Segment Reporting

6 Months Ended

Jun. 30, 2011

Segment Reporting

Segment Reporting

16. Segment Reporting

        The Company conducts its operations through two segments: the alternative investment management segment and the broker-dealer segment (subsequent to the November 2009 Ramius/Cowen transaction). The operations of LaBranche's market-making business following the Company's June 28, 2011 acquisition of LaBranche are included in the broker-dealer segment commencing June 29, 2011. These activities are conducted primarily in the United States and substantially all of its revenues are generated domestically. The performance measure for these segments is Economic Income, which management uses to evaluate the financial performance of and make operating decisions for the segment including determining appropriate compensation levels.

        In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds (both 2011 and 2010) (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction (both 2011 and 2010) (iii) excludes certain other acquisition-related and/or reorganization expenses (2011 only) and (iv) excludes the bargain purchase gain which resulted from the LaBranche acquisition (see note 2). 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 GAAP purposes, these items are included in each of their respective line items. Economic Income 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. For 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 GAAP purposes is presented gross as part of revenue.

        As further stated below, one major difference between Economic Income and US GAAP net income is that Economic Income presents the segments' results of operations without the impact resulting from the full consolidation of any of the Consolidated Funds. Consolidation of these funds results in including in income the pro rata share of the income or loss attributable to other owners of such entities which is reflected in net income (loss) attributable to redeemable non-controlling interest in consolidated subsidiaries in the condensed consolidated statements of operations. This pro rata share has no effect on the overall financial performance for the alternative investment management segment, as ultimately, this income or loss is not income or loss for the alternative investment management segment itself. Included in Economic Income is the actual pro rata share of the income or loss attributable to the Company as an investor in such entities, which is relevant in management making operating decisions and evaluating financial performance.

        The following tables set forth operating results for the Company's alternative investment management and broker-dealer segments and related adjustments necessary to reconcile the Company's Economic Income measure to arrive at the Company's consolidated net income (loss):

			Three Months Ended June 30, 2011
												Adjustments
			Alternative Investment Management			Broker-Dealer			Total Economic Income/(loss)			Funds Consolidation			Other Adjustments			GAAP
												(dollars in thousands)
Revenues
	Investment banking		$	—		$	14,343		$	14,343		$	—		$	—		$	14,343
	Brokerage			11			24,596			24,607			—			—			24,607
	Management fees			15,539			—			15,539			(466	)		(3,216	)(a)		11,857
	Incentive income			5,697			—			5,697			—			(5,022	)(a)		675
	Investment Income			22,810			(110	)		22,700			—			(22,700	)(c)		—
	Interest and dividends			—			—			—			—			5,840	(c)		5,840
	Reimbursement from affiliates			—			—			—			(8	)		989	(b)		981
	Other revenue			(278	)		(203	)		(481	)		—			713	(c)		232
	Consolidated Funds revenues			—			—			—			144			—			144
		Total revenues		43,779			38,626			82,405			(330	)		(23,396	)		58,679
Expenses
	Employee compensation and benefits			15,044			27,323			42,367			—			1,208			43,575
	Interest and dividends			49			169			218			—			2,897	(c)		3,115
	Non-compensation expenses—Fixed			8,724			17,552			26,276			—			(26,276	)(c)		—
	Non-compensation expenses—Variable			6,591			5,915			12,506			—			(12,506	)(c)(d)		—
	Non-compensation expenses			—			—			—			—			33,666	(c)(d)		33,666
	Reimbursement from affiliates			(989	)		—			(989	)		—			989	(b)		—
	Consolidated Funds expenses			—			—			—			872			—			872
		Total expenses		29,419			50,959			80,378			872			(22	)		81,228
Other income (loss)
	Net gain (loss) on securities, derivatives and other investments			—			—			—			—			76	(c)		76
	Bargain purchase gain															22,244	(e)		22,244
	Consolidated Funds net gains (losses)			—			—			—			2,195			2,575			4,770
		Total other income (loss)		—			—			—			2,195			24,895			27,090
		Income (loss) before income taxes and non-controlling interests		14,360			(12,333	)		2,027			993			1,521			4,541
Income taxes expense / (benefit)				—			—			—			—			(17,954	)(b)		(17,954	)
		Economic Income (Loss) / Net income (loss) before non-controlling interests		14,360			(12,333	)		2,027			993			19,475			22,495
	(Income) loss attributable to redeemable non-controlling interests			(1,465	)		—			(1,465	)		(993	)		—			(2,458	)
		Economic Income (Loss) / Net Income (loss) attributable to Cowen Group stockholders	$	12,895		$	(12,333	)	$	562		$	—		$	19,475		$	20,037

				Six Months Ended June 30, 2011
													Adjustments
				Alternative Investment Management			Broker-Dealer			Total Economic Income/(loss)			Funds Consolidation			Other Adjustments			GAAP
													(dollars in thousands)
Revenues
	Investment banking			$	—		$	29,025		$	29,025		$	—		$	—		$	29,025
	Brokerage				74			52,124			52,198			—			—			52,198
	Management fees				29,586			—			29,586			(979	)		(5,586	)(a)		23,021
	Incentive income				10,860			—			10,860			—			(5,804	)(a)		5,056
	Investment Income				40,268			(359	)		39,909			—			(39,909	)(c)		—
	Interest and dividends				—			—			—			—			10,399	(c)		10,399
	Reimbursement from affiliates				—			—			—			(168	)		2,158	(b)		1,990
	Other revenue				974			(401	)		573			—			349	(c)		922
	Consolidated Funds revenues				—			—			—			313			—			313
		Total revenues			81,762			80,389			162,151			(834	)		38,393			122,924
Expenses
	Employee compensation and benefits				32,752			52,352			85,104			—			3,558			88,662
	Interest and dividends				105			330			435			—			5,289	(c)		5,724
	Non-compensation expenses—Fixed				15,718			32,145			47,863			—			(47,863	)(c)		—
	Non-compensation expenses—Variable				8,687			12,767			21,454			—			(21,454	)(c)(d)		—
	Non-compensation expenses				—			—			—			—			67,571(c	)(d)		67,571
	Reimbursement from affiliates				(2,158	)		—			(2,158	)		—			2,158	(b)		—
	Consolidated Funds expenses				—			—			—			1,501						1,501
			Total expenses		55,104			97,594			152,698			1,501			9,259			163,458
Other income (loss)
	Net gain (loss) on securities, derivatives and other investments				—			—			—			—			17,358	(c)		17,358
	Bargain purchase gain																22,244	(e)		22,244
	Consolidated Funds net gains (losses)				—			—			—			3,651			2,865			6,516
		Total other income (loss)			—			—			—			3,651			42,467			46,118
		Income (loss) before income taxes and non-controlling interests			26,658			(17,205	)		9,453			1,316			(5,185	)		5,584
Income taxes expense / (benefit)					—			—			—			—			(17,791	)(b)		(17,791	)
		Economic Income (Loss) / Net income (loss) before non-controlling interests			26,658			(17,205	)		9,453			1,316			12,606			23,375
	(Income) loss attributable to redeemable non-controlling interests				(1,940	)		—			(1,940	)		(1,316	)		—			(3,256	)
		Economic Income (Loss) / Net Income (loss) attributable to Cowen Group stockholders		$	24,718		$	(17,205	)	$	7,513		$	—		$	12,606		$	20,119

			Six Months Ended June 30, 2010
												Adjustments
			Alternative Investment Management			Broker-Dealer			Total Economic Income/(loss)			Funds Consolidation			Other Adjustments			GAAP
			(dollars in thousands)
Revenues
	Investment banking		$	—		$	15,943		$	15,943		$	—		$	—		$	15,943
	Brokerage			—			59,369			59,369			—			—			59,369
	Management fees			24,774			—			24,774			(1,694	)		(4,929	)(a)		18,151
	Incentive income			1,532			—			1,532			—			462	(a)		1,994
	Investment Income			8,842			(333	)		8,509			—			(8,509	)(c)		—
	Interest and dividends			—			—			—			—			2,183	(c)		2,183
	Reimbursement from affiliates			—			—			—			(300	)		3,784	(b)		3,484
	Other revenue			(25	)		180			155			—			865	(c)		1,020
	Consolidated Funds revenues						—			—			9,116			—			9,116
		Total revenues		35,123			75,159			110,282			7,122			(6,144	)		111,260
Expenses
	Employee compensation and benefits			23,498			53,700			77,198			—			4,782			81,980
	Interest and dividends			234			235			469			—			598	(c)		1,067
	Non-compensation expenses—Fixed			17,914			31,201			49,115			—			(49,115	)(c)		—
	Non-compensation expenses—Variable			687			15,655			16,342			—			(16,342	)(c)(d)		—
	Non-compensation expenses			—			—			—			—			65,541	(c)(d)		65,541
	Reimbursement from affiliates			(3,784	)		—			(3,784	)		—			3,784	(b)		—
	Consolidated Funds expenses			—			—			—			4,340						4,340
		Total expenses		38,549			100,791			139,340			4,340			9,248			152,928
Other income (loss)
	Net gain (loss) on securities, derivatives and other investments			—			—			—			—			1,774	(c)		1,774
	Consolidated Funds net gains (losses)			—			—			—			2,722			8,836			11,558
		Total other income (loss)		—			—			—			2,722			10,610			13,332
		Income (loss) before income taxes and non-controlling interests		(3,426	)		(25,632	)		(29,058	)		5,504			(4,782	)		(28,336	)
Income taxes expense / (benefit)				—			—			—						333	(b)		333
		Economic Income (Loss) / Net income (loss) before non-controlling interests		(3,426	)		(25,632	)		(29,058	)		5,504			(5,115	)		(28,669	)
	(Income) loss attributable to redeemable non-controlling interests			—			—			—			(5,504	)		—			(5,504	)
		Economic Income (Loss) / Net Income (loss) attributable to Cowen Group stockholders	$	(3,426	)	$	(25,632	)	$	(29,058	)	$	—		$	(5,115	)	$	(34,173	)

        The following is a summary of the adjustments made to US GAAP net income (loss) for the segment 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 to reconcile to US GAAP net income 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 for which the investments are recorded under the equity method of accounting for investments.
  
  

  (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 the Company's 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 excludes the bargain purchase gain which resulted from the LaBranche acquisition.

        For the three months and six months ended June 30, 2011 and 2010, there was no one fund or other customer which represented more than 10% of the Company's total revenues.