EX-99.3 4 ex99310qq32018recast.htm EXHIBIT 99.3 Exhibit

Exhibit 99.3
Cowen Inc.
Part 1 Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements

Notes to Unaudited Condensed Consolidated Financial Statements

22. Segment Reporting

The Company conducts its operations through two segments: the Op Co segment which consists of Cowen Investment Management (“CIM”), Investment Banking, Markets and Research, and the Asset Co segment which consists of the Company’s private investments, private real estate business and other legacy multi-sector long/short equity strategies.
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. Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors.
In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for Consolidated Funds and excludes (ii) goodwill and intangible impairment (iii) certain other transaction-related adjustments and/or reorganization expenses and (iv) certain costs associated with debt. Economic Operating Income (Loss) represents Economic Income (Loss) before depreciation and amortization 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 and certain investment funds. For US GAAP purposes, all of these items, are recorded in other income (loss). Economic Income (Loss) recognizes (a) incentive fees during periods when the fees are not yet crystallized for US GAAP reporting and (b) retainer fees, relating to investment banking activities, earned during the period that would otherwise be deferred until closing for US GAAP reporting. 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. The consolidation of these investment funds' results include 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 accompanying condensed consolidated statements of operations. This pro rata share has no effect on the overall financial performance for the segments, as ultimately, this income or loss is not income or loss for the segments themselves. 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 Company does not disclose total asset information for its business segments as the information is not reviewed by the CODM.
The following tables set forth operating results for the Company's Op Co and Asset Co 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):


Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
Adjustments
 
 
 
 
 
Operating Company
 
Asset Company
 
Total Economic Income (Loss)
 
Funds
Consolidation
 
Other
Adjustments
 
 
 
US GAAP Net Income (Loss)
 
(dollars in thousands)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment banking
$
77,510

 
$
—

 
$
77,510

 
$
—

 
$
4,413

 
(i)
 
$
81,923

Brokerage
101,672

 
—

 
101,672

 
—

 
(9,637
)
 
(h)
 
92,035

Management fees
10,840

 
1,546

 
12,386

 
(381
)
 
(4,459
)
 
(a)
 
7,546

Incentive income (loss)
1,859

 
5,051

 
6,910

 
(20
)
 
(6,857
)
 
(a)
 
33

Investment income (loss)
25,779

 
1,893

 
27,672

 
—

 
(27,672
)
 
(c)(f)
 
—

Interest and dividends
—

 
—

 
—

 
—

 
26,448

 
(c)(h)
 
26,448

Reimbursement from affiliates
—

 
—

 
—

 
(65
)
 
418

 
(e)
 
353

Aircraft lease revenue
—

 
—

 
—

 
—

 
375

 
(f)
 
375

Reinsurance premiums
—

 
—

 
—

 
—

 
8,378

 
(g)
 
8,378

Other revenue
4

 
79

 
83

 
—

 
1,551

 
(g)
 
1,634

Consolidated Funds revenues
—

 
—

 
—

 
2,303

 
—

 
 
 
2,303

Total revenues
217,664

 
8,569

 
226,233

 
1,837

 
(7,042
)
 
 
 
221,028

Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)
4,878

 
1,541

 
6,419

 
—

 
19,581

 
(c)(h)
 
26,000

Total net revenues
212,786

 
7,028

 
219,814

 
1,837

 
(26,623
)
 
 
 
195,028

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Non interest expense
188,587

 
6,421

 
195,008

 
—

 
14,454

 
(b)(d)(e)(i)
 
209,462

Consolidated Funds expenses
—

 
—

 
—

 
1,687

 
—

 
 
 
1,687

Total expenses
188,587

 
6,421

 
195,008

 
1,687

 
14,454

 
 
 
211,149

Total other income (loss)
—

 
—

 
—

 
2,654

 
39,328

 
(a)(c)(d)
 
41,982

Income taxes expense / (benefit)
—

 
—

 
—

 
—

 
5,083

 
(b)
 
5,083

Income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and investment funds
1,827

 
295

 
2,122

 
2,804

 
364

 
 
 
5,290

Income (loss) attributable to Cowen Inc.
22,372

 
312

 
22,684

 
—

 
(7,196
)
 
 
 
15,488

Less: Preferred stock dividends
1,290

 
408

 
1,698

 
—

 
—

 
 
 
1,698

Economic income (loss) / Income (loss) attributable to Cowen Inc. common stockholders
21,082

 
(96
)
 
20,986

 
$
—

 
$
(7,196
)
 
 
 
$
13,790

Add back: Depreciation and amortization expense
2,865

 
43

 
2,908

 
 
 
 
 
 
 
 
Economic operating income (loss)
$
23,947

 
$
(53
)
 
$
23,894

 
 
 
 
 
 
 
 

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
Adjustments
 
 
 
 
 
Operating Company
 
Asset Company
 
Total Economic Income (Loss)
 
Funds
Consolidation
 
Other
Adjustments
 
 
 
US GAAP Net Income (Loss)
 
(dollars in thousands)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment banking
$
251,476

 
$
—

 
$
251,476

 
$
—

 
$
13,261

 
(i)
 
$
264,737

Brokerage
328,929

 
—

 
328,929

 
—

 
(27,876
)
 
(h)
 
301,053

Management fees
33,057

 
4,941

 
37,998

 
(2,197
)
 
(13,465
)
 
(a)
 
22,336

Incentive income (loss)
17,219

 
4,251

 
21,470

 
(37
)
 
(21,336
)
 
(a)
 
97

Investment income (loss)
62,488

 
(561
)
 
61,927

 
—

 
(61,927
)
 
(c)(f)
 
—

Interest and dividends
—

 
—

 
—

 
—

 
77,511

 
(c)(h)
 
77,511

Reimbursement from affiliates
—

 
—

 
—

 
(198
)
 
1,264

 
(e)
 
1,066

Aircraft lease revenue
—

 
—

 
—

 
—

 
1,509

 
(f)
 
1,509

Reinsurance premiums
—

 
—

 
—

 
—

 
26,251

 
(g)
 
26,251

Other revenue
(143
)
 
393

 
250

 
—

 
3,596

 
(g)
 
3,846

Consolidated Funds revenues
—

 
—

 
—

 
8,579

 
—

 
 
 
8,579

Total revenues
693,026

 
9,024

 
702,050

 
6,147

 
(1,212
)
 
 
 
706,985

Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)
12,539

 
3,961

 
16,500

 
—

 
58,346

 
(c)(h)
 
74,846

Total net revenues
680,487

 
5,063

 
685,550

 
6,147

 
(59,558
)
 
 
 
632,139

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Non interest expense
598,646

 
11,660

 
610,306

 
—

 
42,738

 
(b)(d)(e)(i)
 
653,044

Consolidated Funds expenses
—

 
—

 
—

 
7,267

 
—

 
 
 
7,267

Total expenses
598,646

 
11,660

 
610,306

 
7,267

 
42,738

 
 
 
660,311

Total other income (loss)
—

 
—

 
—

 
36,113

 
86,851

 
(a)(c)(d)(j)
 
122,964

Income taxes expense / (benefit)
—

 
—

 
—

 
—

 
15,999

 
(b)
 
15,999

Income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and investment funds
5,639

 
1,121

 
6,760

 
34,993

 
(700
)
 
 
 
41,053

Income (loss) attributable to Cowen Inc.
76,202

 
(7,718
)
 
68,484

 
—

 
(30,744
)
 
 
 
37,740

Less: Preferred stock dividends
3,871

 
1,223

 
5,094

 
—

 
—

 
 
 
5,094

Economic income (loss) / Income (loss) attributable to Cowen Inc. common stockholders
72,331

 
(8,941
)
 
63,390

 
$
—

 
$
(30,744
)
 
 
 
$
32,646

Add back: Depreciation and amortization expense
8,707

 
146

 
8,853

 
 
 
 
 
 
 
 
Economic operating income (loss)
$
81,038

 
$
(8,795
)
 
$
72,243

 
 
 
 
 
 
 
 
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) included 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, the healthcare royalty business and the activist business.
(b)
Economic Income (Loss) excludes income taxes and acquisition related adjustments as management does not consider these items when evaluating the performance of the segment.
(c)
Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).

Cowen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


(d)
Economic Income (Loss) recognizes the Company's proportionate share of expenses, for certain real estate operating entities and the activist business, for which the investments are recorded under the equity method of accounting for investments.
(e)
Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.
(f)
Aircraft lease revenue is shown net of expenses in investment income for Economic Income (Loss).
(g)
Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.
(h)
Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities which are shown gross in interest income and interest expense for US GAAP.
(i)
Economic Income (Loss) presents underwriting expenses net of investment banking revenues and records income from uncrystallized incentive fees.
(j)
Economic Income (Loss) excludes gain/(loss) on debt extinguishment.