UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): July 30, 2015

 


 

COWEN GROUP, INC.

(Exact Name of Registrant as Specified in Charter)

 


 

Delaware

 

001-34516

 

27-0423711

(State or Other Jurisdiction
of Incorporation)

 

(Commission File Number)

 

(I.R.S. Employer
Identification No.)

 

599 Lexington Avenue

New York, NY 10022

(Address of Principal Executive Offices and Zip Code)

 

Registrant’s telephone number, including area code: (212) 845-7900

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o                 Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o                 Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o                 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o                 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02. Results of Operations and Financial Condition.

 

On July 30, 2015, Cowen Group, Inc., a Delaware corporation (the “Company”) issued a press release announcing its financial results for the second quarter ended June 30, 2015, a copy of which is attached hereto as Exhibit 99.1.

 

The information in Exhibit 99.1 is furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

 

2



 

Item 9.01. Financial Statements and Exhibits.

 

(d)

Exhibit

 

 

99.1

Press Release issued by the Company dated July 30, 2015.

 

3



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

COWEN GROUP, INC.

 

 

 

Date: July 30, 2015

By:

/s/ Owen S. Littman

 

Name:

Owen S. Littman

 

Title:

General Counsel

 

4


Exhibit 99.1

 

 

Press Release

 

COWEN GROUP, INC. ANNOUNCES

SECOND QUARTER 2015 FINANCIAL RESULTS

 

New York, July 30, 2015 - Cowen Group, Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the second quarter ended June 30, 2015.

 

2015 Second Quarter Highlights(1)

 

·                  Economic income was $10.2 million or $0.09 per diluted share, compared to $8.5 million or $0.07 per diluted share in the second quarter 2014.

 

·                  GAAP net income attributable to common shareholders was $6.0 million or $0.05 per diluted common share compared to $8.4 million or $0.07 per diluted common share in the prior year period.  The second quarter 2015 figure includes a $3.3 million increase in income tax expense and $0.8 million in preferred stock dividends.

 

·                  Second quarter 2015 revenue rose 12% year over year to $124.4 million from $111.2 million in the prior year.

 

·                  As of July 1, 2015, assets under management stood at $13.2 billion, an increase of $381 million during the quarter.

 

·                  Book value per share increased to $6.22 as of June 30, 2015 from $4.65 on June 30, 2014.

 

·                  In May 2015, Cowen issued 120,750 shares of 5.625% Series A Cumulative Perpetual Convertible Preferred Stock in a private offering to eligible purchasers.

 

·                  In July 2015, Cowen announced the signing of definitive agreements to acquire Concept Capital Markets and Conifer Securities, both leading independent providers of prime brokerage services.

 

·                  During the quarter, the Company repurchased 2.8 million shares for $15.4 million under the Company’s existing share repurchase program.  Also, the Company acquired 1.0 million shares for $5.7 million as a result of net share settlement relating to the vesting of equity awards.

 

·                  On July 28, 2015, Cowen’s Board of Directors approved a $22.6 million increase in the Company’s share repurchase program.  With this increase, the total amount available for repurchase under the program is $25.0 million.

 


(1)  Unless otherwise stated, all financial highlights are presented on an Economic Income basis.

 



 

Peter A. Cohen, Chairman and Chief Executive Officer of Cowen Group said, “We made substantial progress in our operating businesses in the first six months of 2015.  At Cowen and Company, we delivered our strongest revenue period.  Investment banking demonstrated solid momentum and Equities continued to grow its market share.  At Ramius, we raised more than $700 million in assets since the start of the year from client types across the board.  Notwithstanding recent market volatility, investment income was up year over year in the first six months of the year.  We enhanced our well-capitalized position as we raised $121 million in preferred equity, bringing our total capitalization in excess of $1 billion.”

 

2015 Second Quarter GAAP Financial Information and Select Balance Sheet Data

 

For the second quarter of 2015, the Company reported GAAP net income attributable to common shareholders of $6.0 million, or $0.05 per diluted share, as compared to GAAP net income attributable to common shareholders of $8.4 million, or $0.07 per diluted share, in the second quarter of 2014.  The second quarter 2015 figure includes a $3.3 million increase in income tax expense and $0.8 million in preferred stock dividends.

 

The following table summarizes the Company’s GAAP financial results for the three months ended June 30, 2015 and 2014, and March 31, 2015, as well as the six months ended June 30, 2015 and 2014.

 

Summary GAAP Financial Information

 

 

 

Three Months Ended

 

Six Months Ended

 

(Dollar amounts in millions, except per share

 

June 30,

 

 

 

Mar. 31,

 

 

 

June 30,

 

 

 

information)

 

2015

 

2014

 

%

 

2015

 

%

 

2015

 

2014

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

119.6

 

$

92.9

 

29

%

$

121.1

 

(1

)%

$

240.7

 

$

199.6

 

21

%

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

 

$

6.0

 

$

8.4

 

(29

)%

$

16.7

 

(64

)%

$

22.7

 

$

18.2

 

24

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share (diluted)

 

$

0.05

 

$

0.07

 

(28

)%

$

0.14

 

(64

)%

$

0.19

 

$

0.15

 

27

%

 

Note: Amounts may not add due to rounding.

 

The Company’s stockholders’ equity as of June 30, 2015 was $786 million compared to $535 million as of June 30, 2014.  The increase in shareholders’ equity is primarily related to the release of the Company’s valuation allowance against deferred tax assets in the fourth quarter 2014 and the preferred stock issued in the second quarter 2015.

 

Common equity, which excludes preferred stock, was $684.2 million, or book value per share of $6.22 at June 30, 2015, compared to common equity of $535 million, or book value per share of $4.65 at June 30, 2014.

 

2



 

Select Balance Sheet Data

 

 

 

June 30,

 

March 31,

 

June 30,

 

(Amounts in millions, except per share information)

 

2015

 

2015

 

2014

 

Cowen Group Inc. stockholders’ equity

 

$

785.6

 

$

690.1

 

$

535.0

 

Less:

 

 

 

 

 

 

 

Preferred stock

 

101.4

 

 

 

Common equity (CE)

 

$

684.2

 

$

690.1

 

$

535.0

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

Book value per share (CE/CSO)

 

$

6.22

 

$

6.21

 

$

4.65

 

 

 

 

 

 

 

 

 

Common shares outstanding (CSO)

 

110.0

 

111.2

 

115.0

 

 

Economic Income (Loss)

 

Throughout the remainder of this press release the Company presents Economic Income financial measures that are not prepared in accordance with Generally Accepted Accounting Principles (“GAAP”).  In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds, (ii) excludes goodwill and intangible impairment, (iii) excludes certain other acquisition-related and/or reorganization expenses and (iv) excludes preferred stock dividends.  In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company’s investment as a general partner in certain real estate entities and the Company’s investment in the activist business. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

 

For a more complete description of Economic Income (Loss) and a reconciliation of GAAP net income (loss) to Economic Income (Loss) for the periods presented and additional information regarding the reconciling adjustments, please see the “Non-GAAP Financial Measures” section of this press release.

 

The table below summarizes the Company’s Economic Income financial results for the three months ended June 30, 2015 and 2014, and March 31, 2015, as well as the six months ended June 30, 2015 and 2014.

 

Summary Economic Income (Loss) Financial Information

 

 

 

Three Months Ended

 

Six Months Ended

 

(Dollar amounts in millions, except per

 

June 30,

 

 

 

Mar. 31,

 

 

 

June 30,

 

 

 

share information)

 

2015

 

2014

 

%

 

2015

 

%

 

2015

 

2014

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

124.4

 

$

111.2

 

12

%

$

161.7

 

(23

)%

$

286.1

 

$

221.8

 

29

%

Economic Income (Loss)

 

$

10.2

 

$

8.5

 

19

%

$

23.6

 

(57

)%

$

33.8

 

$

18.5

 

83

%

Economic Income (Loss) per share (diluted)

 

$

0.09

 

$

0.07

 

21

%

$

0.20

 

(57

)%

$

0.29

 

$

0.15

 

86

%

 

Note: Amounts may not add due to rounding.

 

3



 

2015 Second Quarter Economic Income Review

 

Total Economic Income Revenue

 

Total Economic Income revenue for the second quarter of 2015 was $124.4 million, a 12% increase compared to $111.2 million in the second quarter of 2014.  The increase in Economic Income revenue was primarily attributable to strength in the investment banking business which was partially offset by a decrease in performance fees from our activist and alternative solutions businesses and a decrease in investment income.

 

Economic Income Revenue

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

 

 

Mar. 31,

 

 

 

June 30,

 

 

 

(Dollar amounts in millions)

 

2015

 

2014

 

%

 

2015

 

%

 

2015

 

2014

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment banking

 

$

68.5

 

$

30.3

 

126

%

$

65.2

 

5

%

$

133.8

 

79.9

 

67

%

Brokerage

 

34.9

 

35.1

 

0

%

35.5

 

(2

)%

70.5

 

69.4

 

2

%

Management fees

 

16.5

 

16.2

 

2

%

16.6

 

%

33.1

 

30.3

 

10

%

Incentive income

 

(7.8

)

7.8

 

(200

)%

15.4

 

(151

)%

7.5

 

12.4

 

(39

)%

Investment income

 

12.2

 

21.6

 

(43

)%

28.9

 

(58

)%

41.1

 

29.8

 

38

%

Other revenue

 

0.1

 

0.2

 

(76

)%

0.1

 

(17

)%

0.1

 

0.1

 

29

%

Total Revenue

 

$

124.4

 

$

111.2

 

12

%

$

161.7

 

(23

)%

$

286.1

 

$

221.8

 

29

%

 

Note: Amounts may not add due to rounding.

 

Non-interest Expenses

 

Second quarter 2015 non-interest expense was $109.1 million compared to $96.2 million in the prior year period.  Items included in non-interest expenses are discussed below.

 

Compensation and Benefits Expense

 

Second quarter 2015 compensation and benefits expense was $74.6 million, a 17% increase compared to $63.6 million in the second quarter 2014.  The compensation to Economic Income revenue ratio was 60% in the second quarter 2015 compared to 57% in the prior year period.

 

Fixed Non-Compensation Expenses

 

Second quarter 2015 fixed non-compensation expenses rose $2.0 million year over year to $24.8 million.  This increase was primarily due to higher legal and other professional fees and an increase in costs from equity method investments.

 

Variable Non-Compensation Expenses

 

Second quarter 2015 variable non-compensation expenses were $12.0 million compared to $11.5 million in the second quarter 2014.  The increase is primarily related to an increase in client services and business development.

 

4



 

Interest Expense

 

Interest expense, which primarily relates to debt issued during the first and fourth quarters of 2014, was $4.1 million in the second quarter 2015 compared to $2.7 million in the prior year quarter.

 

Non-Controlling Interest

 

Non-Controlling interest represents the portion of the net income or loss attributable to certain non-wholly owned subsidiaries that is allocated to partners.

 

Alternative Investment Segment (“Ramius”)

 

Assets Under Management

 

As of July 1, 2015, the Company had assets under management of $13.2 billion.  Total AUM grew by $381 million from April 1, 2015.

 

Management Fees and Incentive Income

 

For the second quarter 2015, management fees were $16.5 million, compared to $16.2 million in the prior year.  This increase was primarily related to an increase in management fees for our activist and healthcare royalty businesses.

 

Incentive income was $(7.8) million in the second quarter 2015 compared to $7.8 million in the prior year period.  This decrease was primarily related to a decrease in performance fees from the activist and alternative solutions businesses.

 

Investment Income

 

For the second quarter 2015, investment income for the segment was $9.3 million, compared to $16.6 million in the second quarter 2014.  The decrease primarily relates to a decrease in the Company’s performance in the Company’s own invested capital.

 

Broker-Dealer Segment (“Cowen and Company”)

 

Brokerage

 

Brokerage revenue was $34.9 million in the second quarter 2015 compared to $35.1 million in the second quarter 2014.  Excluding revenue associated with the stock loan business which the Company decided to wind down during the fourth quarter 2014, brokerage revenue rose 4% year over year.  The increase was attributable to year over year market share gains in our cash equities business as well an increase in electronic and option trading revenue.

 

5



 

Investment Banking

 

Investment banking revenue reached a new quarterly high since the formation of Cowen Group in 2009.  In the second quarter 2015, investment banking revenue was $68.5 million, up 126% year over year from $30.3 million in the second quarter 2014.  The increase in revenue was primarily due to an increase in equity underwriting activity.

 

The following tables summarize the Company’s investment banking revenue and transaction count for the three and six months ended June 30, 2015 and 2014.

 

Investment Banking Revenue Summary

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Equity Underwriting

 

$

59.9

 

$

29.9

 

$

121.3

 

$

75.9

 

Debt Underwriting

 

1.6

 

 

1.9

 

0.9

 

Advisory

 

7.0

 

0.4

 

10.6

 

3.0

 

Total

 

$

68.5

 

$

30.3

 

$

133.8

 

$

79.9

 

 

Investment Banking Transaction Count

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Equity Underwriting

 

39

 

32

 

86

 

73

 

Of which bookrun:

 

24

 

9

 

51

 

23

 

Debt Underwriting

 

3

 

 

4

 

3

 

Advisory

 

5

 

 

7

 

3

 

Total

 

47

 

32

 

97

 

79

 

 

Investment Income

 

For the second quarter 2015, investment income for the segment was $3.0 million versus $5.0 million in the second quarter 2014.

 

Share Repurchase Program

 

Cowen today announced that its Board of Directors approved an increase to the Company’s share repurchase program that authorizes Cowen to purchase up to an additional $22.6 million of Cowen’s Class A common shares from time to time.  With this increase, the total amount available for repurchase under the program is $25.0 million.

 

The $22.6 million increase is in addition to the Company’s existing $86 million share repurchase program, under which the Company has acquired 21.8 million shares for $83.6 million since August 2011.  Also, since the program was initially announced in July 2011, the Company has acquired an additional 7.0 million shares outside of the share repurchase program as a result of net share settlement relating to the vesting of equity awards.

 

6



 

The program permits the Company to purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws.  It does not obligate the Company to make any purchases at any specific time or situation.  The program may be suspended or discontinued at any time.  As of June 30, 2015, Cowen had approximately 110 million Class A shares outstanding.

 

In the second quarter 2015, the Company repurchased 2.8 million shares for $15.4 million under the Company’s existing share repurchase program.  Also, the Company acquired 1.0 million shares outside of the share repurchase program as a result of net share settlement relating to the vesting of equity awards.

 

Earnings Conference Call with Management

 

The Company will host a conference call to discuss its 2015 second quarter results on Thursday, July 30, 2015, at 9:00 am EST.  The call can be accessed by dialing 1-(855) 760-0961 domestic or 1-(631) 485-4850 international.  The passcode for the call is 78820458.  A replay of the call will be available beginning at 12:00 pm EST July 30, 2015 through August 6, 2015.  To listen to the replay of this call, please dial 1-(855) 859-2056 domestic or 1-(404) 537-3406 international and enter passcode 78820458.

 

The call can also be accessed through live audio webcast or by delayed replay on the Company’s website at www.cowen.com.

 

About Cowen Group, Inc.

 

Cowen Group, Inc. is a diversified financial services firm and, together with its consolidated subsidiaries, provides alternative asset management, investment banking, research, and sales and trading services through its two business segments:  Ramius and its affiliates make up the Company’s alternative investment segment, while Cowen and Company and its affiliates make up the Company’s broker-dealer segment.  Ramius provides alternative asset management solutions to a global client base and manages a significant portion of Cowen’s proprietary capital.  Cowen and Company and its affiliates offer industry focused investment banking for growth-oriented companies, domain knowledge-driven research and a sales and trading platform for institutional investors.  Founded in 1918, the firm is headquartered in New York and has offices located worldwide.  To download Cowen’s investor relations app, which offers access to SEC filings, news releases, webcasts and presentations, please visit the App Store for iPhone and iPad or Google Play for Android mobile devices.

 

Cautionary Note Regarding Forward-Looking Statements

 

This press release contains forward-looking statements.  Forward-looking statements provide the Company’s current expectations or forecasts of future events.  Forward-looking statements include statements about the Company’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts.  Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements.  The Company’s actual results could differ materially from those anticipated in forward-looking statements for many

 

7



 

reasons, including the factors described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as filed with the Securities and Exchange Commission.  The Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are available at our website at www.cowen.com and at the Securities and Exchange Commission website at www.sec.gov.  Unless required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this press release.

 

Investor Relations Contacts

 

Cowen Group, Inc.

Stephen Lasota, Chief Financial Officer, (212) 845-7919

Nancy Wu, (646) 562-1259

 

Source:  Cowen Group, Inc.

 

8



 

Cowen Group, Inc.

Preliminary Unaudited Condensed Consolidated Statements of Operations

(Dollar amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

68,518

 

$

30,292

 

$

133,751

 

$

79,854

 

Brokerage

 

34,957

 

33,311

 

70,411

 

66,141

 

Management fees

 

10,266

 

9,692

 

20,650

 

18,616

 

Incentive income

 

(2,100

)

2,724

 

272

 

5,222

 

Interest and dividends

 

3,159

 

12,460

 

6,242

 

21,712

 

Reimbursement from affiliates

 

3,502

 

3,018

 

7,144

 

4,918

 

Other

 

704

 

752

 

1,372

 

1,307

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

196

 

655

 

440

 

1,141

 

Other

 

406

 

(2

)

420

 

668

 

Total revenue

 

119,608

 

92,902

 

240,702

 

199,579

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

75,328

 

64,404

 

171,192

 

131,965

 

Interest and dividends

 

6,095

 

10,193

 

11,874

 

17,265

 

General, administrative and other expenses

 

34,939

 

32,909

 

71,744

 

64,002

 

Consolidated Funds expenses

 

634

 

398

 

992

 

700

 

Total expenses

 

116,996

 

107,904

 

255,802

 

213,932

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

9,070

 

23,037

 

48,061

 

34,391

 

Consolidated Funds net (losses) gains

 

2,296

 

5,609

 

7,382

 

7,712

 

Total other income (loss)

 

11,366

 

28,646

 

55,443

 

42,103

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

13,978

 

13,644

 

40,343

 

27,750

 

Income tax expense/(benefit)

 

3,346

 

46

 

10,293

 

125

 

Net income (loss)

 

10,632

 

13,598

 

30,050

 

27,625

 

Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds

 

3,916

 

5,216

 

6,636

 

9,403

 

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

 

$

6,716

 

$

8,382

 

$

23,414

 

$

18,222

 

Preferred stock dividends

 

755

 

 

755

 

 

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

 

5,961

 

8,382

 

22,659

 

18,222

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

$

0.07

 

$

0.20

 

$

0.16

 

Diluted

 

$

0.05

 

$

0.07

 

$

0.19

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

 

 

 

 

Basic

 

111,915

 

115,569

 

111,987

 

115,626

 

Diluted

 

118,226

 

120,199

 

118,316

 

120,635

 

 

9



 

Non-GAAP Financial Measures

 

In addition to the results presented above in accordance with generally accepted accounting principles, or GAAP, the Company presents financial measures that are non-GAAP measures, such as Economic Income (Loss) and Economic Income (Loss) excluding certain non-cash items.  The Company believes that these non-GAAP measures, viewed in addition to, and not in lieu of, the Company’s reported GAAP results, provide useful information to investors regarding its performance and overall results of operations.  These metrics are an integral part of the Company’s internal reporting to measure the performance of its businesses and the overall effectiveness of senior management.  Reconciliations to comparable GAAP measures are available in the accompanying schedules.  The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other public companies, and are not identical to corresponding measures used in our various agreements or public filings.

 

Economic Income (Loss)

 

Economic Income (Loss) may not be comparable to similarly titled measures used by other public companies. Cowen uses Economic Income (Loss) as a measure of its operating performance, not as a measure of liquidity. Economic Income (Loss) should not be considered in isolation or as a substitute for operating income, net income, operating cash flows, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.  As a result of the adjustments made to arrive at Economic Income (Loss) described below, Economic Income (Loss) has limitations in that it does not take into account certain items included or excluded under GAAP, including its consolidated funds. Economic Income (Loss) is considered by management as a supplemental measure to the GAAP results to provide a more complete understanding of its performance as management measures it.

 

In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds, (ii) excludes goodwill and intangible impairment, (iii) excludes certain other acquisition-related and/or reorganization expenses and (iv) excludes preferred stock dividends.  In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company’s investment as a general partner in certain real estate entities and the Company’s investment in the activist business. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

 

Additionally, we have reported in this press release our Economic Income (Loss) excluding certain non-cash expenses.  For this measure, we have adjusted Economic Income (Loss) by the following non-cash expense items:

 

·                  Depreciation and amortization and

·                  Share-based compensation expense.

 

Management believes that the non-GAAP calculation of Economic Income (Loss) excluding certain non-cash items will allow for a better understanding of the Company’s operating results.

 

10



 

Cowen Group, Inc.

Unaudited Economic Income (Loss)

(Dollar amounts in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

68,518

 

$

30,292

 

$

133,751

 

$

79,854

 

Brokerage

 

34,934

 

35,052

 

70,458

 

69,401

 

Management fees

 

16,540

 

16,166

 

33,147

 

30,255

 

Incentive income

 

(7,815

)

7,817

 

7,547

 

12,412

 

Investment income

 

12,215

 

21,596

 

41,095

 

29,770

 

Other revenue

 

57

 

242

 

125

 

97

 

Total revenue

 

124,449

 

111,165

 

286,123

 

221,789

 

Expenses

 

 

 

 

 

 

 

 

 

Non-interest expense

 

109,088

 

96,180

 

240,250

 

193,532

 

Interest expense

 

4,145

 

2,654

 

8,167

 

3,297

 

Total expenses

 

113,233

 

98,834

 

248,417

 

196,829

 

Net Economic Income (Loss) Before Non-controlling Interests

 

11,216

 

12,331

 

37,706

 

24,960

 

Non-controlling interests

 

(1,051

)

(3,818

)

(3,896

)

(6,444

)

Economic Income (Loss)

 

$

10,165

 

$

8,513

 

$

33,810

 

$

18,516

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) Excluding Certain Non-cash Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss)

 

$

10,165

 

$

8,513

 

$

33,810

 

$

18,516

 

Exclusion of depreciation and amortization expense

 

2,140

 

2,380

 

4,275

 

4,757

 

Exclusion of share-based compensation expense

 

6,708

 

5,674

 

10,870

 

10,477

 

Economic Income (Loss) excluding certain non-cash items

 

$

19,013

 

$

16,567

 

$

48,955

 

$

33,751

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

$

0.07

 

$

0.30

 

$

0.16

 

Diluted

 

$

0.09

 

$

0.07

 

$

0.29

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

 

 

 

 

Basic

 

111,915

 

115,569

 

111,987

 

115,626

 

Diluted

 

118,226

 

120,199

 

118,316

 

120,635

 

 

11



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended June 30, 2015

(Dollar amounts in thousands)

 

 

 

Three Months Ended June 30, 2015

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

68,518

 

$

 

$

 

$

68,518

 

Brokerage

 

34,957

 

(23

)(e)

 

34,934

 

Management fees

 

10,266

 

5,944

(a)

330

 

16,540

 

Incentive income

 

(2,100

)

(5,839

)(a)

124

 

(7,815

)

Investment income

 

 

12,215

(c)

 

12,215

 

Interest and dividends

 

3,159

 

(3,159

)(c)(e)

 

 

Reimbursement from affiliates

 

3,502

 

(3,593

)(f)

91

 

 

Other revenue

 

704

 

(647

)(c)

 

57

 

Consolidated Funds

 

602

 

 

(602

)

 

Total revenue

 

119,608

 

4,898

 

(57

)

124,449

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Non interest expense

 

110,267

 

(1,179

)(c)(d)

 

109,088

 

Interest expense

 

6,095

 

(1,950

)(c)(e)

 

4,145

 

Consolidated Funds

 

634

 

 

(634

)

 

Total expenses

 

116,996

 

(3,129

)

(634

)

113,233

 

Total other income (loss)

 

11,366

 

(10,049

)(c)

(1,317

)

 

Income tax expense/(benefit)

 

3,346

 

(3,346

)(b)

 

 

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

 

(3,916

)

2,125

 

740

 

(1,051

)

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

 

$

6,716

 

$

3,449

 

$

 

$

10,165

 

 

Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:  The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income. Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 


Other Adjustments:

(a)    Economic Income recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and the activist business.

(b)    Economic Income excludes income taxes as management does not consider this item when evaluating the performance of the company.

(c)     Economic Income recognizes Company income from proprietary trading (including interest and dividends) net of related expenses.

(d)    Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

(e)     Economic Income (Loss) recognizes other brokerage dividends as brokerage revenue.

(f)      Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

 

12



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended June 30, 2014

(Dollar amounts in thousands)

 

 

 

 

 

Three Months Ended June 30, 2014

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

30,292

 

$

 

$

 

$

30,292

 

Brokerage

 

33,311

 

1,741

(e)

 

35,052

 

Management fees

 

9,692

 

6,231

(a)

243

 

16,166

 

Incentive income

 

2,724

 

4,939

(a)

154

 

7,817

 

Investment income

 

 

21,596

(c)

 

21,596

 

Interest and dividends

 

12,460

 

(12,460

)(c)(e)

 

 

Reimbursement from affiliates

 

3,018

 

(3,102

)(f)

84

 

 

Other revenue

 

752

 

(510

)(c)

 

242

 

Consolidated Funds

 

653

 

 

(653

)

 

Total revenue

 

92,902

 

18,435

 

(172

)

111,165

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Non interest expense

 

97,313

 

(1,133

)(c)(d)

 

96,180

 

Interest expense

 

10,193

 

(7,539

)(c)(e)

 

2,654

 

Consolidated Funds

 

398

 

 

(398

)

 

Total expenses

 

107,904

 

(8,672

)

(398

)

98,834

 

Total other income (loss)

 

28,646

 

(26,232

)(c)

(2,414

)

 

Income tax expense/(benefit)

 

46

 

(46

)(b)

 

 

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

 

(5,216

)

(790

)

2,188

 

(3,818

)

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

 

$

8,382

 

$

131

 

$

 

$

8,513

 

 

Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:  The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income. Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 


Other Adjustments:

(a)    Economic Income recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and the activist business.

(b)    Economic Income excludes income taxes as management does not consider this item when evaluating the performance of the company.

(c)     Economic Income recognizes Company income from proprietary trading (including interest and dividends) net of related expenses.

(d)    Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

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

(f)      Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

 

13



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Six Months Ended June 30, 2015

(Dollar amounts in thousands)

 

 

 

Six Months Ended June 30, 2015

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

133,751

 

$

 

$

 

$

133,751

 

Brokerage

 

70,411

 

47

(e)

 

70,458

 

Management fees

 

20,650

 

11,930

(a)

567

 

33,147

 

Incentive income

 

272

 

6,969

(a)

306

 

7,547

 

Investment income

 

 

41,095

(c)

 

41,095

 

Interest and dividends

 

6,242

 

(6,242

)(c)(e)

 

 

Reimbursement from affiliates

 

7,144

 

(7,320

)(f)

176

 

 

Other revenue

 

1,372

 

(1,247

)(c)

 

125

 

Consolidated Funds

 

860

 

 

(860

)

 

Total revenue

 

240,702

 

45,232

 

189

 

286,123

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Non interest expenses

 

242,936

 

(2,686

)(c)(d)

 

240,250

 

Interest expense

 

11,874

 

(3,707

)(c)(e)

 

8,167

 

Consolidated Funds

 

992

 

 

(992

)

 

Total expenses

 

255,802

 

(6,393

)

(992

)

248,417

 

 

 

 

 

 

 

 

 

 

 

Total other income (loss)

 

55,443

 

(51,719

)(c)

(3,724

)

 

 

 

 

 

 

 

 

 

 

 

Income tax expense/(benefit)

 

10,293

 

(10,293

)(b)

 

 

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

 

(6,636

)

197

 

2,543

 

(3,896

)

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

 

$

23,414

 

$

10,396

 

$

 

$

33,810

 

 

Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:    The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income. Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 

Other Adjustments:

 


(a) Economic Income recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and the activist business.

(b) Economic Income excludes income taxes as management does not consider this item when evaluating the performance of the company.

(c) Economic Income recognizes Company income from proprietary trading (including interest and dividends) net of related expenses.

(d) Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

(e) Economic Income (Loss) recognizes stock borrow/loan activity (prior to January 2015) and other brokerage dividends as brokerage revenue.

(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

 

14



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Six Months Ended June 30, 2014

(Dollar amounts in thousands)

 

 

 

Six Months Ended June 30 2014

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

79,854

 

$

 

$

 

$

79,854

 

Brokerage

 

66,141

 

3,260

(e)

 

69,401

 

Management fees

 

18,616

 

11,162

(a)

477

 

30,255

 

Incentive income

 

5,222

 

7,036

(a)

154

 

12,412

 

Investment income

 

 

29,770

(c)

 

29,770

 

Interest and dividends

 

21,712

 

(21,712

)(c)(e)

 

 

Reimbursement from affiliates

 

4,918

 

(5,082

)(f)

164

 

 

Other revenue

 

1,307

 

(1,210

)(c)

 

97

 

Consolidated Funds

 

1,809

 

 

(1,809

)

 

Total revenue

 

199,579

 

23,224

 

(1,014

)

221,789

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Non interest expense

 

195,967

 

(2,435

)(c)(d)

 

193,532

 

Interest expense

 

17,265

 

(13,968

)(c)(e)

 

3,297

 

Consolidated Funds

 

700

 

 

(700

)

 

Total expenses

 

213,932

 

(16,403

)

(700

)

196,829

 

 

 

 

 

 

 

 

 

 

 

Total other income (loss)

 

42,103

 

(39,482

)(c)

(2,621

)

 

 

 

 

 

 

 

 

 

 

 

Income tax expense/(benefit)

 

125

 

(125

)(b)

 

 

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

 

(9,403

)

24

 

2,935

 

(6,444

)

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

 

$

18,222

 

$

294

 

$

 

$

18,516

 

 

Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:    The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income. Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 

Other Adjustments:

 


(a) Economic Income recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and the activist business.

(b) Economic Income excludes income taxes as management does not consider this item when evaluating the performance of the company.

(c) Economic Income recognizes Company income from proprietary trading (including interest and dividends) net of related expenses.

(d) Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

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

(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

 

15