Segment Reporting

Change in Segments

During the second quarter of 2019 the Company realigned the information that the Chief Operating Decision Maker regularly reviews to evaluate performance for operating decision-making purposes, including evaluation and allocation of resources. As a result of this change in segment reporting, the Company retrospectively revised prior period results, by segment, to conform to the current period presentation (see Note 1). This structure includes two business segments: Op Co and Asset Co. The structure is based on the Company's domain expertise as a driver of balance sheet harmonization and repeatable revenues for its operating business versus the Company’s long-term monetization strategies.

The Op Co segment consists of Cowen Investment Management (“CIM”), Investment Banking, Markets and Research. The Asset Co segment consists of the Company’s private investments, private real estate investments and other legacy multi-sector long/short equity strategies.

Performance Measures

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 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):




	Three Months Ended September 30, 2019
										Adjustments
	Operating Company			Asset Company			Total Economic Income/(Loss)			Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	70,022		$	—		$	70,022		$	—		$	7,270		(a)	$	77,292
Brokerage	105,860			—			105,860			—			(11,865		)	(b)	93,995
Management fees	10,321			586			10,907			(574		)	(3,033		)	(c)	7,300
Incentive income (loss)	15,384			(1,007		)	14,377			(13		)	(13,663		)	(c)	701
Investment income (loss)	15,231			822			16,053			—			(16,053		)	(d)	—
Interest and dividends	—			—			—			—			60,707			(b)(d)	60,707
Reimbursement from affiliates	—			—			—			(27		)	265			(e)	238
Reinsurance premiums	—			—			—			—			8,146			(f)	8,146
Other revenue	(132		)	6			(126		)	(26		)	1,389			(f)	1,237
Consolidated Funds revenues	—			—			—			2,431			—				2,431
Total revenues	216,686			407			217,093			1,791			33,163				252,047
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)	5,758			1,389			7,147			—			49,330			(b)(d)	56,477
Total net revenues	210,928			(982		)	209,946			1,791			(16,167		)		195,570
Expenses
Non interest expense	200,637			1,403			202,040			—			15,408			(a)(e)(h)(i)	217,448
Consolidated Funds expenses	—			—			—			2,516			—				2,516
Total expenses	200,637			1,403			202,040			2,516			15,408				219,964
Total other income (loss)	—			—			—			5,621			26,721			(c)(d)(i)	32,342
Income taxes expense / (benefit)	—			—			—			—			1,365			(h)	1,365
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds	661			—			661			4,896			(2,787		)		2,770

Income (loss) attributable to Cowen Inc.	9,630			(2,385		)	7,245			—			(3,432		)		3,813
Less: Preferred stock dividends	1,341			357			1,698			—			—				1,698
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders	8,289			(2,742		)	5,547			$	—		$	(3,432	)		$	2,115
Add back: Depreciation and Amortization expense	5,073			9			5,082
Economic operating income (loss)	$	13,362		$	(2,733	)	$	10,629




	Three Months Ended September 30, 2018
								Adjustments
	Operating Company		Asset Company			Total Economic Income/(Loss)		Funds Consolidation			Other Adjustments				US GAAP
	(dollars in thousands)
Revenues
Investment banking	$	77,510	$	—		$	77,510	$	—		$	4,413		(a)	$	81,923
Brokerage	101,672		—			101,672		—			(9,637		)	(b)	92,035
Management fees	10,840		1,546			12,386		(381		)	(4,459		)	(c)	7,546
Incentive income (loss)	1,859		5,051			6,910		(20		)	(6,857		)	(c)(a)	33
Investment income (loss)	25,779		1,893			27,672		—			(27,672		)	(d)(g)	—
Interest and dividends	—		—			—		—			26,448			(b)(d)	26,448
Reimbursement from affiliates	—		—			—		(65		)	418			(e)	353
Aircraft lease revenue	—		—			—		—			375			(g)	375
Reinsurance premiums	—		—			—		—			8,378			(f)	8,378
Other revenue	4		79			83		—			1,551			(f)	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			(b)(d)	$	26,000
Total net revenues	212,786		7,028			219,814		1,837			(26,623		)		195,028
Expenses
Non interest expense	189,516		6,672			196,188		—			14,454			(a)(e)(h)(i)	210,642
Consolidated Funds expenses	—		—			—		1,687			—				1,687
Total expenses	189,516		6,672			196,188		1,687			14,454				212,329
Total other income (loss)	—		—			—		2,654			39,328			(c)(d)(i)(j)	41,982
Income taxes expense / (benefit)	—		—			—		—			5,083			(h)	5,083
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds	898		44			942		2,804			364				4,110
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



	Nine Months Ended September 30, 2019
								Adjustments
	Operating Company		Asset Company			Total Economic Income (Loss)		Funds Consolidation			Other Adjustments				US GAAP Net Income (Loss)
	(dollars in thousands)
Revenues
Investment banking	$	257,234	$	—		$	257,234	$	—		$	14,869		(a)	$	272,103
Brokerage	331,689		—			331,689		—			(28,849		)	(b)	302,840
Management fees	30,016		1,788			31,804		(1,640		)	(8,684		)	(c)	21,480
Incentive income (loss)	34,654		699			35,353		(557		)	(34,072		)	(c)	724
Investment income (loss)	28,233		5,289			33,522		—			(33,522		)	(d)	—
Interest and dividends	—		—			—		—			129,846			(b)(d)	129,846
Reimbursement from affiliates	—		—			—		(94		)	874			(e)	780
Reinsurance premiums	—		—			—		—			29,068			(f)	29,068
Other revenue	5,295		56			5,351		(14		)	(2,109		)	(f)	3,228
Consolidated Funds revenues	—		—			—		8,239			—				8,239
Total revenues	687,121		7,832			694,953		5,934			67,421				768,308
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)	16,371		4,046			20,417		—			104,672			(b)(d)	125,089
Total net revenues	670,750		3,786			674,536		5,934			(37,251		)		643,219
Expenses
Non interest expense	623,167		7,025			630,192		—			49,463			(a)(e)(h)(i)	679,655
Goodwill impairment	—		—			—		—			4,100				4,100
Consolidated Funds expenses	—		—			—		6,229			—				6,229
Total expenses	623,167		7,025			630,192		6,229			53,563				689,984
Total other income (loss)	—		—			—		9,069			73,907			(c)(d)(i)	82,976
Income taxes expense / (benefit)	—		—			—		—			9,615			(h)	9,615
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds	2,944		—			2,944		8,774			(4,530		)		7,188
Income (loss) attributable to Cowen Inc.	44,639		(3,239		)	41,400		—			(21,992		)		$	19,408
Less: Preferred stock dividends	4,058		1,036			5,094		—			—				5,094
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders	40,581		(4,275		)	36,306		$	—		$	(21,992	)		$	14,314
Add back: Depreciation and Amortization expense	14,957		30			14,987
Economic operating income (loss)	$	55,538	$	(4,245	)	$	51,293



	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		(a)	$	264,737
Brokerage	328,929			—			328,929		—			(27,876		)	(b)	301,053
Management fees	33,057			4,941			37,998		(2,197		)	(13,465		)	(c)	22,336
Incentive income (loss)	17,219			4,251			21,470		(37		)	(21,336		)	(c)	97
Investment income (loss)	62,488			(561		)	61,927		—			(61,927		)	(d)(g)	—
Interest and dividends	—			—			—		—			77,511			(b)(d)	77,511
Reimbursement from affiliates	—			—			—		(198		)	1,264			(e)	1,066
Aircraft lease revenue	—			—			—		—			1,509			(g)	1,509
Reinsurance premiums	—			—			—		—			26,251			(f)	26,251
Other revenue	(143		)	393			250		—			3,596			(f)	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			(b)(d)	74,846
Total net revenues	680,487			5,063			685,550		6,147			(59,558		)		632,139
Expenses
Non interest expense	601,480			12,081			613,561		—			42,738			(a)(e)(h)(i)	656,299
Consolidated Funds expenses	—			—			—		7,267			—				7,267
Total expenses	601,480			12,081			613,561		7,267			42,738				663,566
Total other income (loss)	—			—			—		36,113			86,851			(c)(d)(i)(j)	122,964
Income taxes expense / (benefit)	—			—			—		—			15,999			(h)	15,999
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds	2,805			700			3,505		34,993			(700		)		37,798
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			147			8,854
Economic operating income (loss)	$	81,038		$	(8,794	)	$	72,244

The following is a summary of the adjustments made to US GAAP net income (loss) 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 investment fund expenses excluding management fees paid, investment fund revenues and investment income (loss).

Other Adjustments:



(a)	Economic Income (Loss) presents underwriting expenses net of investment banking revenues, expenses reimbursed from clients within their respective expense category. Economic Income (Loss) also records retainer fees, relating to investment banking activities, collectible during the period that would otherwise be deferred until closing for US GAAP reporting.

(b)	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.

(c)	Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents, (ii) records income from uncrystallized incentive fees and (iii) the Company's proportionate share of management and incentive fees of certain real estate operating entities, the healthcare royalty business and the activist business.

(d)	Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).

(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)	Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.

(g)	Aircraft lease revenue is shown net of expenses in investment income for Economic Income (Loss).

(h)	Economic Income (Loss) excludes income taxes and acquisition related adjustments as management does not consider these items when evaluating the performance of the segment.

(i)	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.

(j)	Economic Income (Loss) excludes gain/(loss) on debt extinguishment.

For the three and nine months ended September 30, 2019 and 2018, there was no one investment fund or other customer which represented more than 10% of the Company's total revenues.