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CIFC Corp. Announces Third Quarter 2012 Results

NEW YORK, Nov. 16, 2012 /PRNewswire/ -- CIFC Corp. (NASDAQ: DFR) ("CIFC" or the "Company") announced its results of operations for its third quarter ended September 30, 2012.

Third Quarter 2012 Highlights

  • Adjusted Earnings Before Taxes ("AEBT") for the third quarter of 2012 totaled $6.2 million compared to $2.6 million for the second quarter of 2012.
  • GAAP net income attributable to CIFC Corp. was $0.7 million, or $0.03 per fully diluted share, for the third quarter of 2012 compared to a net loss attributable to CIFC Corp. of $8.5 million, or $0.42 per fully diluted share, for the second quarter of 2012.
  • On September 24, 2012, the Company closed a five year strategic relationship with General Electric Capital Corporation's ("GE Capital") Bank Loan Group.  The Company believes that this strategic relationship could provide CIFC with significant new opportunities to create new CIFC-managed investment products, including those involving GE Capital loan originations and/or vehicles for which GE Capital provides financing.  Further, partnering with GE Capital positions the Company for unique opportunities given GE Capital's strength as a leading corporate lender coupled with CIFC's loan asset management platform.
  • On July 26, 2012, the Company successfully closed a new collateralized loan obligation ("CLO"), CIFC Funding 2012-I, Ltd. ("CIFC 2012-I"). As of September 30, 2012, CIFC 2012-I had AUM of $447.2 million.
  • Subsequent to the quarter ended September 30, 2012, the Company successfully launched a new CLO, CIFC Funding 2012-II, Ltd. ("CIFC 2012-II"), which closed on November 9, 2012 and represents approximately $725.0 million of additional CLO AUM.

Executive Overview

"The third quarter was particularly exciting for us. We continue to successfully launch and close new loan funds, with CIFC Funding 2012-I closing in the second quarter followed by CIFC Funding 2012-II, one of the largest post credit crisis CLOs in the market, closing earlier this month," said Peter Gleysteen, President and Chief Executive Officer.

"In addition, we successfully closed the previously-announced five year strategic alliance with GE Capital's Bank Loan Group, and we are now actively pursuing new business opportunities with their team."

"The increase of the third quarter's AEBT from the second quarter was primarily attributable to a few factors, including an initial advisory fee payment and an equity distribution on a newly closed fund and an incentive management fee received from a CLO which reached its incentive management fee hurdle during the quarter."

AEBT (Non-GAAP)

AEBT is a non-GAAP financial measure that management utilizes to analyze performance and manage operations. This non-GAAP financial measure was developed by management after the April 2011 merger (the "Merger") between the Company and Commercial Industrial Finance Corp. ("Legacy CIFC") given the Company's decision to focus on its core asset management business. The Company believes AEBT reflects the nature and substance of the business and the economic results driven by investment advisory fee revenues from the management of client funds, which are primarily CLOs.

To derive AEBT, the Company starts with the GAAP statement of operations, deconsolidates all of the CLOs and collateralized debt obligations ("CDOs") consolidated by the Company (the "Consolidated CLOs") and then eliminates and adjusts certain other items. A summary description of AEBT is included in Exhibit 1.1 to this press release and a detailed calculation of AEBT and a reconciliation between GAAP net income (loss) attributable to CIFC Corp. and AEBT is set forth in Exhibits 1.3 to 1.7 to this press release.

AEBT 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, AEBT should be considered an addition to, not as a substitute for, or superior to, financial measures determined in accordance with GAAP.

The discussion of AEBT and GAAP results herein focuses on the third quarter of 2012 as compared to the second quarter of 2012 as management determined the comparison to the most recent quarterly period is more useful than comparisons to prior year periods. Please refer to the Company's September 30, 2012 10-Q filing for discussions of the comparative results to the three and nine months ended September 30, 2011.

The following table represents the Company's AEBT, Adjusted EBIT, and Adjusted EBITDA for the quarters ended September 30, 2012 and June 30, 2012:

 



2012


Variance 



Q3


Q2


Q3 2012 vs. Q2 2012



 (In thousands) 

Revenues







   Investment advisory fees


$                     13,613


$                       12,243


$                         1,370

   Net investment and interest

   income:







    Investment and interest

    income 


1,822


892


930

    Interest expense


-


-


-

       Net investment and interest

       income


1,822


892


930

           Total net revenues


15,435


13,135


2,300








Expenses







  Compensation and benefits


5,188


5,547


(359)

  Professional services 


1,220


1,676


(456)

  Insurance expense 


486


485


1

  Other general and administrative

  expenses 


335


1,067


(732)

  Depreciation and amortization


153


46


107

  Occupancy


416


208


208

  Corporate interest expense


1,487


1,466


21

           Total expenses 


9,285


10,495


(1,210)















AEBT (1)


$                       6,150


$                        2,640


$                         3,510















Adjusted EBIT (2)


$                       7,637


$                        4,106


$                         3,531








Adjusted EBITDA (3)


$                       7,790


$                        4,152


$                         3,638









(1)  See detailed reconciliations between net income (loss) attributable to CIFC Corp., the most comparable GAAP financial measure, and AEBT in Exhibits 1.3 to 1.7.

(2)  Adjusted EBIT is AEBT excluding corporate interest expense.

(3)  Adjusted EBITDA is Adjusted EBIT excluding depreciation and amortization of fixed assets.

 

Net Revenues

Investment Advisory Fees

During the quarters ended September 30, 2012 and June 30, 2012, the Company earned investment advisory fees from its management of CLOs, CDOs and other investment products. Investment advisory fees from CLOs and CDOs totaled $13.4 million and $12.1 million for the quarters ended September 30, 2012 and June 30, 2012, respectively. The increase of investment advisory fees was primarily due to the third quarter collection of (i) the first payment of subordinated investment advisory fees for a recently closed CLO (while most CLOs pay us advisory fees quarterly, a CLO's initial payment may relate to a period longer than one quarter), (ii) an incentive management fee payment from a CLO which reached its incentive management fee hurdle during the quarter, and (iii) a one-time deferred management fee payment.

Investment advisory fees from CLOs comprised 94% and 93% of the total investment advisory fees the Company earned during the three months ended September 30, 2012 and June 30, 2012, respectively.

Net Investment and Interest Income

Net investment and interest income totaled $1.8 million and $0.9 million for the quarters ended September 30, 2012 and June 30, 2012, respectively. The increase in net investment and interest income is primarily due to the receipt of the first subordinated note distribution of $1.0 million on the Company's investment in a recently closed CLO. While most CLOs make distributions quarterly, a CLO's initial distribution often relates to a period longer than one quarter.

Expenses

Expenses totaled $9.3 million and $10.5 million for the quarters ended September 30, 2012 and June 30, 2012, respectively. The decrease was primarily the result of decreases in (i) other general and administrative expenses of $0.7 million, (ii) professional services of $0.5 million and (iii) compensation and benefits of $0.4 million. The decrease in other general administrative expenses is primarily driven by certain one-time technology charges during the second quarter. Additionally, the second quarter included the expenses related to the annual equity awards for the independent members of the board of directors.  The decline in professional services is primarily driven by the second quarter inclusion of expenses related to the creation of certain new investment products and recruiting fees which did not recur in the third quarter. These decreases were partially offset by increases in occupancy and depreciation and amortization expense of $0.2 million and $0.1 million, respectively, resulting from the relocation of the corporate headquarters to a larger space in the same building during the third quarter. 


GAAP Operating Results



2012


Variance 



Q3


Q2


Q3 2012 vs. Q2 2012



 (In thousands, except share and per share amounts) 

Revenues







   Investment advisory fees


$                  2,750


$                      2,554


$                     196

   Net investment and interest income:







    Investment and interest income 


76


147


(71)

    Interest expense


-


-


-

       Net investment and interest income


76


147


(71)

           Total net revenues


2,826


2,701


125








Expenses







  Compensation and benefits


5,188


5,547


(359)

  Professional services 


1,220


1,676


(456)

  Insurance expense 


486


485


1

  Other general and administrative expenses 


335


1,067


(732)

  Depreciation and amortization


3,802


4,672


(870)

  Occupancy


416


208


208

  Impairment of intangible assets


-


1,771


(1,771)

  Restructuring charges


-


19


(19)

           Total expenses 


11,447


15,445


(3,998)








Other Income (Expense) and Gain (Loss)







   Net gain (loss) on investments, loans, 







       derivatives and liabilities


(5,768)


(821)


(4,947)

   Corporate interest expense


(1,487)


(1,466)


(21)

   Strategic transactions expenses


(657)


-


(657)

   Other, net


11


(438)


449

           Net other income (expense) and gain (loss)


(7,901)


(2,725)


(5,176)








Operating income (loss)


(16,522)


(15,469)


(1,053)








Results of Consolidated Variable Interest Entities







   Net gain (loss) from activities of Consolidated







       Variable Interest Entities


(150,612)


19,088


(169,700)

   Expenses of Consolidated Variable Interest Entities


(2,936)


(1,655)


(1,281)

           Net results of Consolidated Variable Interest Entities


(153,548)


17,433


(170,981)








Income (loss) before income tax expense (benefit)


(170,070)


1,964


(172,034)

Income tax expense (benefit)


(1,757)


6,222


(7,979)








Net income (loss) 


(168,313)


(4,258)


(164,055)

   Net (income) loss attributable to noncontrolling interest







   and Consolidated Variable Interest Entities


169,001


(4,240)


173,241

Net income (loss) attributable to CIFC Corp.


$                     688


$                     (8,498)


$                     9,186








Earnings (loss) per share -







       Basic


$                    0.03


$                       (0.42)


$                       0.45

       Diluted


$                    0.03


$                       (0.42)


$                       0.45








Weighted-average number of shares outstanding - 







       Basic


19,957,041


20,223,437



       Diluted


21,907,984


20,223,437



Net income attributable to CIFC Corp. was $0.7 million, or $0.03 per fully diluted share for the quarter ended September 30, 2012, compared to a net loss attributable to CIFC Corp. of $8.5 million, or $0.42 per fully diluted share for the quarter ended June 30, 2012.  The increase in net income attributable to CIFC Corp. is primarily the result of reductions in expenses and income tax expense, partially offset by increased losses within net other income (expense) and gain (loss).

Total expenses decreased by $4.0 million for the quarter ended September 30, 2012, compared to the quarter ended June 30, 2012.  In addition to the expense items already discussed previously within the AEBT section above, the Company recorded an impairment charge of $1.8 million during the quarter ended June 30, 2012 to fully impair the intangible asset associated with a management contract for a CLO which was called for redemption during the period.

Net other income (expense) and gain (loss) decreased by $5.2 million for the quarter ended September 30, 2012, compared to the quarter ended June 30, 2012. This decrease is primarily the result of fluctuations in fair value of contingent liabilities that resulted in increased unrealized losses in the quarter ended September 30, 2012 and strategic transaction expenses related to the strategic relationship with GE Capital during the same period.

The net results of the Consolidated CLOs are included in net income (loss) attributable to non-controlling interests (which generally is comprised of the debt and subordinated note investments of third parties in these CLOs and CDOs) on the consolidated statement of operations.  These results are primarily driven by the changes in fair value of the assets and liabilities of the Consolidated CLOs.  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.

AUM

Investment advisory fees earned from investment products the Company manages on behalf of third party investors are the Company's 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 returns the Company generates for the account.

The following table summarizes the AUM for the Company's significant investment product categories:

 


September 30, 2012


June 30, 2012


Number of




Number of




Accounts


AUM (1)


Accounts


AUM (1)




(In thousands)




(In thousands)









CLOs

31


$            10,653,465


28


$              9,946,769

Other Loan-Based Products

2


320,042


1


133,828

     Total Loan-Based AUM

33


10,973,507


29


10,080,597

ABS CDOs

10


2,514,437


10


2,621,011

Corporate Bond CDOs

4


96,034


4


104,165

   Total AUM

47


$            13,583,978


43


$            12,805,773










(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.

AUM increased during the quarter ended September 30, 2012, compared to the quarter ended June 30, 2012, primarily as a result of the addition of four "Navigator CLOs" acquired from GE Capital as part of our strategic relationship and the closing of CIFC 2012-I.  The Navigator CLOs and CIFC 2012-I increased AUM by $718.5 million and $447.2 million, respectively, as of September 30, 2012.  These increases were partially offset by declines in AUM for certain CLOs and CDOs which have reached the end of their contractual "reinvestment periods", after which periods capital is returned to investors as assets pay down.

Liquidity

As of September 30, 2012, total liquidity was comprised of unrestricted cash and cash equivalents of $63.0 million. The decrease of $18.0 million in cash and cash equivalents from the June 30, 2012 balance is primarily attributable to investments the Company made during the period.  This included a $25.1 million investment in a warehouse ($13.6 million in cash and $11.5 million in loans) and a $9.0 million investment in CIFC 2012-I.  Additionally, the Company made a $4.5 million cash payment related to the closing of the strategic relationship with GE Capital.  These cash outflows were partially offset by operating cash inflows.

About CIFC

CIFC, based in New York, is one of the largest specialized asset managers of senior secured corporate loans in the world. CIFC combines what it believes are the best underwriting, portfolio management and value maximization practices to generate attractive and consistent returns for investors. CIFC's heritage CIFC CLO fund family has market leading performance in the U.S. managed CLO segment. The firm had $11.0 billion in AUM from corporate loan based products as of September 30, 2012 and serves more than 200 institutional investors in North America, Europe, Asia and Australia. For more information, please visit CIFC's 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 AUM and related investment advisory and incentive fee revenue; 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 the Company 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 Company's ability to make investments in new investment products, realize fee-based income under its investment management agreements, grow its fee-based income and deliver strong investment performance; the Company's failure to realize the expected benefits of the Merger; competitive conditions impacting the Company and the assets managed by the Company; the Company's ability to attract and retain qualified personnel; the Company's receipt of future CLO subordinated investment advisory fees on a current basis; 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 the Company's actual business and financial performance, and (ii) the Company's ability to clearly communicate management's view of such actual business and financial performance; the current United States and global economic environment; 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 and global economies; the ability of DFR Holdings, LLC and CIFC Parent Holdings, LLC to exercise substantial control over the Company's business; impairment charges or losses initiated by adverse industry or market developments or other facts or circumstances; the outcome of legal or regulatory proceedings to which the Company is or may become a party; the impact of pending legislation and regulations or changes in, and the Company's ability to remain in compliance with laws, regulations or government policies affecting its business, including investment management regulations and accounting standards; the Company's business prospects, the business prospects of and risks facing the companies in which the Company invests and the Company's ability to identify material risks facing such companies; the ability to maintain the Company's exemption from registration as an investment company pursuant to the Investment Company Act of 1940; reductions in the fair value of the Company's assets; limitations imposed by the Company's existing indebtedness and the Company's ability to access capital markets on commercially reasonable terms; the Company's ability to maintain adequate liquidity; fluctuation of the Company's quarterly results from quarter to quarter; 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

AEBT is a non-GAAP financial measure that management utilizes to analyze performance and manage operations. The Company believes AEBT reflects the nature and substance of the business and the economic results driven by investment advisory fee revenues from the management of client funds, which are primarily CLOs.  The Company is required under GAAP to consolidate certain variable interest entities, which include certain of the CLOs the Company manages. This required consolidation results in a presentation that materially differs from the way management views the business and as a result management developed AEBT, a non-GAAP metric for measuring the performance of its core business.

To derive AEBT, the Company starts with the GAAP statement of operations, deconsolidates all of the CLOs and CDOs consolidated by the Company (the "Consolidated CLOs") and then eliminates and adjusts certain other items. A detailed calculation of AEBT and a reconciliation between GAAP net income (loss) attributable to CIFC Corp. and AEBT is set forth in Exhibits 1.3 to 1.7 to this press release and a summary description is set forth below.

AEBT includes the following:

1.  Investment advisory fees net of any fee sharing arrangements;

a.  In accordance with the Company's revenue recognition policy, senior management fees are recognized as revenue on an accrual basis, while subordinated and incentive management fees are recognized on a cash basis;

2.  Net investment and interest income as follows:

a.  Distributions on the Company's investments in CLO subordinated notes (also known as "CLO equity");

b.  Interest income on the Company's investments in CLO debt investments;

c.  Net interest income from balance sheet investments (which included RMBS until the liquidation of that portfolio);

d.  Net investment and interest income from warehouses established from time-to-time to facilitate closing new CLOs or other funds and gains (losses) on assets within such warehouses, determined and accrued upon formalizing a transaction (not upon settlement);

e.  Realized gains (losses) from dispositions of core assets;

3.  Routine expenses directly attributable to generating revenues;

4.  Corporate interest expense;

5.  Depreciation and amortization expenses of fixed assets.

AEBT excludes the following:

1.  Realized and unrealized gains (losses) on dispositions of non-core assets;

2.  Unrealized gains (losses) on core assets;

3.  Non-recurring operating expenses, and one-time strategic transaction expenses (such as expenses related to the strategic relationship with GE Capital's Bank Loan Group and the Merger);

4.  Non-cash expenses such as amortization and impairment of intangible assets;

5.  Income taxes.

Exhibit 1.2

The table below provides AEBT for most recent five quarters:

 



2012


2011



Q3


Q2


Q1


Q4


Q3



 (In thousands) 

Revenues











   Investment advisory fees


$     13,613


$     12,243


$  11,836


$  12,361


$  11,985

   Net investment and interest income:











    Investment and interest income 

(4)

1,822


892


1,094


6,136


5,651

    Interest expense


-


-


142


643


582

       Net investment and interest

       income


1,822


892


952


5,493


5,069

           Total net revenues


15,435


13,135


12,788


17,854


17,054












Expenses











  Compensation and benefits


5,188


5,547


5,744


5,768


5,262

  Professional services 


1,220


1,676


1,381


1,951


1,544

  Insurance expense 


486


485


486


466


435

  Other general and administrative

  expenses 


335


1,067


485


1,061


748

  Depreciation and amortization


153


46


125


88


169

  Occupancy


416


208


433


458


440

  Corporate interest expense


1,487


1,466


1,469


1,456


1,445

           Total expenses 


9,285


10,495


10,123


11,248


10,043












AEBT (1) 


$       6,150


$       2,640


$    2,665


$    6,606

(5)

$    7,011












Adjusted EBIT (2)


$       7,637


$       4,106


$    4,134


$    8,062


$    8,456












Adjusted EBITDA (3)


$       7,790


$       4,152


$    4,259


$    8,150


$    8,625













(1)  See detailed reconciliations between net income (loss) attributable to CIFC Corp., the most comparable GAAP financial measure, and AEBT in Exhibits 1.3 to 1.7.

(2)  Adjusted EBIT is AEBT excluding corporate interest expense.

(3)  Adjusted EBITDA is Adjusted EBIT excluding depreciation and amortization of fixed assets.

(4)  Net investment and interest income in 2012 quarterly periods are significantly lower than that in 2011 quarterly periods due to the Company's exiting certain non-core activities, which process was substantially completed during the first quarter of 2012.

(5)  The Company refined its definition of AEBT to include warehouse net investment and interest income during the fourth quarter of 2011. As such, the previously disclosed AEBT for the third quarter of 2011 has been recast to include such net investment and interest income.


Exhibit 1.3

The table below provides a reconciliation from net income (loss) attributable to CIFC Corp. to AEBT, a non-GAAP measure used by management, for the three months ended September 30, 2012:

 


Three Months Ended September 30, 2012



Consolidated


Consolidation


Deconsolidated


Reconciling and 


Adjusted Totals



GAAP


Adjustments (1)


GAAP


Non-Recurring Items


To Compute AEBT



 (In thousands) 


Revenues











   Investment advisory fees

$                   2,750


$               13,374


$               16,124


$               (2,511)

(2)

$                13,613


   Net investment and interest income:











    Investment and interest income 

76


1,455


1,531


291

(3)

1,822


    Interest expense

-


-


-


-


-


       Net investment and interest income

76


1,455


1,531


291


1,822


           Total net revenues

2,826


14,829


17,655


(2,220)


15,435













Expenses











  Compensation and benefits

5,188


-


5,188


-


5,188


  Professional services 

1,220


-


1,220


-


1,220


  Insurance expense 

486


-


486


-


486


  Other general and administrative expenses 

335


-


335


-


335


  Depreciation and amortization

3,802


-


3,802


(3,649)

(4)

153


  Occupancy

416


-


416


-


416


  Corporate interest expense

-


-


-


1,487

(5)

1,487


  Impairment of intangible assets

-


-


-


-


-


  Restructuring charges

-


-


-


-


-


           Total expenses 

11,447


-


11,447


(2,162)


9,285













Other Income (Expense) and Gain (Loss)











   Net gain (loss) on investments, loans, 











       derivatives and liabilities

(5,768)


624


(5,144)


5,144

(6)

-


   Corporate interest expense

(1,487)


-


(1,487)


1,487

(5)

-


   Strategic transactions expenses

(657)


-


(657)


657

(7)

-


   Other, net

11


-


11


(11)

(6)

-


           Net other income (expense) and gain (loss)

(7,901)


624


(7,277)


7,277


-













Operating income (loss)

(16,522)


15,453


(1,069)


7,219


6,150













Net results of Consolidated Variable Interest Entities

(153,548)


153,548


-


-


-













Income (loss) before income tax expense (benefit)

(170,070)


169,001


(1,069)


7,219


6,150


Income tax expense (benefit)

(1,757)


-


(1,757)


1,757

(8)

-













Net income (loss) 

(168,313)


169,001


688


5,462


6,150


   Net (income) loss attributable to noncontrolling interest











        and Consolidated Variable Interest Entities

169,001


(169,001)


-


-


-


Net income (loss) attributable to CIFC Corp.

$                      688


$                      -


$                    688


$                 5,462


$                  6,150

(A)












Exhibit 1.4

The table below provides a reconciliation from net income (loss) attributable to CIFC Corp. to AEBT, a non-GAAP measure used by management, for the three months ended June 30, 2012:

 


Three Months Ended June 30, 2012




Consolidated


Consolidation


Deconsolidated


Reconciling and 


Adjusted Totals




GAAP


Adjustments (1)


GAAP


Non-Recurring Items


To Compute AEBT




 (In thousands) 



Revenues












   Investment advisory fees

$                  2,554


$                11,912


$              14,466


$              (2,223)

(2)

$                12,243



   Net investment and interest income:












    Investment and interest income 

147


602


749


143

(3)

892



    Interest expense

-


-


-


-


-



       Net investment and interest income

147


602


749


143


892



           Total net revenues

2,701


12,514


15,215


(2,080)


13,135















Expenses












  Compensation and benefits

5,547


-


5,547


-


5,547



  Professional services 

1,676


-


1,676


-


1,676



  Insurance expense 

485


-


485


-


485



  Other general and administrative expenses 

1,067


-


1,067


-


1,067



  Depreciation and amortization

4,672


-


4,672


(4,626)

(4)

46



  Occupancy

208


-


208


-


208



  Corporate interest expense

-


-


-


1,466

(5)

1,466



  Impairment of intangible assets

1,771


-


1,771


(1,771)

(9)

-



  Restructuring charges

19


-


19


(19)

(10)

-



           Total expenses 

15,445


-


15,445


(4,950)


10,495















Other Income (Expense) and Gain (Loss)












   Net gain (loss) on investments, loans, 












       derivatives and liabilities

(821)


679


(142)


142

(6)

-



   Corporate interest expense

(1,466)


-


(1,466)


1,466

(5)

-



   Other, net

(438)


-


(438)


438

(6)

-



           Net other income (expense) and gain (loss)

(2,725)


679


(2,046)


2,046


-















Operating income (loss)

(15,469)


13,193


(2,276)


4,916


2,640















Net results of Consolidated Variable Interest Entities

17,433


(17,433)


-


-


-















Income (loss) before income tax expense (benefit)

1,964


(4,240)


(2,276)


4,916


2,640



Income tax expense (benefit)

6,222


-


6,222


(6,222)

(8)

-















Net income (loss) 

(4,258)


(4,240)


(8,498)


11,138


2,640



   Net (income) loss attributable to noncontrolling interest












        and Consolidated Variable Interest Entities

(4,240)


4,240


-


-


-



Net income (loss) attributable to CIFC Corp.

$                 (8,498)


$                         -


$              (8,498)


$              11,138


$                 2,640

(A)














Exhibit 1.5

The table below provides a reconciliation from net income (loss) attributable to CIFC Corp. to AEBT, a non-GAAP measure used by management, for the three months ended March 31, 2012:

 


Three Months Ended March 31, 2012



Consolidated


Consolidation


Deconsolidated


Reconciling and 


Adjusted Totals



GAAP


Adjustments (1)


GAAP


Non-Recurring Items


To Compute AEBT



 (In thousands) 


Revenues











   Investment advisory fees

$                      2,744


$               11,501


$               14,245


$               (2,409)

(2)

$                    11,836


   Net investment and interest income:











    Investment and interest income 

2


632


634


460

(3)

1,094


    Interest expense

1


-


1


141

(11)

142


       Net investment and interest income

1


632


633


319


952


           Total net revenues

2,745


12,133


14,878


(2,090)


12,788













Expenses











  Compensation and benefits

5,744


-


5,744


-


5,744


  Professional services 

724


-


724


657

(12)

1,381


  Insurance expense 

486


-


486


-


486


  Other general and administrative expenses 

485


-


485


-


485


  Depreciation and amortization

4,851


-


4,851


(4,726)

(4)

125


  Occupancy

433


-


433


-


433


  Corporate interest expense

-


-


-


1,469

(5)

1,469


  Restructuring charges

3,904


-


3,904


(3,904)

(10)

-


           Total expenses 

16,627


-


16,627


(6,504)


10,123













Other Income (Expense) and Gain (Loss)











   Net gain (loss) on investments, loans, 











       derivatives and liabilities

(2,377)


(1,527)


(3,904)


3,904

(6)

-


   Corporate interest expense

(1,469)


-


(1,469)


1,469

(5)

-


   Net gain on the sale of management contract

5,772


-


5,772


(5,772)

(13)

-


   Other, net

(41)


-


(41)


41

(6)

-


           Net other income (expense) and gain (loss)

1,885


(1,527)


358


(358)


-













Operating income (loss)

(11,997)


10,606


(1,391)


4,056


2,665













Net results of Consolidated Variable Interest Entities

38,780


(37,518)


1,262


(1,262)

(14)

-













Income (loss) before income tax expense (benefit)

26,783


(26,912)


(129)


2,794


2,665


Income tax expense (benefit)

(1,724)


-


(1,724)


1,724

(8)

-













Net income (loss) 

28,507


(26,912)


1,595


1,070


2,665


   Net (income) loss attributable to noncontrolling interest











        and Consolidated Variable Interest Entities

(26,912)


26,912


-


-


-


Net income (loss) attributable to CIFC Corp.

$                      1,595


$                      -


$                 1,595


$                1,070


$                      2,665

(A)














Exhibit 1.6

The table below provides a reconciliation from net income (loss) attributable to CIFC Corp. to AEBT, a non-GAAP measure used by management, for the three months ended December 31, 2011:

 


Three Months ended December 31, 2011



Consolidated


Consolidation


Deconsolidated


Reconciling and 


Adjusted Totals



GAAP


Adjustments (1)


GAAP


Non-Recurring Items


To Compute AEBT



 (In thousands) 


Revenues











   Investment advisory fees

$                    3,334


$               11,679


$               15,013


$               (2,652)

(2)

$                  12,361


   Net investment and interest income:











    Investment and Interest income 

3


741


744


5,392

(3)

6,136


    Interest expense

1


-


1


642

(11)

643


       Net investment and interest income

2


741


743


4,750


5,493


           Total net revenues

3,336


12,420


15,756


2,098


17,854













Expenses











  Compensation and benefits

5,768


-


5,768


-


5,768


  Professional services 

5,227


-


5,227


(3,276)

(12)

1,951


  Insurance expense 

466


-


466


-


466


  Other general and administrative expenses 

1,061


-


1,061


-


1,061


  Depreciation and amortization

4,851


-


4,851


(4,763)

(4)

88


  Occupancy

458


-


458


-


458


  Corporate interest expense

-


-


-


1,456

(5)

1,456


  Impairment of intangible assets

718


-


718


(718)

(9)

-


  Restructuring charges

(418)


-


(418)


418

(10)

-


           Total expenses 

18,131


-


18,131


(6,883)


11,248













Other Income (Expense) and Gain (Loss)











   Net gain (loss) on investments, loans, 











       derivatives and liabilities

(3,185)


(147)


(3,332)


3,332

(6)

-


   Corporate interest expense

(1,456)


-


(1,456)


1,456

(5)

-


   Other, net

(2)


-


(2)


2

(6)

-


           Net other income (expense) and gain

           (loss)

(4,643)


(147)


(4,790)


4,790


-













Operating income (loss)

(19,438)


12,273


(7,165)


13,771


6,606













Net results of Consolidated Variable Interest Entities

26,467


(30,304)


(3,837)


3,837

(14)

-













Income (loss) before income tax expense (benefit)

7,029


(18,031)


(11,002)


17,608


6,606


Income tax expense (benefit)

11,503


-


11,503


(11,503)

(8)

-













Net income (loss)

(4,474)


(18,031)


(22,505)


29,111


6,606


   Net income (loss) attributable to noncontrolling interest











        and Consolidated Variable Interest

        Entities

(18,031)


18,031


-


-


-


Net income (loss) attributable to CIFC Corp.

$                (22,505)


$                      -


$             (22,505)


$               29,111


$                    6,606

(A)












Exhibit 1.7

The table below provides a reconciliation from net income (loss) attributable to CIFC Corp. to AEBT, 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 Totals



GAAP


Adjustments (1)


GAAP


Non-Recurring Items


To Compute AEBT



 (In thousands) 


Revenues











   Investment advisory fees

$                   3,108


$              11,424


$               14,532


$             (2,547)

(2)

$               11,985


   Net investment and interest income:











    Investment and interest income 

1


839


840


4,811

(3)

5,651


    Interest expense

1


-


1


581

(11)

582


       Net investment and interest income

-


839


839


4,230


5,069


           Total net revenues

3,108


12,263


15,371


1,683


17,054













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)

(10)

-


           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)

(6)

-


   Corporate interest expense

(1,445)


-


(1,445)


1,445

(5)

-


   Strategic transactions expenses

(71)


-


(71)


71

(7)

-


   Other, net

4


-


4


(4)

(6)

-


           Net other income (expense) and gain (loss)

3,076


(2,914)


162


(162)


-













Operating income (loss)

(7,935)


9,349


1,414


5,597


7,011













Net results of Consolidated Variable Interest Entities

(220,182)


209,458


(10,724)


10,724

(14)

-













Income (loss) before income tax expense (benefit)

(228,117)


218,807


(9,310)


16,321


7,011


Income tax expense (benefit)

(3,386)


-


(3,386)


3,386

(8)

-













Net income (loss)

(224,731)


218,807


(5,924)


12,935


7,011


   Net income (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)


$             12,935


$                 7,011

(A)













(A)  Represents AEBT.

(1)   Adjustments to eliminate the impact of the Consolidated CLOs.

(2)   Adjustments to reflect AEBT net of fee sharing arrangements. During 2012 the Company eliminated certain fee sharing arrangements relating to CLOs managed by CypressTree Investment Management, LLC, a subsidiary of the Company acquired by Legacy CIFC in 2010, resulting in the Company retaining more of the investment advisory fees received from these CLOs. In order to eliminate these fee sharing arrangements, the Company made payments of $0.3 million, $3.0 million and $2.9 million during three months ended September 30, 2012, June 30, 2012 and March 31, 2012, respectively.

(3)   The establishment of interest income for distributions received on the Company's investments in the DFR Middle Market CLO, Ltd. ("DFR MM CLO"), interest income and realized gains (losses) underlying the Company's total return swap warehouse ("Warehouse TRS") and realized gains (losses) from the on-balance sheet warehouse. Through February 7, 2012, the Company owned 100% of the subordinated notes of the DFR MM CLO and was required to consolidate the DFR MM CLO. As management views the economic impact of the Company's investments in the DFR MM CLO as the distributions received on those investments, the calculation of AEBT eliminates the GAAP net income (loss) on the DFR MM CLO (included within Net Results of Consolidated Variable Interest Entities) and includes the distributions received on the Company's investments in the DFR MM CLO. As management views the economic impact of the Warehouse TRS to be similar to a traditional warehouse borrowing arrangement, the calculation of AEBT eliminates the GAAP net income (loss) on the Warehouse TRS (included within Net Results of Consolidated Variable Interest Entities) and includes the net interest income and gains (losses) underlying the Warehouse TRS. This excludes a loss of $1.4 million determined and accrued upon formalizing a transaction (not upon settlement) which was included in GAAP net income during the three months ended March 31, 2012 and within AEBT during the three months ended December 31, 2011.

(4)   Elimination of intangible asset amortization.

(5)   Reclassification of corporate interest expense from other income (expense) and gain (loss) to expenses.

(6)   Elimination of net gains (losses) on the Company's proprietary investments and items (primarily non-recurring in nature) which are included within Other, net.

(7)   Elimination of strategic transactions expenses.

(8)   Elimination of income tax expense (benefit).

(9)   Elimination of impairment of intangible assets.

(10)  Elimination of restructuring charges.

(11)  Adjustment establishes interest expense underlying the Warehouse TRS.

(12)  Elimination of the benefit of the insurance settlement received related to the reimbursement of legal fees  associated with the Company's settlement with the SEC, which was previously disclosed in the March 31, 2011 10-Q filing. In addition, eliminates certain professional fees related to the sale of the Company's investments in the DFR MM CLO.

(13)  Elimination of the gain on the sale of the Company's rights to manage Gillespie CLO PLC.

(14)  Elimination of the GAAP net income (loss) related to the DFR MM CLO and the Warehouse TRS.

CIFC Corp. Contact:

Brunswick Group Contact:

Nga Tran

Christopher Beattie

(212) 624-1204

(212) 333-3810

 

SOURCE CIFC Corp.

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