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): May 7, 2014

 


 

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 May 7, 2014, Cowen Group, Inc., a Delaware corporation (the “Company”) issued a press release announcing its financial results for the first quarter ended March 31, 2014, 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 May 7, 2014.

 

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: May 7, 2014

By:

/s/ Owen S. Littman

 

 

Name:

Owen S. Littman 

 

 

Title:

General Counsel

 

4


Exhibit 99.1

 

 

Press Release

 

Cowen Group, Inc. Announces 2014 First Quarter Financial Results

 

New York, May 7, 2014 - Cowen Group, Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the first quarter ended March 31, 2014.

 

2014 First Quarter Highlights(1)

 

·                  Economic income was $10.0 million, a new quarterly high since the Cowen / Ramius business combination in 2009 and an $11.3 million increase over the prior year period.

 

·                  Revenue of $110.8 million was also a new quarterly high since the Cowen / Ramius business combination in 2009.  First quarter revenue increased 48% year over year.

 

·                  Broker-dealer segment revenue rose 77% year over year to $83.7 million, driven by continued progress in both the investment banking and brokerage businesses.(2)

 

·                  Assets under management (“AUM”) as of April 1, 2014 was $10.6 billion.  AUM grew by $1.1 billion in the quarter.

 

·                  Fixed non compensation expenses were $22.8 million, a 2% increase from the prior year period.

 

·                  On March 10th, Cowen completed a private offering of $149.5 million principal amount of 3% cash convertible senior notes due 2019.

 


(1)  All financial highlights are presented on an Economic Income basis.

(2)  Includes broker-dealer segment’s allocation of Investment Income (Loss) and Other Revenue.

 

Peter A. Cohen, Chairman and Chief Executive Officer of Cowen Group said, “The first quarter of 2014 was Cowen Group’s most profitable quarter since the Cowen / Ramius business combination.  This performance was anchored by record revenue at our broker-dealer as well as continued progress at Ramius.  The capital markets environment for emerging growth companies was favorable to the services provided by our broker-dealer.  Ramius’ AUM now stands at $10.6 billion, a figure that we expect should grow further with demand from our existing products and the launch of new strategies this year.  This quarter also demonstrated our ability to scale the organization without adding significant fixed costs.  Our recent convertible debt financing further strengthens our capital base and provides us with additional flexibility to opportunistically invest in the future.”

 

1



 

2014 First Quarter GAAP Financial Information and Select Balance Sheet Data

 

For the first quarter 2014, the Company reported GAAP net income of $9.8 million, or $0.09 per share, as compared to a GAAP net loss of $2.6 million, or $(0.02) per share, in the first quarter of 2013.  The year-over-year improvement was primarily due to increased revenues across most of Cowen’s business lines.

 

The following table summarizes the Company’s GAAP financial results for the three months ended March 31, 2014 and 2013, and December 31, 2013.

 

Summary GAAP Financial Information

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

Dec. 31,

 

 

 

(Dollar amounts in millions, except per share information)

 

2014

 

2013

 

%

 

2013

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

106.7

 

$

67.2

 

59

%

$

97.4

 

9

%

Expenses

 

106.0

 

83.1

 

28

%

99.5

 

7

%

Other income (loss)

 

13.5

 

17.0

 

(21

)%

7.4

 

82

%

Income tax (benefit) expense

 

0.1

 

0.2

 

(55

)%

0.2

 

(53

)%

Net income (loss)

 

$

14.0

 

$

0.9

 

NM

 

$

5.2

 

170

%

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4.2

 

3.5

 

20

%

2.7

 

56

%

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

 

$

9.8

 

$

(2.6

)

NM

 

$

2.5

 

291

%

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share (basic):

 

$

0.09

 

$

(0.02

)

NM

 

$

0.02

 

NM

 

 

Note: Amounts may not add due to rounding.

 

The Company’s stockholders’ equity as of March 31, 2014, was $532.2 million, or book value per share of $4.61, compared to stockholders’ equity of $507.8 million, or book value per share of $4.41, as of December 31, 2013.

 

At March 31, 2014, the Company’s tangible book value per share was $4.19 compared to $3.99 at December 31, 2013.

 

Select Balance Sheet Data

 

 

 

March 31,

 

December 31,

 

(Dollar amounts in millions, except per share information)

 

2014

 

2013

 

Stockholders’ equity

 

$

532.2

 

$

507.8

 

Tangible stockholders’ equity

 

$

483.6

 

458.4

 

Common shares outstanding

 

115.4

 

115.0

 

 

 

 

 

 

 

Book value per share

 

$

4.61

 

$

4.41

 

Tangible book value per share

 

$

4.19

 

$

3.99

 

 

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 and (ii) excludes certain other acquisition-related and/or reorganization expenses.  In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company’s investment as a general partner in certain real estate entities and the Company’s investment in the activist business. For

 

2



 

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 March 31, 2014 and 2013, and December 31, 2013.

 

Summary Economic Income (Loss) Financial Information

 

 

 

Three Months Ended

 

(Dollar amounts in millions, except per

 

March 31,

 

 

 

Dec. 31,

 

 

 

share information)

 

2014

 

2013

 

%

 

2013

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

110.8

 

$

74.9

 

48

%

$

96.4

 

15

%

Expenses

 

98.1

 

74.1

 

32

%

87.3

 

12

%

Net Economic Income (Loss) before non-controlling interests

 

12.6

 

0.8

 

(83

)%

9.2

 

37

%

Economic Income (Loss)

 

$

10.0

 

$

(1.3

)

NM

 

$

2.7

 

270

%

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) per share

 

$

0.09

 

$

(0.01

)

NM

 

$

0.02

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) excluding certain non-cash items

 

$

17.2

 

$

6.0

 

185

%

$

9.2

 

87

%

 

Note: Amounts may not add due to rounding.

 

2014 First Quarter Economic Income Review

 

Total Economic Income Revenue

 

Total Economic Income Revenue for the first quarter 2014 was $110.8 million, a 48% increase compared to $74.9 million in the first quarter 2013.  The increase in Economic Income Revenue was primarily the result of an increase in investment banking fees and brokerage revenue, despite a decrease in incentive income and investment income.

 

Economic Income Revenue

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

Dec. 31,

 

 

 

(Dollar amounts in millions)

 

2014

 

2013

 

%

 

2013

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment banking

 

$

49.6

 

$

17.2

 

189

%

$

34.9

 

42

%

Brokerage

 

34.3

 

28.0

 

23

%

27.7

 

24

%

Management fees

 

14.1

 

14.1

 

0

%

13.9

 

1

%

Incentive income

 

4.7

 

5.1

 

(8

)%

7.4

 

(36

)%

Investment income

 

8.2

 

10.9

 

(25

)%

9.9

 

(17

)%

Other revenue

 

(0.1

)

(0.4

)

NM

 

2.6

 

NM

 

Total Revenues

 

$

110.8

 

$

74.9

 

48

%

$

96.4

 

15

%

 

Note: Amounts may not add due to rounding.

 

Compensation and Benefits Expense

 

First quarter 2014 compensation and benefits expense was $67.0 million, a 51% increase compared to $44.2 million in the first quarter 2013.  The increase is due to higher revenues during the first quarter of 2014 as compared to the 2013 period, which resulted in a higher compensation and benefits accrual to remain consistent with the Company’s compensation to revenue ratio despite a decline in headcount. 

 

3



 

Total headcount at the end of the first quarter was 634, a decline of 3% from the prior year period and 1% higher than the fourth quarter 2013.

 

The compensation to Economic Income revenue ratio was 60% in the current quarter compared to 59% in the prior year period.  The increase is primarily due to a change in business mix from the prior year period.  Compensation and benefits expense for the first quarter 2014 and 2013 included $4.8 million in share-based compensation expense in both periods.

 

Excluding $1.2 million of expenses associated with activities for which the Company is reimbursed and $0.8 million of severance expense, compensation and benefits expense was 59% of Economic Income revenue in the first quarter 2014.  Excluding these same two items, compensation and benefits expense was 55% of Economic Income revenue in the prior year period.

 

Fixed Non-Compensation Expenses

 

Fixed non-compensation expenses in the current quarter increased by 2% to $22.8 million as compared to $22.4 million in the comparable prior year quarter.  This was primarily due an increase in occupancy expense related to space acquired from the Dahlman Rose acquisition completed during the first quarter of 2013.  This expense was partially offset with savings related to various firm wide efforts to reduce fixed expenses.

 

Variable Non-Compensation Expenses

 

Variable non-compensation expenses were $9.4 million in the first quarter 2014, an increase of 8% compared to $8.7 million in the first quarter 2013.  The increase was due to an increase in floor brokerage and trade execution expenses related to the Dahlman Rose acquisition completed during first quarter of 2013 and overall higher revenues which generated increased trading costs.  In addition, marketing and business development expenses increased due to increased marketing activity firm wide.

 

Interest Expense

 

Interest expense was $0.6 million, an increase of $0.5 million over the prior year quarter, primarily due to debt issued during the first quarter of 2014.

 

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 other investors.  The period over period increase was the result of an extension of the partnership agreement relating to our alternative solutions business which resulted in a profit split and therefore more allocations of income to non-controlling interest holders.

 

Alternative Investment Segment (“Ramius”)

 

Assets Under Management

 

As of April 1, 2014, the Company had assets under management of $10.6 billion.  Total AUM grew by $1.1 billion from January 1, 2014.  The AUM increase during the first quarter of 2014 included $973 million in net subscriptions and $164 million of net positive performance.

 

4



 

Management Fees and Incentive Income

 

For the first quarter 2014, management fees were $14.1 million, unchanged compared to the year ago period.

 

The average annualized management fee charged in the first quarter 2014 was 0.59%, unchanged from the fourth quarter, and 0.67% in the prior year period.  The difference is related to undrawn committed capital in certain strategies that operate with private equity structures where fees are not yet generated as well as increases in certain large mandates with tiered management fee schedules.

 

Incentive income was $4.7 million in the first quarter 2014 compared to $5.1 million in the prior year period.  This decrease was primarily related to a decrease in performance fees from our credit and activist funds partially offset with an increase in fees from our real estate and alternative solutions products.

 

Investment Income

 

Investment income represents net revenues generated on our invested capital and includes interest and dividend income received or accrued as well as realized and unrealized gains/losses recognized during the period.  Investment income decreased by $2.7 million to $8.2 million in the first quarter 2014 from $10.9 million in the prior year period.  The decrease is due to a decrease in performance from certain investment strategies, including activist and event driven, despite increases in performance from our other investments.

 

Broker-Dealer Segment (“Cowen and Company”)

 

Brokerage

 

Brokerage revenue was $34.3 million in the first quarter 2014, an increase of $6.3 million, or 23%, compared to the first quarter 2013.  The quarter’s improvement was primarily due to the performance of businesses that we acquired as well as continued improvement in overall commissions and trading volume with customers related to the Company’s electronic trading and cash equities businesses.

 

Investment Banking

 

Investment banking revenue was $49.6 million in the first quarter 2014, an increase of $32.4 million or 189%, compared to $17.2 million in the first quarter 2013.  The increase in revenue was primarily due to an increase in equity underwriting activity.

 

·                  Equity underwriting revenue was $46.0 million from 41 transactions in the first quarter 2014, as compared to $10.7 million from 12 transactions in the comparable prior year period.  Of these transactions, the Company completed 14 bookrun assignments in the first quarter 2014, compared to four in the prior year period.

 

·                  Debt capital markets revenue was $0.9 million in the first quarter 2014 from the completion of three transactions, as compared to $3.7 million from the completion of two transactions in the prior year period.

 

·                  Strategic advisory revenue was $2.6 million in the first quarter 2014, as compared to $2.8 million in the first quarter 2013.  The Company completed three strategic advisory transactions in the first quarter 2014 as compared to two strategic advisory transactions in the prior year period.

 

5



 

Earnings Conference Call with Management

 

The Company will host a conference call to discuss its 2014 first quarter financial results on Wednesday, May 7, 2014, at 9:00 am EST.  The call can be accessed by dialing 1-800-237-9752 domestic or 1-617-847-8706 international.  The passcode for the call is 25421802.  A replay of the call will be available beginning at 1:00 pm EST May 7, 2014 through May 14, 2014.  To listen to the replay of this call, please dial 1-888-286-8010 domestic or 1-617-801-6888 international and enter passcode 80618574. The call can also be accessed through live audio webcast or by delayed replay on the Company’s website at www.cowen.com.

 

About Cowen Group, Inc.

 

Cowen Group, Inc. is a diversified financial services firm and, together with its consolidated subsidiaries, provides alternative asset management, investment banking, research, and sales and trading services through its two business segments:  Ramius and its affiliates make up the Company’s alternative investment segment, while Cowen and Company and its affiliates make up the Company’s broker-dealer segment.  Ramius provides alternative asset management solutions to a global client base and manages a significant portion of Cowen’s proprietary capital.  Cowen and Company and its affiliates offer industry focused investment banking for growth-oriented companies, domain knowledge-driven research and a sales and trading platform for institutional investors.  Founded in 1918, the firm is headquartered in New York and has offices located in major financial centers around the world.

 

Cautionary Note Regarding Forward-Looking Statements

 

This press release contains forward-looking statements.  Forward-looking statements provide the Company’s current expectations or forecasts of future events.  Forward-looking statements include statements about the Company’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts.  Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements.  The Company’s actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as filed with the Securities and Exchange Commission.  The Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are available at our website at www.cowen.com and at the Securities and Exchange Commission website at www.sec.gov.  Unless required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this press release.

 

SOURCE:

 

Cowen Group, Inc.

CONTACT:

 

Stephen Lasota

 

 

Cowen Group, Inc.

 

 

(212) 845-7919

 

6



 

Cowen Group, Inc.

Preliminary Unaudited Condensed Consolidated Statements of Operations

(Dollar amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

Revenues

 

 

 

 

 

Investment banking

 

$

49,562

 

$

17,166

 

Brokerage

 

32,830

 

26,600

 

Management fees

 

8,924

 

9,493

 

Incentive income

 

2,498

 

2,611

 

Interest and dividends

 

9,252

 

9,321

 

Reimbursement from affiliates

 

1,900

 

1,485

 

Other

 

555

 

478

 

Consolidated Funds

 

 

 

 

 

Interest and dividends

 

486

 

12

 

Other

 

670

 

75

 

Total revenues

 

106,677

 

67,241

 

Expenses

 

 

 

 

 

Employee compensation and benefits

 

67,561

 

44,223

 

Floor brokerage and trade execution

 

5,655

 

5,853

 

Interest and dividends

 

7,072

 

6,418

 

Professional, advisory and other fees

 

3,601

 

3,853

 

Service fees

 

2,142

 

2,577

 

Communications

 

3,246

 

3,739

 

Occupancy and equipment

 

6,397

 

5,719

 

Depreciation and amortization

 

2,380

 

2,553

 

Client services and business development

 

4,514

 

4,099

 

Other

 

3,158

 

3,644

 

Consolidated Funds

 

 

 

 

 

Interest and dividends

 

110

 

 

Professional, advisory and other fees

 

134

 

396

 

Floor brokerage and trade execution

 

2

 

 

Other

 

56

 

38

 

Total expenses

 

106,028

 

83,112

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

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

 

11

 

11,807

 

Consolidated Funds net (losses) gains:

 

 

 

 

 

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

 

2,164

 

5,070

 

Net realized and unrealized (losses) gains on derivatives

 

(21

)

304

 

Net (losses) gains on foreign currency transactions

 

(40

)

(215

)

Total other income (loss)

 

13,457

 

16,966

 

 

 

 

 

 

 

Income (loss) before income taxes

 

14,106

 

1,095

 

Income tax (benefit) expense

 

79

 

176

 

Net income (loss)

 

14,027

 

919

 

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

 

4,187

 

3,495

 

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

 

$

9,840

 

$

(2,576

)

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

Basic

 

$

0.09

 

$

(0.02

)

Diluted

 

$

0.08

 

$

(0.02

)

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

Basic

 

115,680

 

113,798

 

Diluted

 

122,898

 

113,798

 

 

7



 

 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 and (ii) excludes certain other acquisition-related and/or reorganization expenses .  In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company’s investment as a general partner in certain real estate entities and the Company’s investment in the 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.

 

8



 

Cowen Group, Inc.

Unaudited Economic Income (Loss)

(Dollar amounts in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

Revenues

 

 

 

 

 

Investment banking

 

$

49,562

 

$

17,166

 

Brokerage

 

34,349

 

28,017

 

Management fees

 

14,089

 

14,144

 

Incentive income

 

4,726

 

5,126

 

Investment income

 

8,172

 

10,872

 

Other revenue

 

(145

)

(440

)

Total revenues

 

110,753

 

74,885

 

Expenses

 

 

 

 

 

Employee compensation and benefits

 

66,957

 

44,246

 

Fixed non-compensation expenses

 

22,815

 

22,403

 

Variable non-compensation expenses

 

9,437

 

8,726

 

Interest expense

 

643

 

124

 

Reimbursement from affiliates

 

(1,726

)

(1,420

)

Total expenses

 

98,126

 

74,079

 

Net Economic Income (Loss) before non-controlling Interests

 

12,627

 

806

 

Non-controlling interests

 

(2,625

)

(2,075

)

Economic Income (Loss)

 

$

10,002

 

$

(1,269

)

 

 

 

 

 

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

 

 

 

 

Economic Income (Loss)

 

$

10,002

 

$

(1,269

)

Exclusion of depreciation and amortization expense

 

2,377

 

2,541

 

Exclusion of share-based compensation expense

 

4,803

 

4,752

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

$

17,182

 

$

6,024

 

 

9



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended March 31, 2014

(Dollar amounts in thousands)

 

 

 

Three Months Ended March 31, 2014

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

49,562

 

$

 

$

 

$

49,562

 

Brokerage

 

32,830

 

1,519

(e)

 

34,349

 

Management fees

 

8,924

 

4,931

(a)

234

 

14,089

 

Incentive income

 

2,498

 

2,228

(a)

 

4,726

 

Investment income

 

 

8,172

(c)

 

8,172

 

Interest and dividends

 

9,252

 

(9,252

)(c)

 

 

Reimbursement from affiliates

 

1,900

 

(1,980

)(b)

80

 

 

Other revenue

 

555

 

(700

)(c)

 

(145

)

Consolidated Funds

 

1,156

 

 

(1,156

)

 

Total revenues

 

106,677

 

4,918

 

(842

)

110,753

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

67,561

 

(604

)

 

66,957

 

Non-compensation expenses - Fixed

 

 

22,815

(c)(d)

 

22,815

 

Non-compensation expenses - Variable

 

 

9,437

(c)(d)

 

9,437

 

Non-compensation expenses

 

31,093

 

(31,093

)(c)(d)

 

 

Interest and dividends

 

7,072

 

(6,429

)(c)

 

643

 

Reimbursement from affiliates

 

 

(1,726

)(b)

 

(1,726

)

Consolidated Funds

 

302

 

 

(302

)

 

Total expenses

 

106,028

 

(7,600

)

(302

)

98,126

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

11,354

 

(11,354

)(c)

 

 

Consolidated Funds net gains (losses)

 

2,103

 

(1,896

)

(207

)

 

Total other income (loss)

 

13,457

 

(13,250

)

(207

)

 

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

 

14,106

 

(732

)

(747

)

12,627

 

Income taxes (Benefit)

 

79

 

(79

)(b)

 

 

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

 

14,027

 

(653

)

(747

)

12,627

 

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

 

(4,187

)

815

 

747

 

(2,625

)

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

 

$

9,840

 

$

162

 

$

 

$

10,002

 

 


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

 

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

 

Other Adjustments:

 

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

(b) Economic Income excludes income taxes as management does not consider this item when evaluating the performance of the segment. Also, reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

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

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

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

 

10



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended March 31, 2013

(Dollar amounts in thousands)

 

 

 

Three Months Ended March 31, 2013

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

17,166

 

$

 

$

 

$

17,166

 

Brokerage

 

26,600

 

1,417

(e)

 

28,017

 

Management fees

 

9,493

 

4,340

(a)

311

 

14,144

 

Incentive income

 

2,611

 

2,515

(a)

 

5,126

 

Investment income

 

 

10,872

(c)

 

10,872

 

Interest and dividends

 

9,321

 

(9,321

)(c)

 

 

Reimbursement from affiliates

 

1,485

 

(1,420

)(b)

(65

)

 

Other revenue

 

478

 

(918

)(c)

 

(440

)

Consolidated Funds

 

87

 

 

(87

)

 

Total revenues

 

67,241

 

7,485

 

159

 

74,885

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

44,223

 

23

 

 

44,246

 

Non-compensation expenses - Fixed

 

 

22,403

(c)(d)

 

22,403

 

Non-compensation expenses - Variable

 

 

8,726

(c)(d)

 

8,726

 

Non-compensation expenses

 

32,037

 

(32,037

)(c)(d)

 

 

Interest and dividends

 

6,418

 

(6,294

)(c)

 

124

 

Reimbursement from affiliates

 

 

(1,420

)(b)

 

(1,420

)

Consolidated Funds

 

434

 

 

(434

)

 

Total expenses

 

83,112

 

(8,599

)

(434

)

74,079

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

11,807

 

(11,807

)(c)

 

 

Consolidated Funds net gains (losses)

 

5,159

 

(2,866

)

(2,293

)

 

Total other income (loss)

 

16,966

 

(14,673

)

(2,293

)

 

 

 

 

 

 

 

 

 

 

 

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

 

1,095

 

1,411

 

(1,700

)

806

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

176

 

(176

)(b)

 

 

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

 

919

 

1,587

 

(1,700

)

806

 

 

 

 

 

 

 

 

 

 

 

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

 

(3,495

)

(280

)

1,700

 

(2,075

)

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

 

$

(2,576

)

$

1,307

 

$

 

$

(1,269

)

 


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

 

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

 

Other Adjustments:

 

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

(b) Economic Income excludes goodwill impairment and income taxes as management does not consider this item when evaluating the performance of the segment. Also, reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

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

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

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

 

11