interest income on investments in CLOs were partially
offset by decreases in net interest income on RMBS of $1.9 million and $2.6
million for the three and nine months ended September 30, 2011, respectively, as compared to
the same periods in 2010. These decreases in RMBS net
interest income were the result of our second quarter 2011 decision
to liquidate our RMBS portfolio.
Expenses
Expenses increased $0.8 million
and $0.9 million for the three and
nine months ended September 30, 2011,
respectively, as compared to the same periods in 2010. The
increases were primarily the result of increases in compensation
and benefits of $1.1 million and
$3.9 million and professional
services of $0.2 million and
$0.4 million for the three and nine
months ended September 30, 2011,
respectively, as compared to the same periods in 2010. The
increases in compensation and benefits and professional services
during the periods are primarily the result of the Merger, as
during the three and nine months ended September 30, 2011, we
were not yet able to realize the full benefit of expected cost
synergies. Following completion of the Merger, we began
executing a plan to realize the expected economies of scale of the
combined company through a reduction of the workforce. In addition,
several revenue producing activities that were viewed as non-core
to our business were wound down, and the employment of the
individuals involved in such activities were terminated.
Restructuring activities are expected to continue through the
second quarter of 2012, primarily with respect to adjustments to
staffing levels and office space needs.
These increases in expenses were partially offset by reductions
in insurance expense of $0.3 million
and $0.8 million and in other general
and administrative expenses of $0.2
million and $0.9 million for
the three and nine months ended September
30, 2011, respectively, as compared the same periods in
2010. The decreases in other general and administrative
expenses during the three and nine months ended September 30,
2011, are primarily attributable to reductions in compensation for
our board of directors (the “Board”) as a result of the
restructuring of our Board’s compensation in conjunction with the
Merger. In addition, corporate interest expense declined
$1.1 million for the nine months
ended September 30, 2011, as compared
to the same period in 2010. This was primarily the result of
the June 9, 2010 discharge of the $73.9
million in aggregate principal outstanding of Senior Notes
for $55.0 million plus accrued
interest.
The following table presents our adjusted components of Adjusted
Earnings Before Taxes, Adjusted EBIT, and Adjusted EBITDA for the
three and nine months ended September 30,
2011 and 2010:
|
|
Adjusted
three months ended September 30,
|
|
Variance
|
|
Adjusted
nine months ended September 30,
|
|
Variance
|
|
|
|
2011
|
|
2010
|
|
2011 vs.
2010
|
|
2011
|
|
2010
|
|
2011 vs.
2010
|
|
|
|
(In
thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment advisory
fees
|
|
$ 11,985
|
|
$ 6,780
|
|
$
5,205
|
|
$ 28,517
|
|
$ 20,327
|
|
$
8,190
|
|
Net interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
3,872
|
|
3,154
|
|
718
|
|
16,034
|
|
15,627
|
|
407
|
|
Interest
expense
|
|
1
|
|
246
|
|
(245)
|
|
349
|
|
731
|
|
(382)
|
|
Net
interest income
|
|
3,871
|
|
2,908
|
|
963
|
|
15,685
|
|
14,896
|
|
789
|
|
Total net revenues
|
|
15,856
|
|
9,688
|
|
6,168
|
|
44,202
|
|
35,223
|
|
8,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
5,262
|
|
4,146
|
|
1,116
|
|
13,951
|
|
10,064
|
|
3,887
|
|
Professional
services
|
|
1,544
|
|
1,363
|
|
181
|
|
3,884
|
|
3,534
|
|
350
|
|
Insurance
expense
|
|
435
|
|
766
|
|
(331)
|
|
1,324
|
|
2,159
|
|
(835)
|
|
Other general and
administrative expenses
|
|
748
|
|
943
|
|
(195)
|
|
2,437
|
|
3,322
|
|
(885)
|
|
Depreciation and
amortization
|
|
169
|
|
175
|
|
(6)
|
|
463
|
|
682
|
|
(219)
|
|
Occupancy
|
|
440
|
|
418
|
|
22
|
|
1,037
|
|
1,294
|
|
(257)
|
|
Corporate interest
expense
|
|
1,445
|
|
1,424
|
|
21
|
|
4,222
|
|
5,318
|
|
(1,096)
|
|
Total expenses
|
|
10,043
|
|
9,235
|
|
808
|
|
27,318
|
|
26,373
|
|
945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings Before Taxes
(1)
|
|
$ 5,813
|
|
$ 453
|
|
$
5,360
|
|
$ 16,884
|
|
$ 8,850
|
|
$
8,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBIT (2)
|
|
$ 7,258
|
|
$ 1,877
|
|
$
5,381
|
|
$ 21,106
|
|
$ 14,168
|
|
$
6,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(3)
|
|
$ 7,427
|
|
$ 2,052
|
|
$
5,375
|
|
$ 21,569
|
|
$ 14,850
|
|
$
6,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See detailed reconciliations between net income (loss)
attributable to CIFC Corp., the most comparable GAAP financial
measure, and Adjusted Earnings Before Taxes in Exhibits 1.1 to
1.4.
(2) Adjusted EBIT includes Adjusted Earnings Before Taxes and
Corporate interest expense.
(3) Adjusted EBITDA includes Adjusted EBIT and Deprecation and
amortization.
GAAP Operating Results
Net loss attributable to CIFC Corp. was $5.9 million, or $0.29 of diluted net loss per share for the three
months ended September 30, 2011
compared to net loss attributable to CIFC Corp. of $8.0 million, or $0.70 of diluted net loss per share for the three
months ended September 30, 2010.
Net loss attributable to CIFC Corp. was $10.1 million, or $0.59 of diluted net loss per share for the nine
months ended September 30, 2011
compared to net income attributable to CIFC Corp. of $9.7 million, or $1.11 of diluted net earnings per share for the
nine months ended September 30, 2010.
A reconciliation between net income (loss) attributable to CIFC
Corp. and Adjusted Earnings Before Taxes, a non-GAAP measure used
by management, is set forth in Exhibits 1.1 to 1.4 to this press
release.
The net results of the consolidated CLOs and CDOs are included
in the net income (loss) attributable to noncontrolling interests
(which generally is comprised of the debt and subordinated note
investments of third parties in these CLOs and CDOs) on the
condensed consolidated statement of operations. These results
are primarily driven by the changes in fair value of the assets and
liabilities of the consolidated CLOs and CDOs. However, these
results are not indicative of the performance of the consolidated
CLOs and CDOs or the cash distributions received by investors from
such consolidated CLOs and CDOs.
AUM
Investment advisory fees paid by the investment products we
manage on behalf of third party investors are our primary source of
revenue. These fees typically consist of management fees based on
the account’s assets and, in some cases, incentive fees based on
the profits we generate for the account.
The following table summarizes the AUM for our significant
investment product categories:
|
September
30, 2011
|
|
June 30,
2011
|
|
December 31,
2010
|
|
|
Number
of
|
|
|
|
Number
of
|
|
|
|
Number
of
|
|
|
|
|
Accounts
|
|
AUM
(1)
|
|
Accounts
|
|
AUM
(1)
|
|
Accounts
|
|
AUM
(1)
|
|
|
|
|
(In
thousands)
|
|
|
|
(In
thousands)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOs
|
29
|
|
$
10,698,765
|
|
30
|
|
$
11,160,925
|
|
16
|
|
$
5,468,802
|
|
ABS CDOs
|
10
|
|
3,029,217
|
|
10
|
|
3,134,057
|
|
10
|
|
3,342,028
|
|
Corporate Bond CDOs
|
4
|
|
329,570
|
|
4
|
|
395,745
|
|
4
|
|
485,718
|
|
Total AUM (2)
|
43
|
|
$
14,057,552
|
|
44
|
|
$
14,690,727
|
|
30
|
|
$
9,296,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) AUM numbers generally reflect the aggregate principal or
notional balance of the collateral and, in some cases, the cash
balance held by the CLOs and CDOs and are as of the date of the
last trustee report received for each CLO and CDO prior to the
respective AUM date. The AUM for our Euro-denominated CLO and CDO
have been converted into U.S. dollars using the spot rate of
exchange as of the respective AUM date.
(2) Total AUM for September 30, 2011, June 30, 2011 and December
31, 2010 included $182.0
million, $207.2 million and
$262.4 million, respectively, related
to DFR MM CLO. Deerfield Capital Management LLC, one of our
indirect wholly-owned subsidiaries, manages DFR MM CLO but is not
contractually entitled to receive any management fees therefrom for
as long as all of the subordinated notes issued by DFR MM CLO are
held by Deerfield Capital LLC or an affiliate thereof.
During the three months ended September
30, 2011, total AUM decreased by $0.6
billion, primarily as a result of declines in CLO AUM of
$0.5 billion. CLO AUM declined
primarily as a result of expected declines in AUM on certain CLOs
which are out of their reinvestment period and which used proceeds
to repay debt securities issued by those CLOs. In addition, CLO AUM
declined as a result of CypressTree Investment Management, LLC
(“CypressTree”), one of our indirect wholly-owned subsidiaries,
being removed as manager of a CLO in connection with the failure of
specified CypressTree personnel to remain employed by CypressTree
following the acquisition of CypressTree in December 2010. During the nine months ended
September 30, 2011, total AUM
increased by $4.8 billion, primarily
as a result of the increase in CLO AUM of $5.2 billion as a result of the Merger.
Post-Merger Integration Efforts
The Merger has provided significant opportunities to achieve
cost synergies as well as benefits from greater scale and a better
market position. While merger synergies are difficult to
demonstrate in the early stages, efforts commenced immediately upon
the completion of the Merger to evaluate and implement an efficient
cost structure, and management continues to implement the careful
transition of essential activities including the centralizing of
most operating activities in the Company’s New York office. During this transition
period, which will likely extend to the second quarter of 2012, the
Company expects to incur significant expenses as duplicative
investment management, operations, finance and other key functions
are transitioned. In addition, certain restructuring charges,
primarily in connection with the Merger, have and will be incurred,
including with respect to redundant office lease obligations.
Following the Merger, the Company has focused on its core
business as a corporate credit asset manager and made the decision
to exit proprietary trading and investing activities, which
previously constituted the Principal Investing segment.
Accordingly, the Company liquidated its RMBS portfolio during the
second quarter. Management is evaluating the remaining investments,
including the DFR MM CLO, for potential disposition. The Company
has begun accumulating senior secured corporate loan (“SSCL”)
exposures within a total return swap warehouse and expects to
launch new SSCL based products in the future.
About the Company
The Company, based in New York,
is one of the largest senior secured corporate loan managers in the
world. The Company combines what it believes are the best
underwriting, portfolio management and value maximization practices
of banks and asset managers to unlock long-term value for
investors. The Company’s heritage CIFC CLO fund family has market
leading performance in the U.S. managed CLO segment and has
consistently generated alpha performance. The firm manages
$10.7 billion across 29 CLOs as of
September 30, 2011 and serves more
than 200 institutional investors in North
America, Europe,
Asia and Australia. For more information, please visit
our website at www.cifc.com.
NOTES TO PRESS RELEASE
Certain statements in this press release are forward-looking
statements, as permitted by the Private Securities Litigation
Reform Act of 1995. These include statements regarding future
results or expectations. Forward-looking statements can be
identified by forward-looking language, including words such as
“believes,” “anticipates,” “expects,” “estimates,” “intends,”
“may,” “plans,” “projects,” “will” and similar expressions, or the
negative of these words. Such forward-looking statements are based
on facts and conditions as they exist at the time such statements
are made, various operating assumptions and predictions as to
future facts and conditions, which may be difficult to accurately
make and involve the assessment of events beyond the Company’s
control. Caution must be exercised in relying on forward-looking
statements. The Company’s actual results may differ materially from
the forward-looking statements contained in this press release as a
result of the following factors, among others: reductions in
the Company’s assets under management and related investment
management and incentive fee revenue; the ability to attract and
retain qualified personnel; competitive conditions impacting the
Company and its assets under management; the Company’s ability to
complete future CLO transactions, including the Company’s ability
to effectively finance such transactions through warehouse
facilities and the amounts we might be required to invest in new
CLO transactions, and the Company’s ability to assume or otherwise
acquire additional CLO management contracts on favorable terms, or
at all; the Company’s ability to accumulate sufficient qualified
loans in its warehouse facilities and the Company’s exposure to
market price risk and credit risk of the loan assets held in such
warehouse facilities; the impact of certain accounting policies,
including the required consolidation of numerous investment
products that the Company manages into its financial statements on
(i) investors’ understanding of our actual business and financial
performance, and (ii) our ability to clearly communicate
management’s view of such business and financial performance; the
Company’s ability to sell and/or liquidate investments held for
sale in DFR Middle Market CLO Ltd.; the current economic
environment in the United States;
disruptions to the credit and financial markets in the United States and globally; the impact of
the downgrade of the United States
credit rating; and contractions or limited growth as a result of
uncertainty in the United States
economy; the ability to maintain the Company’s exemption from
registration as an investment company pursuant to the Investment
Company Act of 1940; the ability of Bounty Investments, LLC and
CIFC Parent Holdings, LLC to exercise substantial control over the
Company’s business; the outcome of legal or regulatory proceedings
to which the Company is or may become a party; the ability to make
investments in new investment products, realize fee-based income
under the Company’s investment management agreements, grow
fee-based income and deliver strong investment performance; the
Company’s failure to realize the expected benefits of the Merger;
and other risks described from time to time in the Company’s
filings with the SEC.
The forward-looking statements contained in this press release
are made as of the date hereof, and the Company does not undertake
any obligation to update any forward-looking statement to reflect
subsequent events, new information or circumstances arising after
the date hereof. All future written and oral forward-looking
statements attributable to the Company or any person acting on its
behalf are expressly qualified in their entirety by the cautionary
statements contained or referenced above. In addition, it is the
Company’s policy generally not to make any specific projections as
to future earnings, and it does not endorse any projections
regarding future performance that may be made by third parties.
Exhibit 1.1
The table below provides a reconciliation between the net income
(loss) attributable to CIFC Corp. and Adjusted Earnings Before
Taxes, a non-GAAP measure used by management, for the three months
ended September 30, 2011:
|
Three months
ended September 30, 2011
|
|
|
Consolidated
|
|
Consolidation
|
|
Deconsolidated
|
|
Reconciling
and
|
|
Adjusted
|
|
|
GAAP
|
|
Adjustments
(1)
|
|
GAAP
|
|
Non-Recurring
Items
|
|
Totals
|
|
|
(In
thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Investment advisory
fees
|
$
3,108
|
|
$
11,424
|
|
$
14,532
|
|
$
(2,547)
|
(2)
|
$ 11,985
|
|
Net interest
income:
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
1
|
|
839
|
|
840
|
|
3,032
|
(3)
|
3,872
|
|
Interest
expense
|
1
|
|
-
|
|
1
|
|
-
|
|
1
|
|
Net
interest income
|
-
|
|
839
|
|
839
|
|
3,032
|
|
3,871
|
|
Total net revenues
|
3,108
|
|
12,263
|
|
15,371
|
|
485
|
|
15,856
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
5,262
|
|
-
|
|
5,262
|
|
-
|
|
5,262
|
|
Professional
services
|
1,544
|
|
-
|
|
1,544
|
|
-
|
|
1,544
|
|
Insurance
expense
|
435
|
|
-
|
|
435
|
|
-
|
|
435
|
|
Other general and
administrative expenses
|
748
|
|
-
|
|
748
|
|
-
|
|
748
|
|
Depreciation and
amortization
|
4,907
|
|
-
|
|
4,907
|
|
(4,738)
|
(4)
|
169
|
|
Occupancy
|
440
|
|
-
|
|
440
|
|
-
|
|
440
|
|
Corporate interest
expense
|
-
|
|
-
|
|
-
|
|
1,445
|
(5)
|
1,445
|
|
Restructuring
charges
|
783
|
|
-
|
|
783
|
|
(783)
|
(7)
|
-
|
|
Total expenses
|
14,119
|
|
-
|
|
14,119
|
|
(4,076)
|
|
10,043
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) and Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on
investments, loans,
|
|
|
|
|
|
|
|
|
|
|
derivatives
and liabilities
|
4,588
|
|
(2,914)
|
|
1,674
|
|
(1,674)
|
(8)
|
-
|
|
Corporate interest
expense
|
(1,445)
|
|
-
|
|
(1,445)
|
|
1,445
|
(5)
|
-
|
|
Strategic transactions
expenses
|
(71)
|
|
-
|
|
(71)
|
|
71
|
(9)
|
-
|
|
Other, net
|
4
|
|
-
|
|
4
|
|
(4)
|
(8)
|
-
|
|
Net other income (expense) and gain (loss)
|
3,076
|
|
(2,914)
|
|
162
|
|
(162)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
(7,935)
|
|
9,349
|
|
1,414
|
|
4,399
|
|
5,813
|
|
|
|
|
|
|
|
|
|
|
|
|
Net results of Consolidated
Variable Interest Entities
|
(220,182)
|
|
209,458
|
|
(10,724)
|
|
10,724
|
(10)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
(benefit)
|
(228,117)
|
|
218,807
|
|
(9,310)
|
|
15,123
|
|
5,813
|
|
Income tax expense
(benefit)
|
(3,386)
|
|
-
|
|
(3,386)
|
|
3,386
|
(11)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
(224,731)
|
|
218,807
|
|
(5,924)
|
|
11,737
|
|
5,813
|
|
Net loss attributable to
noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
and
Consolidated Variable Interest Entities
|
218,807
|
|
(218,807)
|
|
-
|
|
-
|
|
-
|
|
Net income (loss) attributable
to CIFC Corp.
|
$
(5,924)
|
|
$
-
|
|
$
(5,924)
|
|
$
11,737
|
|
$ 5,813
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 1.2
The table below provides a reconciliation between the net income
(loss) attributable to CIFC Corp. and Adjusted Earnings Before
Taxes, a non-GAAP measure used by management, for the three months
ended September 30, 2010:
|
Three months
ended September 30, 2010
|
|
|
Consolidated
|
|
Consolidation
|
|
Deconsolidated
|
|
Reconciling
and
|
|
Adjusted
|
|
|
GAAP
|
|
Adjustments
(1)
|
|
GAAP
|
|
Non-Recurring
Items
|
|
Totals
|
|
|
(In
thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Investment advisory
fees
|
$
2,378
|
|
$
4,402
|
|
$
6,780
|
|
$
-
|
|
$ 6,780
|
|
Net interest
income:
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
2,182
|
|
765
|
|
2,947
|
|
207
|
(3)
|
3,154
|
|
Interest
expense
|
246
|
|
-
|
|
246
|
|
-
|
|
246
|
|
Net
interest income
|
1,936
|
|
765
|
|
2,701
|
|
207
|
|
2,908
|
|
Total net revenues
|
4,314
|
|
5,167
|
|
9,481
|
|
207
|
|
9,688
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
4,490
|
|
-
|
|
4,490
|
|
(344)
|
(12)
|
4,146
|
|
Professional
services
|
1,363
|
|
-
|
|
1,363
|
|
-
|
|
1,363
|
|
Insurance
expense
|
766
|
|
-
|
|
766
|
|
-
|
|
766
|
|
Other general and
administrative expenses
|
943
|
|
-
|
|
943
|
|
-
|
|
943
|
|
Depreciation and
amortization
|
1,931
|
|
-
|
|
1,931
|
|
(1,756)
|
(4)
|
175
|
|
Occupancy
|
418
|
|
-
|
|
418
|
|
-
|
|
418
|
|
Corporate interest
expense
|
-
|
|
-
|
|
-
|
|
1,424
|
(5)
|
1,424
|
|
Impairment of intangible
assets
|
2,398
|
|
-
|
|
2,398
|
|
(2,398)
|
(6)
|
-
|
|
Total expenses
|
12,309
|
|
-
|
|
12,309
|
|
(3,074)
|
|
9,235
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) and Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on
investments, loans,
|
|
|
|
|
|
|
|
|
|
|
derivatives
and liabilities
|
(4,906)
|
|
2,146
|
|
(2,760)
|
|
2,760
|
(8)
|
-
|
|
Corporate interest
expense
|
(1,424)
|
|
-
|
|
(1,424)
|
|
1,424
|
(5)
|
-
|
|
Other, net
|
3
|
|
-
|
|
3
|
|
(3)
|
(8)
|
-
|
|
Net other income (expense) and gain (loss)
|
(6,327)
|
|
2,146
|
|
(4,181)
|
|
4,181
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
(14,322)
|
|
7,313
|
|
(7,009)
|
|
7,462
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
Net results of Consolidated
Variable Interest Entities
|
(13,573)
|
|
15,027
|
|
1,454
|
|
(1,454)
|
(10)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
(benefit)
|
(27,895)
|
|
22,340
|
|
(5,555)
|
|
6,008
|
|
453
|
|
Income tax expense
(benefit)
|
1,699
|
|
-
|
|
1,699
|
|
(1,699)
|
(11)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
(29,594)
|
|
22,340
|
|
(7,254)
|
|
7,707
|
|
453
|
|
Net loss attributable to
noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
and
Consolidated Variable Interest Entities
|
21,575
|
|
(21,575)
|
|
-
|
|
-
|
|
-
|
|
Net income (loss) attributable
to CIFC Corp.
|
$
(8,019)
|
|
$
765
|
|
$
(7,254)
|
|
$
7,707
|
|
$
453
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 1.3
The table below provides a reconciliation between the net income
(loss) attributable to CIFC Corp. and Adjusted Earnings Before
Taxes, a non-GAAP measure used by management, for the nine months
ended September 30, 2011:
|
Nine months
ended September 30, 2011
|
|
|
Consolidated
|
|
Consolidation
|
|
Deconsolidated
|
|
Reconciling
and
|
|
Adjusted
|
|
|
GAAP
|
|
Adjustments
(1)
|
|
GAAP
|
|
Non-Recurring
Items
|
|
Totals
|
|
|
(In
thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Investment advisory
fees
|
$
8,121
|
|
$
24,263
|
|
$
32,384
|
|
$
(3,867)
|
(2)
|
$ 28,517
|
|
Net interest
income:
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
3,329
|
|
2,714
|
|
6,043
|
|
9,991
|
(3)
|
16,034
|
|
Interest
expense
|
349
|
|
-
|
|
349
|
|
-
|
|
349
|
|
Net
interest income
|
2,980
|
|
2,714
|
|
5,694
|
|
9,991
|
|
15,685
|
|
Total net revenues
|
11,101
|
|
26,977
|
|
38,078
|
|
6,124
|
|
44,202
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
14,225
|
|
-
|
|
14,225
|
|
(274)
|
(12)
|
13,951
|
|
Professional
services
|
3,884
|
|
-
|
|
3,884
|
|
-
|
|
3,884
|
|
Insurance
expense
|
1,324
|
|
-
|
|
1,324
|
|
-
|
|
1,324
|
|
Other general and
administrative expenses
|
2,437
|
|
-
|
|
2,437
|
|
-
|
|
2,437
|
|
Depreciation and
amortization
|
11,572
|
|
-
|
|
11,572
|
|
(11,109)
|
(4)
|
463
|
|
Occupancy
|
1,037
|
|
-
|
|
1,037
|
|
-
|
|
1,037
|
|
Corporate interest
expense
|
-
|
|
-
|
|
-
|
|
4,222
|
(5)
|
4,222
|
|
Impairment of intangible
assets
|
1,104
|
|
-
|
|
1,104
|
|
(1,104)
|
(6)
|
-
|
|
Restructuring
charges
|
4,104
|
|
-
|
|
4,104
|
|
(4,104)
|
(7)
|
-
|
|
Total expenses
|
39,687
|
|
-
|
|
39,687
|
|
(12,369)
|
|
27,318
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) and Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on
investments, loans,
|
|
|
|
|
|
|
|
|
|
|
derivatives
and liabilities
|
5,095
|
|
(2,382)
|
|
2,713
|
|
(2,713)
|
(8)
|
-
|
|
Corporate interest
expense
|
(4,222)
|
|
-
|
|
(4,222)
|
|
4,222
|
(5)
|
-
|
|
Strategic transactions
expenses
|
(1,459)
|
|
-
|
|
(1,459)
|
|
1,459
|
(9)
|
-
|
|
Other, net
|
7
|
|
-
|
|
7
|
|
(7)
|
(8)
|
-
|
|
Net other income (expense) and gain (loss)
|
(579)
|
|
(2,382)
|
|
(2,961)
|
|
2,961
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
(29,165)
|
|
24,595
|
|
(4,570)
|
|
21,454
|
|
16,884
|
|
|
|
|
|
|
|
|
|
|
|
|
Net results of Consolidated
Variable Interest Entities
|
(314,638)
|
|
304,598
|
|
(10,040)
|
|
10,040
|
(10)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
(benefit)
|
(343,803)
|
|
329,193
|
|
(14,610)
|
|
31,494
|
|
16,884
|
|
Income tax expense
(benefit)
|
(4,523)
|
|
-
|
|
(4,523)
|
|
4,523
|
(11)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
(339,280)
|
|
329,193
|
|
(10,087)
|
|
26,971
|
|
16,884
|
|
Net loss attributable to
noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
and
Consolidated Variable Interest Entities
|
329,193
|
|
(329,193)
|
|
-
|
|
-
|
|
-
|
|
Net income (loss) attributable
to CIFC Corp.
|
$
(10,087)
|
|
$
-
|
|
$
(10,087)
|
|
$
26,971
|
|
$ 16,884
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 1.4
The table below provides a reconciliation between the net income
(loss) attributable to CIFC Corp. and Adjusted Earnings Before
Taxes, a non-GAAP measure used by management, for the nine months
ended September 30, 2010:
|
Nine months
ended September 30, 2010
|
|
|
Consolidated
|
|
Consolidation
|
|
Deconsolidated
|
|
Reconciling
and
|
|
Adjusted
|
|
|
GAAP
|
|
Adjustments
(1)
|
|
GAAP
|
|
Non-Recurring
Items
|
|
Totals
|
|
|
(In
thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Investment advisory
fees
|
$
9,056
|
|
$
11,271
|
|
$
20,327
|
|
$
-
|
|
$ 20,327
|
|
Net interest
income:
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
6,495
|
|
1,038
|
|
7,533
|
|
8,094
|
(3)
|
15,627
|
|
Interest
expense
|
731
|
|
-
|
|
731
|
|
-
|
|
731
|
|
Net
interest income
|
5,764
|
|
1,038
|
|
6,802
|
|
8,094
|
|
14,896
|
|
Total net revenues
|
14,820
|
|
12,309
|
|
27,129
|
|
8,094
|
|
35,223
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
10,408
|
|
-
|
|
10,408
|
|
(344)
|
(12)
|
10,064
|
|
Professional
services
|
3,534
|
|
-
|
|
3,534
|
|
-
|
|
3,534
|
|
Insurance
expense
|
2,159
|
|
-
|
|
2,159
|
|
-
|
|
2,159
|
|
Other general and
administrative expenses
|
3,850
|
|
-
|
|
3,850
|
|
(528)
|
(13)
|
3,322
|
|
Depreciation and
amortization
|
10,694
|
|
-
|
|
10,694
|
|
(10,012)
|
(4)
|
682
|
|
Occupancy
|
1,294
|
|
-
|
|
1,294
|
|
-
|
|
1,294
|
|
Corporate interest
expense
|
-
|
|
-
|
|
-
|
|
5,318
|
(5)
|
5,318
|
|
Impairment of intangible
assets
|
2,566
|
|
-
|
|
2,566
|
|
(2,566)
|
(6)
|
-
|
|
Total expenses
|
34,505
|
|
-
|
|
34,505
|
|
(8,132)
|
|
26,373
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) and Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on
investments, loans,
|
|
|
|
|
|
|
|
|
|
|
derivatives
and liabilities
|
(2,447)
|
|
2,655
|
|
208
|
|
(208)
|
(8)
|
-
|
|
Corporate interest
expense
|
(5,318)
|
|
-
|
|
(5,318)
|
|
5,318
|
(5)
|
|
|
Strategic transactions
expenses
|
(4,022)
|
|
-
|
|
(4,022)
|
|
4,022
|
(9)
|
-
|
|
Net gain on the discharge
of the Senior Notes
|
17,418
|
|
-
|
|
17,418
|
|
(17,418)
|
(14)
|
-
|
|
Other, net
|
(961)
|
|
-
|
|
(961)
|
|
961
|
(8)
|
-
|
|
Net other income (expense) and gain (loss)
|
4,670
|
|
2,655
|
|
7,325
|
|
(7,325)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
(15,015)
|
|
14,964
|
|
(51)
|
|
8,901
|
|
8,850
|
|
|
|
|
|
|
|
|
|
|
|
|
Net results of Consolidated
Variable Interest Entities
|
(23,785)
|
|
36,003
|
|
12,218
|
|
(12,218)
|
(10)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
(benefit)
|
(38,800)
|
|
50,967
|
|
12,167
|
|
(3,317)
|
|
8,850
|
|
Income tax expense
(benefit)
|
1,701
|
|
-
|
|
1,701
|
|
(1,701)
|
(11)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
(40,501)
|
|
50,967
|
|
10,466
|
|
(1,616)
|
|
8,850
|
|
Net loss attributable to
noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
and
Consolidated Variable Interest Entities
|
50,202
|
|
(50,202)
|
|
-
|
|
-
|
|
-
|
|
Net income (loss) attributable
to CIFC Corp.
|
$
9,701
|
|
$
765
|
|
$
10,466
|
|
$
(1,616)
|
|
$ 8,850
|
|
|
|
|
|
|
|
|
|
|
|
(1) Adjustments to eliminate the impact of
the Consolidated CLOs.
(2) Adjustments to reflect Adjusted
Earnings Before Taxes net of fee sharing arrangements related to
the Merger.
(3) The reclassification of
distributions received on our investments in the DFR MM CLO
subordinated notes.
(4) Elimination of intangible asset
amortization. The adjustment for the nine months ended
September 30, 2010 also includes
$5.5 million of non-recurring
accelerated depreciation and amortization expense related to
certain leasehold improvements and equipment we abandoned in
connection with our relocation to a new office space on
April 30, 2010.
(5) Reclassification of corporate
interest expense from other income (expense) and gain (loss) to
expenses.
(6) Elimination of impairment charges
on intangible assets.
(7) Elimination of restructuring
charges.
(8) Elimination of net gains (losses)
on our proprietary investments and items (primarily non-recurring
in nature) which are included within Other, net.
(9) Elimination of strategic
transactions expenses.
(10) Elimination of the GAAP net
income (loss) related to the DFR MM CLO, the Warehouse TRS and
Deerfield Pegasus Loan Capital LP ("DPLC").
(11) Elimination of income tax
expense (benefit).
(12) Elimination of certain incentive
based compensation related to certain net gains (losses) on
investments which are not included as a component of Adjusted
Earnings Before Taxes.
(13) Elimination of the non-recurring
expense related to the warrants issued in conjunction with the
restructuring of DPLC.
(14) Elimination of the non-recurring
gain on the discharge of the Senior Notes.
Exhibit 2.1
Results of Consolidated Operations Pursuant to GAAP
The following table presents our comparative condensed
consolidated statement of operations for the three and nine months
ended September 30, 2011 and 2010.
Certain amounts in the condensed statements of operations the three
and nine months ended September 30,
2010 have been reclassified to conform to the presentation
for the three and nine months ended September 30, 2011.
|
|
Three months
ended September 30,
|
|
Variance
|
|
Nine months
ended September 30,
|
|
Variance
|
|
|
|
2011
|
|
2010
|
|
2011 vs.
2010
|
|
2011
|
|
2010
|
|
2011 vs.
2010
|
|
|
|
(In
thousands, except share and per share amounts)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment advisory
fees
|
|
$
3,108
|
|
$
2,378
|
|
$
730
|
|
$
8,121
|
|
$
9,056
|
|
$
(935)
|
|
Net interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
1
|
|
2,182
|
|
(2,181)
|
|
3,329
|
|
6,495
|
|
(3,166)
|
|
Interest
expense
|
|
1
|
|
246
|
|
(245)
|
|
349
|
|
731
|
|
(382)
|
|
Net
interest income
|
|
-
|
|
1,936
|
|
(1,936)
|
|
2,980
|
|
5,764
|
|
(2,784)
|
|
Total net revenues
|
|
3,108
|
|
4,314
|
|
(1,206)
|
|
11,101
|
|
14,820
|
|
(3,719)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
5,262
|
|
4,490
|
|
772
|
|
14,225
|
|
10,408
|
|
3,817
|
|
Professional
services
|
|
1,544
|
|
1,363
|
|
181
|
|
3,884
|
|
3,534
|
|
350
|
|
Insurance
expense
|
|
435
|
|
766
|
|
(331)
|
|
1,324
|
|
2,159
|
|
(835)
|
|
Other general and
administrative expenses
|
|
748
|
|
943
|
|
(195)
|
|
2,437
|
|
3,850
|
|
(1,413)
|
|
Depreciation and
amortization
|
|
4,907
|
|
1,931
|
|
2,976
|
|
11,572
|
|
10,694
|
|
878
|
|
Occupancy
|
|
440
|
|
418
|
|
22
|
|
1,037
|
|
1,294
|
|
(257)
|
|
Impairment of intangible
assets
|
|
-
|
|
2,398
|
|
(2,398)
|
|
1,104
|
|
2,566
|
|
(1,462)
|
|
Restructuring
charges
|
|
783
|
|
-
|
|
783
|
|
4,104
|
|
-
|
|
4,104
|
|
Total expenses
|
|
14,119
|
|
12,309
|
|
1,810
|
|
39,687
|
|
34,505
|
|
5,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) and Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on
investments, loans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
and liabilities
|
|
4,588
|
|
(4,906)
|
|
9,494
|
|
5,095
|
|
(2,447)
|
|
7,542
|
|
Corporate interest
expense
|
|
(1,445)
|
|
(1,424)
|
|
(21)
|
|
(4,222)
|
|
(5,318)
|
|
1,096
|
|
Strategic transactions
expenses
|
|
(71)
|
|
-
|
|
(71)
|
|
(1,459)
|
|
(4,022)
|
|
2,563
|
|
Net gain on the discharge
of the Senior Notes
|
|
-
|
|
-
|
|
-
|
|
-
|
|
17,418
|
|
(17,418)
|
|
Other, net
|
|
4
|
|
3
|
|
1
|
|
7
|
|
(961)
|
|
968
|
|
Net other income (expense) and gain (loss)
|
|
3,076
|
|
(6,327)
|
|
9,403
|
|
(579)
|
|
4,670
|
|
(5,249)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
(7,935)
|
|
(14,322)
|
|
6,387
|
|
(29,165)
|
|
(15,015)
|
|
(14,150)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Consolidated Variable
Interest Entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) from
activities of Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Interest Entities
|
|
(218,335)
|
|
(12,640)
|
|
(205,695)
|
|
(309,844)
|
|
(21,355)
|
|
(288,489)
|
|
Expenses of Consolidated
Variable Interest Entities
|
|
(1,847)
|
|
(933)
|
|
(914)
|
|
(4,794)
|
|
(2,430)
|
|
(2,364)
|
|
Net results of Consolidated Variable Interest
Entities
|
|
(220,182)
|
|
(13,573)
|
|
(206,609)
|
|
(314,638)
|
|
(23,785)
|
|
(290,853)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
(benefit)
|
|
(228,117)
|
|
(27,895)
|
|
(200,222)
|
|
(343,803)
|
|
(38,800)
|
|
(305,003)
|
|
Income tax expense
(benefit)
|
|
(3,386)
|
|
1,699
|
|
(5,085)
|
|
(4,523)
|
|
1,701
|
|
(6,224)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(224,731)
|
|
(29,594)
|
|
(195,137)
|
|
(339,280)
|
|
(40,501)
|
|
(298,779)
|
|
Net loss attributable to
noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Consolidated Variable Interest Entities
|
|
218,807
|
|
21,575
|
|
197,232
|
|
329,193
|
|
50,202
|
|
278,991
|
|
Net income (loss) attributable
to CIFC Corp.
|
|
$
(5,924)
|
|
$
(8,019)
|
|
$
2,095
|
|
$
(10,087)
|
|
$
9,701
|
|
$
(19,788)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
(0.29)
|
|
$
(0.70)
|
|
$
0.41
|
|
$
(0.59)
|
|
$
1.12
|
|
$
(1.71)
|
|
Diluted
|
|
$
(0.29)
|
|
$
(0.70)
|
|
$
0.41
|
|
$
(0.59)
|
|
$
1.11
|
|
$
(1.70)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of
shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
20,426,118
|
|
11,397,864
|
|
|
|
17,038,258
|
|
8,698,602
|
|
|
|
Diluted
|
|
20,426,118
|
|
11,397,864
|
|
|
|
17,038,258
|
|
8,740,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOURCE CIFC Corp.