XML 54 R24.htm IDEA: XBRL DOCUMENT v2.4.0.6
Segment Reporting
 6 Months Ended
Jun. 30, 2012
Segment Reporting [Abstract]  
Segment Reporting
Segment Reporting
The Company conducts its operations through two segments: the alternative investment segment and the broker‑dealer segment. 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 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 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 Value and Opportunity 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.
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 segment, as ultimately, this income or loss is not income or loss for the alternative investment 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 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):
 
Three Months Ended June 30, 2012
 
 
 
 
 
 
 
Adjustments
 
 
 
 
 
Alternative
Investment
 
Broker-Dealer (1)
 
Total Economic Income/(Loss)
 
Funds
Consolidation
 
Other
Adjustments
 
 
 
US GAAP
 
(dollars in thousands)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment banking
$
—

 
$
16,254

 
$
16,254

 
$
—

 
$
—

 
 
 
$
16,254

Brokerage
—

 
24,568

 
24,568

 
—

 
—

 
 
 
24,568

Management fees
14,586

 
—

 
14,586

 
(394
)
 
(4,260
)
 
(a)
 
9,932

Incentive income
2,583

 
—

 
2,583

 
—

 
(2,003
)
 
(a)
 
580

Investment Income
6,694

 
1,592

 
8,286

 
—

 
(8,286
)
 
(c)
 
—

Interest and dividends
—

 
—

 
—

 
—

 
5,868

 
(c)
 
5,868

Reimbursement from affiliates
—

 
—

 
—

 
(54
)
 
1,435

 
(b)
 
1,381

Other revenue
216

 
(287
)
 
(71
)
 
—

 
902

 
(c)
 
831

Consolidated Funds revenues
—

 
—

 
—

 
56

 
—

 
 
 
56

Total revenues
24,079

 
42,127

 
66,206

 
(392
)
 
(6,344
)
 
 
 
59,470

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
13,500

 
28,145

 
41,645

 
—

 
1,452

 
 
 
43,097

Interest and dividends
12

 
47

 
59

 
—

 
3,148

 
(c)
 
3,207

Non-compensation expenses—Fixed
8,560

 
15,929

 
24,489

 
—

 
(24,489
)
 
(c)(d)
 
—

Non-compensation expenses—Variable
1,138

 
6,000

 
7,138

 
—

 
(7,138
)
 
(c)(d)
 
—

Non-compensation expenses
—

 
—

 
—

 
—

 
30,486

 
(c)(d)
 
30,486

Reimbursement from affiliates
(1,435
)
 
—

 
(1,435
)
 
—

 
1,435

 
(b)
 
—

Consolidated Funds expenses
—

 
—

 
—

 
635

 
—

 
 
 
635

Total expenses
21,775

 
50,121

 
71,896

 
635

 
4,894

 
 
 
77,425

Other income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gains (losses) on securities, derivatives and other investments
—

 
—

 
—

 
—

 
9,787

 
(c)
 
9,787

Consolidated Funds net gains (losses)
—

 
—

 
—

 
(1,707
)
 
(314
)
 
 
 
(2,021
)
Total other income (loss)
—

 
—

 
—

 
(1,707
)
 
9,473

 
 
 
7,766

Income (loss) before income taxes and non-controlling interests
2,304

 
(7,994
)
 
(5,690
)
 
(2,734
)
 
(1,765
)
 
 
 
(10,189
)
Income taxes expense / (benefit)
—

 
—

 
—

 
—

 
191

 
(b)
 
191

Economic Income (Loss) / Net income (loss) before non-controlling interests
2,304

 
(7,994
)
 
(5,690
)
 
(2,734
)
 
(1,956
)
 
 
 
(10,380
)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries
(300
)
 
—

 
(300
)
 
2,734

 
—

 
 
 
2,434

Economic Income (Loss) / Net income (loss) attributable to Cowen Group, Inc. stockholders
$
2,004

 
$
(7,994
)
 
$
(5,990
)
 
$
—

 
$
(1,956
)
 
 
 
$
(7,946
)
(1) For the three months ended June 30, 2012 the Company has reflected $1.7 million of investment income and related compensation expense of $0.6 million within the broker-dealer segment in proportion to its capital.
 
Three Months Ended June 30, 2011
 
 
 
 
 
 
 
Adjustments
 
 
 
 
 
Alternative
Investment
 
Broker-Dealer (1)
 
Total
Economic Income/(Loss)
 
Funds
Consolidation
 
Other
Adjustments
 
 
 
US 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
22,789

 
(89
)
 
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
43,758

 
38,647

 
82,405

 
(330
)
 
(23,396
)
 
 
 
58,679

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
15,037

 
27,330

 
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)(d)
 
—

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
29,412

 
50,966

 
80,378

 
872

 
(22
)
 
 
 
81,228

Other income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gains (losses) 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
14,346

 
(12,319
)
 
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
14,346

 
(12,319
)
 
2,027

 
993

 
19,475

 
 
 
22,495

(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries
(1,465
)
 
—

 
(1,465
)
 
(993
)
 
—

 
 
 
(2,458
)
Economic Income (Loss) / Net income (loss) attributable to Cowen Group, Inc. stockholders
$
12,881

 
$
(12,319
)
 
$
562

 
$
—

 
$
19,475

 
 
 
$
20,037


(1) For the three months ended June 30, 2011, the Company has reflected $6.4 million of investment income and related compensation expense of $1.9 million within the broker-dealer segment in proportion to its capital.

 
Six Months Ended June 30, 2012
 
 
 
 
 
 
 
Adjustments
 
 
 
 
 
Alternative
Investment
 
Broker-Dealer (1)
 
Total Economic Income/(Loss)
 
Funds
Consolidation
 
Other
Adjustments
 
 
 
US GAAP
 
(dollars in thousands)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment banking
$
—

 
$
31,884

 
$
31,884

 
$
—

 
$
—

 
 
 
$
31,884

Brokerage
—

 
48,581

 
48,581

 
—

 
—

 
 
 
48,581

Management fees
28,606

 
—

 
28,606

 
(787
)
 
(8,170
)
 
(a)
 
19,649

Incentive income
6,605

 
—

 
6,605

 
—

 
(5,334
)
 
(a)
 
1,271

Investment Income
23,496

 
5,895

 
29,391

 
—

 
(29,391
)
 
(c)
 
—

Interest and dividends
—

 
—

 
—

 
—

 
11,240

 
(c)
 
11,240

Reimbursement from affiliates
—

 
—

 
—

 
(125
)
 
2,551

 
(b)
 
2,426

Other revenue
340

 
(27
)
 
313

 
—

 
1,385

 
(c)
 
1,698

Consolidated Funds revenues
—

 
—

 
—

 
200

 
—

 
 
 
200

Total revenues
59,047

 
86,333

 
145,380

 
(712
)
 
(27,719
)
 
 
 
116,949

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
30,946

 
56,608

 
87,554

 
—

 
2,226

 
 
 
89,780

Interest and dividends
30

 
117

 
147

 
—

 
4,784

 
(c)
 
4,931

Non-compensation expenses—Fixed
15,529

 
30,203

 
45,732

 
—

 
(45,732
)
 
(c)(d)
 
—

Non-compensation expenses—Variable
2,447

 
11,566

 
14,013

 
—

 
(14,013
)
 
(c)(d)
 
—

Non-compensation expenses
—

 
—

 
—

 
—

 
58,444

 
(c)(d)
 
58,444

Reimbursement from affiliates
(2,551
)
 
—

 
(2,551
)
 
—

 
2,551

 
(b)
 
—

Consolidated Funds expenses
—

 
—

 
—

 
1,009

 
—

 
 
 
1,009

Total expenses
46,401

 
98,494

 
144,895

 
1,009

 
8,260

 
 
 
154,164

Other income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gain (loss) on securities, derivatives and other investments
—

 
—

 
—

 
—

 
29,458

 
(c)
 
29,458

Consolidated Funds net gains (losses)
—

 
—

 
—

 
934

 
3,012

 
 
 
3,946

Total other income (loss)
—

 
—

 
—

 
934

 
32,470

 
 
 
33,404

Income (loss) before income taxes and non-controlling interests
12,646

 
(12,161
)
 
485

 
(787
)
 
(3,509
)
 
 
 
(3,811
)
Income taxes expense / (benefit)
—

 
—

 
—

 
—

 
333

 
(b)
 
333

Economic Income (Loss) / Net income (loss) before non-controlling interests
12,646

 
(12,161
)
 
485

 
(787
)
 
(3,842
)
 
 
 
(4,144
)
(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries
(600
)
 
—

 
(600
)
 
787

 
6

 
 
 
193

Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders
$
12,046

 
$
(12,161
)
 
$
(115
)
 
$
—

 
$
(3,836
)
 
 
 
$
(3,951
)

(1) For the six months ended June 30, 2012, the Company has reflected $5.9 million of investment income and related compensation expense of $1.9 million within the broker-dealer segment in proportion to its capital.


 
Six Months Ended June 30, 2011
 
 
 
 
 
 
 
Adjustments
 
 
 
 
 
Alternative
Investment
 
Broker-Dealer (1)
 
Total Economic Income/(Loss)
 
Funds
Consolidation
 
Other
Adjustments
 
 
 
US 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
33,822

 
6,087

 
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
75,316

 
86,835

 
162,151

 
(834
)
 
(38,393
)
 
 
 
122,924

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
30,871

 
54,233

 
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)(d)
 
—

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
53,223

 
99,475

 
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
22,093

 
(12,640
)
 
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
22,093

 
(12,640
)
 
9,453

 
1,316

 
12,606

 
 
 
23,375

(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries
(1,940
)
 
—

 
(1,940
)
 
(1,316
)
 
—

 
 
 
(3,256
)
Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders
$
20,153

 
$
(12,640
)
 
$
7,513

 
$
—

 
$
12,606

 
 
 
$
20,119


(1) For the six months ended June 30, 2011, the Company has reflected $6.4 million of investment income and related compensation expense of $1.9 million within the broker-dealer segment in proportion to its capital.

The following is a summary of the adjustments made to US GAAP net income (loss) for the segment to arrive at
Economic Income (Loss):
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 (loss) 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 (2012 only).
(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 excludes the bargain purchase gain which resulted from the LaBranche acquisition.
For the three and six months ended June 30, 2012 and 2011, 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 segment were from related parties for the three and six months ended June 30, 2012 and 2011. There were no revenues earned from related parties by the broker dealer segment in the three and six months ended June 30, 2012 and 2011.