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): November 6, 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 November 6, 2014, Cowen Group, Inc., a Delaware corporation (the “Company”) issued a press release announcing its financial results for the third quarter ended September 30, 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 November 6, 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: November 6, 2014

By:

/s/ Owen S. Littman

 

 

 

 

 

Name:

Owen S. Littman

 

 

Title:

General Counsel

 

4


Exhibit 99.1

 

 

Press Release

 

Cowen Group, Inc. Announces 2014 Third Quarter Financial Results

 

New York, November 6, 2014 - Cowen Group, Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the third quarter ended September 30, 2014.

 

2014 Third Quarter and Nine Month Highlights(1)

 

·                  For the third quarter 2014, economic income was $6.7 million or $0.06 per diluted common share, compared to $3.7 million or $0.03 per diluted common share in the prior year period.

 

·                  GAAP net income was $6.5 million or $0.05 per diluted common share for the third quarter 2014, compared to $3.6 million or $0.03 per diluted common share for the third quarter 2013.

 

·                  Excluding syndication costs associated with one of our alternative investment funds, third quarter 2014 economic income was $0.08 per diluted common share and GAAP net income was $0.07 per diluted common share.

 

·                  Third quarter 2014 revenue rose 20% year over year to $110.3 million.  For the nine months ended September 30, 2014, revenue and economic income achieved new records since the Cowen / Ramius business combination in 2009.  Revenue grew 34% year over year to $332.6 million.  Economic income increased 552% year over year to $25.2 million.

 

·                  Broker-dealer revenue was $85.1 million and $239.2 million for the three and nine month period ended September 2014, respectively, driven by continued gains in the investment banking and equities businesses.(2)

 

·                  As of October 1, 2014, assets under management (“AUM”) was $12.2 billion.  AUM increased by $549 million and $2.7 billion in the third quarter and first nine months of this year, respectively.

 

·                  Fixed non-compensation expenses were relatively flat compared to total revenue growth.   For the three and nine month period ended September 30, 2014, fixed non compensation expenses were unchanged and up 2% year over year, respectively.

 


(1)  Unless otherwise stated, 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, “We are proud of Cowen Group’s achievements in the first nine months of the year.  The broker dealer had its best quarter since the Cowen / Ramius business combination with strong contributions from both banking and equities.  With a growing platform of products offering differentiated returns, Ramius continued to attract solid interest for its investment products and strategies, driving AUM to new levels.  Our control over fixed expenses, despite record revenue, shows the scalability of our business.”

 



 

2014 Third Quarter GAAP Financial Information and Select Balance Sheet Data

 

For the third quarter 2014, the Company reported GAAP net income of $6.5 million, or $0.05 per diluted share, as compared to a GAAP net income of $3.6 million, or $0.03 per diluted share, in the third quarter of 2013.  The year-over-year improvement was primarily due to increased revenues across Cowen’s business lines.

 

The following table summarizes the Company’s GAAP financial results for the three months ended September 30, 2014 and 2013, and June 30, 2014, as well as the nine months ended September 30, 2014 and 2013.

 

Summary GAAP Financial Information

 

 

 

Three Months Ended

 

Nine Months Ended

 

(Dollar amounts in millions, except per share

 

Sept. 30,

 

 

 

June 30,

 

 

 

Sept. 30,

 

 

 

information)

 

2014

 

2013

 

%

 

2014

 

%

 

2014

 

2013

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

107.1

 

$

82.1

 

30

%

$

92.9

 

15

%

$

306.7

 

$

232.2

 

32

%

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

 

$

6.5

 

$

3.6

 

81

%

$

8.4

 

(22

)%

$

24.7

 

$

2.1

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share (diluted)

 

$

0.05

 

$

0.03

 

87

%

$

0.07

 

(21

)%

$

0.21

 

$

0.02

 

NM

 

 

Note: Amounts may not add due to rounding.

 

The Company’s stockholders’ equity as of September 30, 2014, was $538.9 million, or book value per share of $4.74, compared to stockholders’ equity of $535.0 million, or book value per share of $4.65, as of June 30, 2014.

 

At September 30, 2014, the Company’s tangible book value per share was $4.33 compared to $4.24 at June 30, 2014.

 

Select Balance Sheet Data

 

 

 

Sept. 30,

 

June 30,

 

Sept. 30,

 

(Amounts in millions, except per share information)

 

2014

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

$

538.9

 

$

535.0

 

$

511.3

 

Tangible stockholders’ equity

 

$

491.6

 

487.2

 

462.2

 

Common shares outstanding

 

113.6

 

115.0

 

117.4

 

 

 

 

 

 

 

 

 

Book value per share

 

$

4.74

 

$

4.65

 

$

4.35

 

Tangible book value per share

 

$

4.33

 

$

4.24

 

$

3.94

 

 

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 US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income

 

2



 

(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 September 30, 2014 and 2013, and June 30, 2014 and the nine months ended September 30, 2014 and 2013.

 

Summary Economic Income (Loss) Financial Information

 

 

 

Three Months Ended

 

Nine Months Ended

 

(Dollar amounts in millions, except per

 

Sept. 30,

 

 

 

June 30,

 

 

 

Sept. 30,

 

 

 

share information)

 

2014

 

2013

 

%

 

2014

 

%

 

2014

 

2013

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

110.3

 

$

92.1

 

20

%

$

111.5

 

(1

)%

$

332.6

 

$

248.1

 

34

%

Economic Income (Loss)

 

$

6.7

 

$

3.7

 

73

%

$

8.5

 

(21

)%

$

25.2

 

$

3.9

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) excluding certain non-cash items

 

$

12.8

 

$

10.6

 

21

%

$

16.6

 

(23

)%

$

46.5

 

$

25.4

 

83

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) per share (diluted)

 

$

0.06

 

$

0.03

 

89

%

$

0.07

 

(20

)%

$

0.21

 

$

0.03

 

NM

 

 

Note: Amounts may not add due to rounding.

 

2014 Third Quarter Economic Income Review

 

Total Economic Income Revenue

 

Total Economic Income Revenue for the third quarter 2014 was $110.3 million, a 20% increase compared to $92.1 million in the third quarter 2013.  The increase in Economic Income Revenue was primarily the result of an increase in investment banking, brokerage and management fee revenue.

 

Economic Income Revenue

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

Sept. 30,

 

 

 

June 30,

 

 

 

Sept. 30,

 

 

 

(Dollar amounts in millions)

 

2014

 

2013

 

%

 

2014

 

%

 

2014

 

2013

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment banking

 

$

45.8

 

$

27.7

 

65

%

$

30.3

 

51

%

$

125.7

 

70.4

 

78

%

Brokerage

 

35.6

 

32.0

 

11

%

35.1

 

2

%

105.0

 

93.4

 

12

%

Management fees

 

16.3

 

14.3

 

14

%

16.2

 

1

%

46.6

 

43.1

 

8

%

Incentive income

 

4.7

 

5.7

 

(16

)%

8.2

 

(42

)%

17.7

 

14.6

 

21

%

Investment income

 

7.5

 

12.3

 

(39

)%

21.6

 

(65

)%

37.2

 

26.8

 

39

%

Other revenue

 

0.4

 

0.1

 

NM

 

0.2

 

64

%

0.5

 

 

NM

 

Total Revenues

 

$

110.3

 

$

92.1

 

20

%

$

111.5

 

(1

)%

$

332.6

 

$

248.1

 

34

%

 

Note: Amounts may not add due to rounding.

 

Compensation and Benefits Expense

 

Third quarter 2014 compensation and benefits expense was $65.0 million, a 23% increase compared to $52.8 million in the third quarter 2013.  The increase is due to higher revenues during the third quarter of 2014 as compared to the 2013 period and an increase in headcount.  Total headcount at the end of the third quarter 2014 increased 4% from the prior year period.

 

3



 

The compensation to Economic Income revenue ratio was 59% in the current quarter compared to 57% in the prior year period.  Compensation and benefits expense for the third quarter 2014 and 2013 included $3.8 million and $4.3 million in share-based compensation expense in both periods, respectively.

 

Fixed Non-Compensation Expenses

 

Fixed non-compensation expenses in the current quarter were $23.8 million, unchanged from the prior year quarter.

 

Variable Non-Compensation Expenses

 

Variable non-compensation expenses were $12.2 million in the third quarter 2014 compared to $8.4 million in the third quarter 2013.  The increase is primarily related to syndication costs related to a capital raise by one of our alternative investment asset funds, which are treated as a current period expense, and increased firm wide marketing activity.

 

Interest Expense

 

Interest expense was $2.7 million in the third quarter 2014 compared to $0.1 million in the prior year quarter.  The increase is primarily due to the debt issued in 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 October 1, 2014, the Company had assets under management of $12.2 billion, an increase of $549 million from the second quarter 2014.

 

Management Fees and Incentive Income

 

For the third quarter 2014, management fees were $16.3 million, compared to $14.3 million in the prior year.  This increase was primarily related to an increase in management fees for our activist and healthcare businesses.

 

Incentive income was $4.7 million in the third quarter 2014 compared to $5.7 million in the prior year period.

 

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 was $7.5 million and $12.3 million in the third quarter 2014 and 2013, respectively.  Investment performance was less productive in the third quarter 2014 compared to the prior

 

4



 

year quarter as some of our investment strategies were exposed to equity and fixed income market volatility.

 

Broker-Dealer Segment (“Cowen and Company”)

 

Brokerage

 

Brokerage revenue was $35.6 million in the third quarter 2014, an increase of 11%, compared to $32.0 million in the third quarter 2013.  This was attributable to market share gains in our cash equities business as well an increase in electronic and option trading revenues.

 

Investment Banking

 

Investment banking revenue was $45.8 million in the third quarter 2014, up 65%, compared to $27.7 million in the third quarter 2013.  The increase in revenue was primarily due to an increase in equity and debt underwriting activity.

 

·                  Equity underwriting revenue was $22.7 million from 23 transactions in the third quarter 2014, as compared to $15.9 million from 20 transactions in the comparable prior year period.  The Company completed 10 bookrun assignments in the third quarter 2014 compared to five in the prior year period.

 

·                  Debt capital markets revenue was $19.2 million from 10 transactions in the third quarter 2014, as compared to $10.7 million from the completion of seven transactions in the prior year period.

 

·                  Strategic advisory revenue was $3.9 million in the third quarter 2014, as compared to $1.1 million in the third quarter 2013.  The Company completed three strategic advisory transactions in the third quarter 2014 as compared to one transaction in the prior year period.

 

Earnings Conference Call with Management

 

The Company will host a conference call to discuss its 2014 third quarter financial results on Thursday, November 6, 2014, at 9:00 am EST.  The call can be accessed by dialing 1-877-474-9502 domestic or 1-857-244-7555 international.  The passcode for the call is 37009185.  A replay of the call will be available beginning at 1:00 pm EST November 6, 2014 through November 13, 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 39887993.

 

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.

 

5



 

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

 

Nine Months Ended

 

 

 

Sept. 30,

 

Sept. 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

45,799

 

$

27,694

 

$

125,653

 

$

70,431

 

Brokerage

 

34,334

 

28,462

 

100,475

 

86,583

 

Management fees

 

9,796

 

9,327

 

28,412

 

28,518

 

Incentive income

 

(837

)

2,521

 

4,385

 

7,086

 

Interest and dividends

 

13,725

 

10,969

 

35,437

 

30,905

 

Reimbursement from affiliates

 

2,473

 

2,175

 

7,391

 

6,451

 

Other

 

1,120

 

556

 

2,427

 

1,519

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

642

 

255

 

1,783

 

414

 

Other

 

49

 

190

 

717

 

267

 

Total revenues

 

107,101

 

82,149

 

306,680

 

232,174

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

65,806

 

53,614

 

197,771

 

145,344

 

Floor brokerage and trade execution

 

5,125

 

5,421

 

16,638

 

17,669

 

Interest and dividends

 

12,429

 

6,281

 

29,694

 

20,886

 

Professional, advisory and other fees

 

4,621

 

4,022

 

12,596

 

10,878

 

Service fees

 

1,933

 

2,351

 

6,161

 

7,615

 

Communications

 

3,286

 

3,481

 

9,554

 

9,991

 

Occupancy and equipment

 

6,650

 

6,752

 

19,371

 

19,019

 

Depreciation and amortization

 

2,274

 

2,624

 

7,036

 

7,786

 

Client services and business development

 

6,577

 

3,493

 

16,726

 

12,251

 

Other

 

3,364

 

3,248

 

9,750

 

8,785

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

218

 

96

 

517

 

157

 

Professional, advisory and other fees

 

348

 

230

 

622

 

717

 

Floor brokerage and trade execution

 

1

 

91

 

7

 

196

 

Other

 

68

 

33

 

189

 

167

 

Total expenses

 

112,700

 

91,737

 

326,632

 

261,461

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

13,836

 

14,680

 

48,227

 

30,507

 

Consolidated Funds net (losses) gains:

 

 

 

 

 

 

 

 

 

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

 

532

 

3,096

 

8,474

 

11,274

 

Net realized and unrealized (losses) gains on derivatives

 

1,899

 

(32

)

1,688

 

430

 

Net (losses) gains on foreign currency transactions

 

2

 

168

 

(17

)

1

 

Total other income (loss)

 

16,269

 

17,912

 

58,372

 

42,212

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

10,670

 

8,324

 

38,420

 

12,925

 

Income tax (benefit) expense

 

141

 

(46

)

266

 

288

 

Net income (loss)

 

10,529

 

8,370

 

38,154

 

12,637

 

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

 

4,006

 

4,759

 

13,409

 

10,509

 

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

 

$

6,523

 

$

3,611

 

$

24,745

 

$

2,128

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.06

 

$

0.03

 

$

0.21

 

$

0.02

 

Diluted

 

$

0.05

 

$

0.03

 

$

0.21

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

 

 

 

 

Basic

 

114,969

 

118,359

 

115,407

 

116,012

 

Diluted

 

118,801

 

122,708

 

120,027

 

119,891

 

 

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

 

Nine Months Ended

 

 

 

Sept. 30,

 

Sept. 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

45,799

 

$

27,694

 

$

125,653

 

$

70,431

 

Brokerage

 

35,583

 

32,035

 

104,983

 

93,352

 

Management fees

 

16,319

 

14,299

 

46,574

 

43,050

 

Incentive income

 

4,746

 

5,666

 

17,665

 

14,558

 

Investment income

 

7,463

 

12,327

 

37,232

 

26,762

 

Other revenue

 

396

 

118

 

494

 

(46

)

Total revenues

 

110,306

 

92,139

 

332,601

 

248,107

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

64,968

 

52,842

 

195,557

 

143,702

 

Fixed non-compensation expenses

 

23,767

 

23,774

 

69,596

 

67,972

 

Variable non-compensation expenses

 

12,157

 

8,430

 

33,259

 

27,706

 

Interest expense

 

2,664

 

75

 

5,961

 

271

 

Reimbursement from affiliates

 

(1,830

)

(1,461

)

(5,313

)

(4,291

)

Total expenses

 

101,726

 

83,660

 

299,060

 

235,360

 

Net Economic Income (Loss) before non-controlling Interests

 

8,580

 

8,479

 

33,541

 

12,747

 

Non-controlling interests

 

(1,877

)

(4,813

)

(8,320

)

(8,880

)

Economic Income (Loss)

 

$

6,703

 

$

3,666

 

$

25,221

 

$

3,867

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss)

 

$

6,703

 

$

3,666

 

$

25,221

 

$

3,867

 

Exclusion of depreciation and amortization expense

 

2,270

 

2,621

 

7,027

 

7,763

 

Exclusion of share-based compensation expense

 

3,809

 

4,310

 

14,286

 

13,803

 

Economic Income (Loss) Excluding Certain Non-cash Items

 

$

12,782

 

$

10,597

 

$

46,534

 

$

25,433

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.06

 

$

0.03

 

$

0.22

 

$

0.03

 

Diluted

 

$

0.06

 

$

0.03

 

$

0.21

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

 

 

 

 

Basic

 

114,969

 

118,359

 

115,407

 

116,012

 

Diluted

 

118,801

 

122,708

 

120,027

 

119,891

 

 

9



 

Cowen Group, Inc.

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

(Dollar amounts in thousands)

 

 

 

Three Months Ended September 30, 2014

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

45,799

 

$

 

$

 

$

45,799

 

Brokerage

 

34,334

 

1,249

(e)

 

35,583

 

Management fees

 

9,796

 

6,277

(a)

246

 

16,319

 

Incentive income

 

(837

)

5,549

(a)

34

 

4,746

 

Investment income

 

 

7,463

(c)

 

7,463

 

Interest and dividends

 

13,725

 

(13,725

)(c) (e)

 

 

Reimbursement from affiliates

 

2,473

 

(2,354

)(f)

(119

)

 

Other revenue

 

1,120

 

(724

)(c)

 

396

 

Consolidated Funds

 

691

 

 

(691

)

 

Total revenues

 

107,101

 

3,735

 

(530

)

110,306

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

65,806

 

(838

)

 

64,968

 

Non-compensation expenses - Fixed

 

 

23,767

(c)(d)

 

23,767

 

Non-compensation expenses - Variable

 

 

12,157

(c)(d)

 

12,157

 

Non-compensation expenses

 

33,830

 

(33,830

)(c)(d)

 

 

Interest and dividends

 

12,429

 

(9,765

)(c) (e)

 

2,664

 

Reimbursement from affiliates

 

 

(1,830

)(f)

 

(1,830

)

Consolidated Funds

 

635

 

 

(635

)

 

Total expenses

 

112,700

 

(10,339

)

(635

)

101,726

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

13,836

 

(13,836

)(c)

 

 

Consolidated Funds net gains (losses)

 

2,433

 

(1,545

)

(888

)

 

Total other income (loss)

 

16,269

 

(15,381

)

(888

)

 

 

 

 

 

 

 

 

 

 

 

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

 

10,670

 

(1,307

)

(783

)

8,580

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

141

 

(141

)(b)

 

 

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

 

10,529

 

(1,166

)

(783

)

8,580

 

 

 

 

 

 

 

 

 

 

 

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

 

(4,006

)

1,346

 

783

 

(1,877

)

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

 

$

6,523

 

$

180

 

$

 

$

6,703

 

 

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.

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

 

10



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended September 30, 2013

(Dollar amounts in thousands)

 

 

 

Three Months Ended September 30, 2013

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

27,694

 

$

 

$

 

$

27,694

 

Brokerage

 

28,462

 

3,573

(e)

 

32,035

 

Management fees

 

9,327

 

4,697

(a)

275

 

14,299

 

Incentive income

 

2,521

 

3,145

(a)

 

5,666

 

Investment income

 

 

12,327

(c)

 

12,327

 

Interest and dividends

 

10,969

 

(10,969

)(c) (e)

 

 

Reimbursement from affiliates

 

2,175

 

(2,250

)(f)

75

 

 

Other revenue

 

556

 

(438

)(c)

 

118

 

Consolidated Funds

 

445

 

 

(445

)

 

Total revenues

 

82,149

 

10,085

 

(95

)

92,139

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

53,614

 

(772

)

 

52,842

 

Non-compensation expenses - Fixed

 

 

23,774

(c)(d)

 

23,774

 

Non-compensation expenses - Variable

 

 

8,430

(c)(d)

 

8,430

 

Non-compensation expenses

 

31,392

 

(31,392

)(c)(d)

 

 

Interest and dividends

 

6,281

 

(6,206

)(c)(e)

 

75

 

Reimbursement from affiliates

 

 

(1,461

)(f)

 

(1,461

)

Consolidated Funds

 

450

 

 

(450

)

 

Total expenses

 

91,737

 

(7,627

)

(450

)

83,660

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

14,680

 

(14,680

)(c)

 

 

Consolidated Funds net gains (losses)

 

3,232

 

(2,002

)

(1,230

)

 

Total other income (loss)

 

17,912

 

(16,682

)

(1,230

)

 

 

 

 

 

 

 

 

 

 

 

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

 

8,324

 

1,030

 

(875

)

8,479

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

(46

)

46

(b)

 

 

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

 

8,370

 

984

 

(875

)

8,479

 

 

 

 

 

 

 

 

 

 

 

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

 

(4,759

)

(929

)

875

 

(4,813

)

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

 

$

3,611

 

$

55

 

$

 

$

3,666

 

 

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.

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

 

11



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Nine Months Ended September 30, 2014

(Dollar amounts in thousands)

 

 

 

Nine Months Ended September 30, 2014

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

125,653

 

$

 

$

 

$

125,653

 

Brokerage

 

100,475

 

4,508

(e)

 

104,983

 

Management fees

 

28,412

 

17,439

(a)

723

 

46,574

 

Incentive income

 

4,385

 

13,092

(a)

188

 

17,665

 

Investment income

 

 

37,232

(c)

 

37,232

 

Interest and dividends

 

35,437

 

(35,437

)(c)(e)

 

 

Reimbursement from affiliates

 

7,391

 

(7,436

)(f)

45

 

 

Other revenue

 

2,427

 

(1,933

)(c)

 

494

 

Consolidated Funds

 

2,500

 

 

(2,500

)

 

Total revenues

 

306,680

 

27,465

 

(1,544

)

332,601

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

197,771

 

(2,214

)

 

195,557

 

Non-compensation expenses - Fixed

 

 

69,596

(c)(d)

 

69,596

 

Non-compensation expenses - Variable

 

 

33,259

(c)(d)

 

33,259

 

Non-compensation expenses

 

97,832

 

(97,832

)(c)(d)

 

 

Interest and dividends

 

29,694

 

(23,733

)(c) (e)

 

5,961

 

Reimbursement from affiliates

 

 

(5,313

)(f)

 

(5,313

)

Consolidated Funds

 

1,335

 

 

(1,335

)

 

Total expenses

 

326,632

 

(26,237

)

(1,335

)

299,060

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

48,227

 

(48,227

)(c)

 

 

Consolidated Funds net gains (losses)

 

10,145

 

(6,636

)

(3,509

)

 

Total other income (loss)

 

58,372

 

(54,863

)

(3,509

)

 

 

 

 

 

 

 

 

 

 

 

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

 

38,420

 

(1,161

)

(3,718

)

33,541

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

266

 

(266

)(b)

 

 

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

 

38,154

 

(895

)

(3,718

)

33,541

 

 

 

 

 

 

 

 

 

 

 

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

 

(13,409

)

1,371

 

3,718

 

(8,320

)

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

 

$

24,745

 

$

476

 

$

 

$

25,221

 

 

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.

(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.

(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 Nine Months Ended September 30, 2013

(Dollar amounts in thousands)

 

 

 

Nine Months Ended September 30, 2013

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenues

 

 

 

 

 

 

 

 

 

Investment banking

 

$

70,431

 

$

 

$

 

$

70,431

 

Brokerage

 

86,583

 

6,769

(e)

 

93,352

 

Management fees

 

28,518

 

13,661

(a)

871

 

43,050

 

Incentive income

 

7,086

 

7,472

(a)

 

14,558

 

Investment income

 

 

26,762

(c)

 

26,762

 

Interest and dividends

 

30,905

 

(30,905

)(c)(e)

 

 

Reimbursement from affiliates

 

6,451

 

(6,657

)(f)

206

 

 

Other revenue

 

1,519

 

(1,565

)(c)

 

(46

)

Consolidated Funds

 

681

 

 

(681

)

 

Total revenues

 

232,174

 

15,537

 

396

 

248,107

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation & Benefits

 

145,344

 

(1,642

)

 

143,702

 

Non-compensation expenses - Fixed

 

 

67,972

(c)(d)

 

67,972

 

Non-compensation expenses - Variable

 

 

27,706

(c)(d)

 

27,706

 

Non-compensation expenses

 

93,994

 

(93,994

)(c)(d)

 

 

Interest and dividends

 

20,886

 

(20,615

)(c)(e)

 

271

 

Reimbursement from affiliates

 

 

(4,291

)(f)

 

(4,291

)

Consolidated Funds

 

1,237

 

 

(1,237

)

 

Total expenses

 

261,461

 

(24,864

)

(1,237

)

235,360

 

 

 

 

 

 

 

 

 

 

 

Other income (loss)

 

 

 

 

 

 

 

 

 

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

 

30,507

 

(30,507

)(c)

 

 

Consolidated Funds net gains (losses)

 

11,705

 

(6,843

)

(4,862

)

 

Total other income (loss)

 

42,212

 

(37,350

)

(4,862

)

 

 

 

 

 

 

 

 

 

 

 

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

 

12,925

 

3,051

 

(3,229

)

12,747

 

 

 

 

 

 

 

 

 

 

 

Income taxes (Benefit)

 

288

 

(288

)(b)

 

 

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

 

12,637

 

3,339

 

(3,229

)

12,747

 

 

 

 

 

 

 

 

 

 

 

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

 

(10,509

)

(1,600

)

3,229

 

(8,880

)

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

 

$

2,128

 

$

1,739

 

$

 

$

3,867

 

 

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.

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

 

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