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). 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 (Loss), which management uses to evaluate the financial performance of and make operating decisions for the segments 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, (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction, (iii) excludes certain other acquisition-related and/or reorganization expenses (including the discontinued operations of LaBranche), (iv) excludes goodwill impairment, and (v) 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 US 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 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.

As further stated below, one major difference between Economic Income (Loss) and US GAAP net income (Loss) is that Economic Income (Loss) 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 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 (Loss) 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 (Loss) measure to arrive at the Company's consolidated US GAAP net income (loss):



	Year Ended December 31, 2011
										Adjustments
	Alternative Investment Management			Broker-Dealer			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				GAAP
							(dollars in thousands)
Revenues
Investment banking	$	—		$	50,976		$	50,976		$	—		$	—			$	50,976
Brokerage	—			99,611			99,611			—			—				99,611
Management fees	67,309			—			67,309			(1,809		)	(13,034		)	(a)	52,466
Incentive income	10,366			—			10,366			—			(7,101		)	(a)	3,265
Investment Income	39,149			2,198			41,347			—			(41,347		)	(c)	—
Interest and dividends	—			—			—			—			22,306			(c)	22,306
Reimbursement from affiliates	—			—			—			(280		)	4,602			(b)	4,322
Other revenue	622			(7		)	615			—			968			(c)	1,583
Consolidated Funds revenues	—			—			—			749			—				749
Total revenues	117,446			152,778			270,224			(1,340		)	(33,606		)		235,278
Expenses
Employee compensation and benefits	50,838			143,970			194,808			—			8,959				203,767
Interest and dividends	184			551			735			—			8,104			(c)	8,839
Non-compensation expenses—Fixed	33,954			69,227			103,181			—			(103,181		)	(c)(d)	—
Non-compensation expenses—Variable	17,085			24,412			41,497			—			(41,497		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			153,116			(c)(d)	153,116
Goodwill impairment	—			—			—			—			7,151			(f)	7,151
Reimbursement from affiliates	(4,602		)	—			(4,602		)	—			4,602			(b)	—
Consolidated Funds expenses	—			—			—			2,782			—				2,782
Total expenses	97,459			238,160			335,619			2,782			37,254				375,655
Other income (loss)
Net gain (loss) on securities, derivatives and other investments	—			—			—			—			15,128			(c)	15,128
Bargain purchase gain	—			—			—			—			22,244			(e)	22,244
Consolidated Funds net gains (losses)	—			—			—			2,947			1,448				4,395
Total other income (loss)	—			—			—			2,947			38,820				41,767
Income (loss) before income taxes and non-controlling interests	19,987			(85,382		)	(65,395		)	(1,175		)	(32,040		)		(98,610		)
Income taxes expense / (benefit)	—			—			—			—			(20,073		)	(b)	(20,073		)
Economic Income (Loss) / Net income (loss) before non-controlling interests	19,987			(85,382		)	(65,395		)	(1,175		)	(11,967		)		(78,537		)
Net income (loss) from discontinued operations, net of tax	—			—			—			—			(23,646		)	(g)	(23,646		)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(6,042		)	—			(6,042		)	1,175			(960		)		(5,827		)
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	13,945		$	(85,382	)	$	(71,437	)	$	—		$	(36,573	)		$	(108,010	)



	Year Ended December 31, 2010
										Adjustments
	Alternative Investment Management			Broker-Dealer			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				GAAP
							(dollars in thousands)
Revenues
Investment banking	$	—		$	38,965		$	38,965		$	—		$	—			$	38,965
Brokerage	—			112,217			112,217			—			—				112,217
Management fees	51,440			—			51,440			(2,877		)	(9,716		)	(a)	38,847
Incentive income	9,615			—			9,615			—			1,748			(a)	11,363
Investment Income	59,638			(221		)	59,417			—			(59,417		)	(c)	—
Interest and dividends	—			—			—			—			11,547			(c)	11,547
Reimbursement from affiliates	—			—			—			(499		)	7,315			(b)	6,816
Other revenue	932			7			939			—			997			(c)	1,936
Consolidated Funds revenues	—			—			—			12,119			—				12,119
Total revenues	121,625			150,968			272,593			8,743			(47,526		)		233,810
Expenses
Employee compensation and benefits	58,831			127,062			185,893			—			9,026				194,919
Interest and dividends	265			761			1,026			—			7,945			(c)	8,971
Non-compensation expenses—Fixed	28,963			63,494			92,457			—			(92,457		)	(c)(d)	—
Non-compensation expenses—Variable	7,338			27,022			34,360			—			(34,360		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			127,931			(c)(d)	127,931
Reimbursement from affiliates	(7,315		)	—			(7,315		)	—			7,315			(b)	—
Consolidated Funds expenses	—			—			—			8,121							8,121
Total expenses	88,082			218,339			306,421			8,121			25,400				339,942
Other income (loss)
Net gain (loss) on securities, derivatives and other investments	—			—			—			—			21,980			(c)	21,980
Consolidated Funds net gains (losses)	—			—			—			11,346			19,716				31,062
Total other income (loss)	—			—			—			11,346			41,696				53,042
Income (loss) before income taxes and non-controlling interests	33,543			(67,371		)	(33,828		)	11,968			(31,230		)		(53,090		)
Income taxes expense / (benefit)	—			—			—						(21,400		)	(b)	(21,400		)
Economic Income (Loss) / Net income (loss) before non-controlling interests	33,543			(67,371		)	(33,828		)	11,968			(9,830		)		(31,690		)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(1,759		)	—			(1,759		)	(11,968		)	—				(13,727		)
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	31,784		$	(67,371	)	$	(35,587	)	$	—		$	(9,830	)		$	(45,417	)



	Year Ended December 31, 2009
										Adjustments
	Alternative Investment Management			Broker-Dealer			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				GAAP
							(dollars in thousands)
Revenues
Investment banking	$	—		$	10,557		$	10,557		$	—		$	—			$	10,557
Brokerage	—			17,812			17,812			—			—				17,812
Management fees	53,940			—			53,940			(4,024		)	(8,222		)	(a)	41,694
Incentive income	(6,996		)	—			(6,996		)	—			8,907			(a)	1,911
Investment Income	21,958			—			21,958						(21,958		)	(c)	—
Interest and dividends	—			—			—			—			477			(c)	477
Reimbursement from affiliates	—			—			—			(718		)	11,044			(b)	10,326
Other revenue	3,536			—			3,536			—			1,196			(c)	4,732
Consolidated Funds revenues	—			—			—			36,392			—				36,392
Total revenues	72,438			28,369			100,807			31,650			(8,556		)		123,901
Expenses
Employee compensation and benefits	63,207			30,032			93,239			—			3,353				96,592
Interest and dividends	1,549			—			1,549			—			52			(c)	1,601
Non-compensation expenses—Fixed	40,340			10,946			51,286			—			(51,286		)	(c)(d)	—
Non-compensation expenses—Variable	3,467			3,674			7,141			—			(7,141		)	(c)(d)	—
Non-compensation expenses	—			—			—			—			68,217			(c)(d)	68,217
Reimbursement from affiliates	(11,044		)	—			(11,044		)	—			11,044			(b)	—
Consolidated Funds expenses	—			—			—			23,581			—				23,581
Total expenses	97,519			44,652			142,171			23,581			24,239				189,991
Other income (loss)
Net gain (loss) on securities, derivatives and other investments	—			—			—			—			(2,154		)	(c)	(2,154		)
Consolidated Funds net gains (losses)	—			—			—			1,588			19,411				20,999
Total other income (loss)	—			—			—			1,588			17,257				18,845
Income (loss) before income taxes and non-controlling interests	(25,081		)	(16,283		)	(41,364		)	9,657			(15,538		)		(47,245		)
Income taxes expense/(benefit)	—			—			—			(5,989		)	(2,217		)	(b)	(8,206		)
Economic Income (Loss)/Net income (loss) before non-controlling interests	(25,081		)	(16,283		)	(41,364		)	15,646			(13,321		)		(39,039		)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(602		)	—			(602		)	(15,646		)	—				(16,248		)
Economic Income (Loss)/Net Income (loss) attributable to Cowen Group, Inc. stockholders	$	(25,683	)	$	(16,283	)	$	(41,966	)	$	—		$	(13,321	)		$	(55,287	)

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


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


(d)	Economic Income (Loss) 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 (Loss) excludes the bargain purchase gain which resulted from the LaBranche acquisition.


(f)	Economic Income (Loss) excludes goodwill impairment.


(g)	Economic Income (Loss) excludes discontinued operations.

For the year ended December 31, 2011, 2010, and 2009, there was no one fund or other customer which represented more than 10% of the Company's total revenues. Primarily all of the revenues earned by the alternative investment management segment were from related parties for the years ended December 31, 2011, 2010, and 2009. There were no revenues earned from related parties by the broker dealer segment in the years ended December 31, 2011, 2010, and 2009.