LaBranche & Co Inc. (NYSE: LAB) (the “Company”) today
reported financial results for the fourth quarter ended December
31, 2010. The Company reported an after-tax net loss of $38.2
million, or $0.93 per share, which included non-cash charges of
$38.1 million for a valuation allowance on the Company’s deferred
tax assets and depreciation of $0.5 million. The valuation
allowance taken by the Company does not affect the tax attributes
that would be available to be utilized by the Company. These 2010
fourth quarter results compare to after-tax net loss of $72.5
million, or $1.39 per share, for the 2009 fourth quarter, which
included an after-tax non-cash impairment charge of $70.2 million
related to the sale of LaBranche & Co. LLC's designated market
maker business.
The Company reported an after-tax net loss of $62.4 million, or
$1.43 per share, for the year ended December 31, 2010, which
includes an after-tax charge of $4.3 million related to the
redemption in February 2010 of all its remaining outstanding 11%
Senior Notes due 2012 and $41.7 million in non-cash charges for a
valuation allowance on its deferred tax assets. These 2010 results
compare to an after-tax net loss of $97.8 million, or $1.78 per
share, for the year ended December 31, 2009, which included
after-tax income of $0.5 million related to the redemption of a
portion of the Company’s outstanding 11% Senior Notes due 2012 at
below par value and a $59.0 million charge mainly for the
impairment of intangibles and goodwill related to the DMM business
assets sold in the first quarter of 2010.
In the fourth quarter of 2010, the Company continued to reduce
its equity options market-making positions, which generated trading
losses. The Company’s institutional brokerage segment also
generated losses in the fourth quarter. However, the Company’s
other market-making activities, including foreign currency options,
international exchange-traded funds and global options arbitrage
trading, generated positive results in excess of the losses from
the options market-making activities and institutional brokerage
business. The Company is continuing the process to reduce its
options market-making positions in 2011 and the substantial
majority of those positions were eliminated upon options expiration
on January 21, 2011. In addition, the Company’s expense reduction
initiatives to substantially cut overhead and other operational
costs, such as communication and inventory financing costs,
continued to be successful.
On November 1, 2010, FINRA approved a proposed merger of
LaBranche Structured Products, LLC (“LSP”) and LaBranche Financial
Services, LLC (“LFS”) into one combined entity, and the merger was
consummated on November 30, 2010. The surviving entity’s name is
LaBranche Capital, LLC. In January 2011, the Company committed to a
plan to wind down the activities of the former LFS institutional
brokerage business. The Company has undertaken a process to
terminate its institutional execution group sales trading business
and its professional trading group in the first quarter of
2011.
As previously announced, the Company has entered into a
definitive agreement to be acquired by Cowen Group, Inc (“Cowen”).
Under the terms of the agreement, Cowen will acquire the Company in
a stock-for-stock merger transaction valued at approximately $192.8
million. The Company’s shareholders will receive upon closing a
fixed ratio of 0.9980 of a share of Cowen Class A common stock for
each outstanding share of the Company’s common stock. The total
Cowen shares to be issued to the Company’s shareholders will
represent approximately 35.1 percent of the combined company and
33.8 percent on a fully diluted basis. The transaction represents a
16 percent premium to the Company’s closing price on February 16,
2011.
The loss per share reported above for the Company’s 2010 fourth
quarter and full-year periods was impacted by the Company’s
repurchases, net of issuances, of approximately 12.9 million shares
of its outstanding common stock since September 30, 2009. During
the fourth quarter, the Company repurchased 385,464 shares of its
common stock. Following these repurchases, the Company had
approximately 40.9 million shares of common stock outstanding as of
December 31, 2010 versus 51.5 million shares outstanding as of
December 31, 2009.
The Company is the parent of LaBranche Structured Holdings,
Inc., whose subsidiaries are market-makers in options,
exchange-traded funds and futures on various exchanges domestically
and internationally.
Important Information For Investors And Stockholders
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. In connection with the proposed transaction,
Cowen and the Company will file relevant materials with the SEC,
including a registration statement on Form S-4 that will include a
joint proxy statement of Cowen and the Company and that also
constitutes a prospectus of Cowen. Cowen and the Company will each
mail the final joint proxy statement/prospectus to its respective
stockholders. Investors and security holders are urged to read
these documents (if and when they become available) and any other
relevant documents filed with the SEC, as well as any amendments or
supplements to those documents, because they will contain important
information about Cowen, the Company and the proposed transaction.
Investors and security holders may obtain these documents (and any
other documents filed by Cowen or the Company with the SEC) free of
charge at the SEC’s website at www.sec.gov. In addition, the
documents filed with the SEC by Cowen may be obtained free of
charge by directing such request to: Investor Relations, 599
Lexington Avenue, New York, NY 10022 or from Cowen’s Investor
Relations page on its corporate website at www.cowen.com and the
documents filed with the SEC by the Company be obtained free of
charge by directing such request to: Investor Relations, 33
Whitehall Street, New York, NY 10004 or from the Company’s Investor
Relations page on its corporate website at www.labranche.com.
The directors, executive officers, and certain other members of
management and employees of each of Cowen and the Company may be
deemed to be participants in the solicitation of proxies in favor
of the proposed transactions from the stockholders of Cowen and
from the stockholders of the Company, respectively. Information
about the executive officers and directors of Cowen is set forth in
the proxy statement for Cowen’s 2010 Annual Meeting of
Stockholders, which was filed with the SEC on April 30, 2010 and
information about the executive officers and directors of the
Company is set forth in the proxy statement for the Company’s 2010
Annual Meeting of Stockholders, which was filed with the SEC on
April 8, 2010.
Cautionary Notice Regarding Forward-Looking
Statements
Certain statements contained in this communication, including
without limitation, statements containing the words "believes",
"intends", "expects", "anticipates", and words of similar import,
constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Readers are
cautioned that any such forward-looking statements are not
guarantees of future performance, and since such statements involve
risks and uncertainties, the actual results and performance of the
Company and the industry may turn out to be materially different
from the results expressed or implied by such forward-looking
statements. Given these uncertainties, readers are cautioned not to
place undue reliance on such forward-looking statements. The
Company also disclaims any obligation to update its view of any
such risks or uncertainties or to publicly announce the result of
any revisions to the forward-looking statements made in this
communication.
This communication may also contain forward-looking statements
relating to the market opportunity and future business prospects of
Cowen and the Company. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ
materially from those expressed or implied in the forward-looking
statements. Consequently, all forward-looking statements in this
communication are qualified by those risks, uncertainties and other
factors.
These factors include, but are not limited to, (1) the
occurrence of any event, change or other circumstances that could
give rise to the termination of the Agreement and Plan of Merger
among Cowen, Louisiana Merger Sub, Inc. and the Company (the
“Merger Agreement”); (2) the outcome of any legal proceedings that
may be instituted against Cowen, the Company or others following
announcement of the Merger Agreement and transactions contemplated
therein; (3) the inability to complete the transactions
contemplated by the Merger Agreement due to the failure to obtain
the required stockholder approvals, (4) the inability to obtain
necessary regulatory approvals required to complete the
transactions contemplated by the Merger Agreement; (5) the risk
that the proposed transactions disrupt current plans and operations
and the potential difficulties in employee retention as a result of
the announcement and consummation of such transactions; (6) the
ability to recognize the anticipated benefits of the combination of
Cowen and the Company, including potential cost savings; and (7)
the possibility that Cowen or the Company may be adversely affected
by other economic, business, and/or competitive factors.
Actual results may differ materially and reported results should
not be considered an indication of future performance. Please
reference the SEC filings of Cowen and the Company, which are
available on their respective web sites, for detailed descriptions
of factors that could cause actual results to differ materially
from those expressed or implied in such forward-looking
statements.
LaBranche & Co Inc.
Condensed Consolidated Statements of
Operations
(all data in thousands, except per share
data)
(unaudited)
For the Three Months Ended
For the Year Ended
December 31, December 31, 2010
2009 (1)
2010
2009 (1)
REVENUES: Net (loss) gain on trading $ 11,920 $ 26,670 $ 29,769 $
42,992 Commissions and other fees 1,509 6,996 12,101 29,957 Other
685 874 2,920
6,029 Total revenues 14,114 34,540
44,790 78,978 Interest
expense: Debt - 5,393 2,639 21,838 Inventory financing 2,121
6,950 13,702 23,308
Total interest expense 2,121 12,343
16,341 45,146 Revenues, net of
interest expense 11,993 22,197
28,449 33,832 EXPENSES: Employee
compensation and related benefits 5,152 11,799 27,117 39,757
Exchange, clearing, brokerage and license fees 1,518 8,502 14,789
34,031 Depreciation and amortization 474 1,051 1,925 3,999 Early
extinguishment of debt - - 7,192 (762 ) Other 4,881
6,273 22,773 24,235 Total
expenses 12,025 27,625 73,796
101,260 Loss from continuing operations
before benefit for income taxes (32 ) (5,428 ) (45,347 ) (67,428 )
Expense (Benefit) for income taxes 38,158
(2,416 ) 20,677 (28,604 ) Loss from continuing
operations (38,190 ) (3,012 ) (66,024 )
(38,824 ) Discontinued operations: Income (loss) from
operations of discontinued unit - (86,325 ) (352 ) (68,532 )
Provision (Benefit) for income taxes - (16,851
) (4,019 ) (9,536 ) Income from discontinued
operations - (69,474 ) 3,667
(58,996 ) Net (loss) $ (38,190 ) $ (72,486 ) $
(62,357 ) $ (97,820 ) Weighted-average common shares
outstanding: Basic 40,964 52,398 43,541 54,935 Diluted 40,964
52,398 43,541 54,935 Basic net (loss) income per common
share: Continuing operations $ (0.93 ) $ (0.06 ) $ (1.51 ) $ (0.71
) Discontinued operations (1) $ - $ (1.33 ) $ 0.08 $
(1.07 ) Total operations $ (0.93 ) $ (1.39 ) $ (1.43 ) $ (1.78 )
Diluted net (loss) income per common share: Continuing
operations $ (0.93 ) $ (0.06 ) $ (1.51 ) $ (0.71 ) Discontinued
operations (1) $ - $ (1.33 ) $ 0.08 $ (1.07 ) Total
operations $ (0.93 ) $ (1.39 ) $ (1.43 ) $ (1.78 ) _____________
(1) In accordance with Financial Accounting Standards Board
Accounting Standards the results of the DMM business have been
reclassified as a discontinued operation for all periods presented.
LaBranche & Co Inc.
Condensed Consolidated Statements of
Financial Condition
(all data in thousands)
As of December 31, December
31, 2010 2009 (1) (unaudited) (audited)
ASSETS Cash and cash equivalents $ 93,291 $ 186,737 Cash and
securities segregated under federal regulations 1,727 1,727
Receivable from brokers, dealers and clearing organizations 169,717
51,984 Receivable from customers - 42,790 Financial instruments
owned, at fair value 1,013,914 3,318,693 Office equipment and
leasehold improvements, at cost, less accumulated depreciation and
- amortization of $10,687 and $8,777, respectively 9,983 11,680
Held for sale - 32,748 Deferred tax assets 2,308 25,457 Income tax
receivable 773 12,208 Other assets 8,385 17,808
Total assets $ 1,300,098 $ 3,701,832
LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Payable to
brokers, dealers and clearing organizations $ 261,754 $ 615,245
Payable to customers 34 43,515 Financial instruments sold, but not
yet purchased, at fair value 817,782 2,489,871 Accrued compensation
5,083 9,431 Accounts payable and other accrued expenses 4,797
17,526 Other liabilities 2,548 12,945 Income tax payable 236 1,968
Held for sale 749 Short-term debt - 189,323
Total liabilities 1,092,234 3,380,573
Total stockholders' equity 207,864 321,259
Total liabilities and stockholders' equity $ 1,300,098 $
3,701,832 (1) Certain of the Company's December 31,
2009 balances have been adjusted to conform to the presentation in
the current period. Counterparty netting agreements were applied to
derivative contracts for financial instruments owned, at fair value
and financial instruments sold, but not yet purchased, at fair
value. This adjustment did not affect stockholders' equity or
earnings.
LaBranche & Co Inc.
Regulation G Requirement: Reconciliation
of Non-GAAP Financial Measures
(all data in thousands, except per share
data)
(unaudited)
In evaluating the Company’s financial
performance, management reviews results from continuing operations
excluding non-operating items. Pro-forma earnings per share is a
non-GAAP (generally accepted accounting principles) performance
measure, but the Company believes that it is useful to assist
investors in gaining an understanding of the trends and operating
results for our continuing business. Pro-forma earnings per share
should be viewed in addition to, and not in lieu of, the Company’s
reported results under U.S. GAAP.
Commencing in the first quarter of 2010,
the Company is no longer adjusting its GAAP revenues to give pro
forma effect to gains/losses in its NYX shares due to the fact that
the Company sold approximately 3 million of its 3.1 million
previously-owned NYX shares, leaving the Company with approximately
.1 million NYX shares. Therefore, the adjustments that reflected
the loss in the Company’s NYX shares that were made in the
Company’s earnings release for the fourth quarter of 2009 have been
removed from this Regulation G reconciliation of non-GAAP financial
measures. In the earnings release for the fourth quarter of 2009,
the Company had adjusted reported revenues by a loss of $11.0
million and a loss of $6.2 million for the year ended December 31,
2009, respectively, to reflect the fair value of the Company’s NYX
shares in those periods. These adjustment amounts are removed in
this earnings release to enable the reader to compare similar
measures in each period. The Company only retains a small position
of NYX shares at December 31, 2010 of approximately 125,000
shares.
The following is a reconciliation of U.S.
GAAP results from continuing operations to our pro-forma results
from continuing operations for the periods presented:
Three Months Ended December 31, 2010
2009 Amounts as
Pro forma Amounts as Pro forma
reported Adjustments amounts reported
Adjustments amounts Revenues, net of interest
expense, from continuing operations $ 11,993 $ - 11,993 $ 22,197 $
- 22,197 Total expenses 12,025 -
12,025 27,625 - 27,625
(Loss) income before (benefit) provision for income taxes
(32 ) - (32 ) (5,428 ) - (5,428 ) (Benefit) provision for income
taxes 38,158 - 38,158
(2,416 ) - (2,416 ) (Loss) income from
continuing operations $ (38,190 ) $ - $ (38,190 ) $ (3,012 )
$ - $ (3,012 ) Basic per share $ (0.93 ) $ - $ (0.93 ) $
(0.06 ) $ - $ (0.06 ) Diluted per share $ (0.93 ) $ - $ (0.93 ) $
(0.06 ) $ - $ (0.06 )
Year Ended December 31,
2010 2009 Amounts as (1) Pro
forma Amounts as (1) Pro forma
reported Adjustments amounts reported
Adjustments amounts Revenues, net of interest
expense, from continuing operations $ 28,449 $ - 28,449 $ 33,832 $
- 33,832 Total expenses 73,796 (7,192 )
66,604 101,260 762
102,022 (Loss) income before (benefit) provision for income
taxes (45,347 ) 7,192 (38,155 ) (67,428 ) (762 ) (68,190 )
(Benefit) provision for income taxes 20,677
2,877 23,554 (28,605 ) (305 )
(28,910 ) (Loss) income from continuing operations $ (66,024
) $ 4,315 $ (61,709 ) $ (38,823 ) $ (457 ) $ (39,280 ) Basic
per share $ (1.51 ) $ 0.10 $ (1.41 ) $ (0.71 ) $ (0.01 ) $ (0.72 )
Diluted per share $ (1.51 ) $ 0.10 $ (1.41 ) $ (0.71 ) $ (0.01 ) $
(0.72 ) __________________ (1) Expense adjustment reflects the
(income) expense associated with early extinguishment of the
Company's debt in accounting period.
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