Segment Reporting

12 Months Ended

Dec. 31, 2019

Change in Segments

During the second quarter of 2019 the Company realigned the information that the CODM 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 CIM, Investment Banking, Markets and Research. The Asset Co segment consists of the Company's private investments, private real estate investments and other legacy investment 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, (b) start-up costs of a fund over the expected life of the fund and (c) 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 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):


	Year Ended December 31, 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	$	352,192	$	—	$	352,192	$	—	$	22,833	(a)	$	375,025
Brokerage	440,413		—		440,413		—		(37,666)		(b)	402,747
Management fees	43,698		1,976		45,674		(2,270)		(10,796)		(c)	32,608
Incentive income (loss)	45,041		1,152		46,193		(600)		(44,046)		(c)	1,547
Investment income (loss)	51,344		3,111		54,455		—		(54,455)		(d)	—
Interest and dividends	—		—		—		—		174,913		(b)(d)	174,913
Reimbursement from affiliates	—		—		—		(122)		1,148		(e)	1,026
Reinsurance premiums	—		—		—		—		46,335		(f)	46,335
Other revenue	5,785		58		5,843		(14)		(396)		(f)	5,433
Consolidated Funds revenues	—		—		—		9,809		—			9,809
Total revenues	938,473		6,297		944,770		6,803		97,870			1,049,443
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)	22,576		5,449		28,025		—		140,603		(b)(d)	168,628
Total net revenues	915,897		848		916,745		6,803		(42,733)			880,815
Expenses
Non interest expense	847,485		9,030		856,515		—		79,286		(a)(e)(h)(i)	935,801
Goodwill impairment	—		—		—		—		4,100			4,100
Consolidated Funds expenses	—		—		—		8,963		—			8,963
Total expenses	847,485		9,030		856,515		8,963		83,386			948,864
Total other income (loss)	—		—		—		36,663		102,109		(c)(d)(i)	138,772
Income taxes expense / (benefit)	—		—		—		—		14,853		(h)	14,853
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds	4,796		—		4,796		34,503		(8,060)			31,239
Income (loss) attributable to Cowen Inc.	63,616		(8,182)		55,434		—		(30,803)			$	24,631
Less: Preferred stock dividends	5,434		1,358		6,792		—		—			6,792
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders	58,182		(9,540)		48,642		$	—	$	(30,803)		$	17,839
Add back: Depreciation and Amortization expense	20,403		36		20,439
Economic operating income (loss)	$	78,585	$	(9,504)	$	69,081



	Year Ended December 31, 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	$	329,061	$	—	$	329,061	$	—	$	28,161	(a)	$	357,222
Brokerage	452,299		—		452,299		—		(38,717)		(b)	413,582
Management fees	43,466		5,709		49,175		(2,513)		(17,004)		(c)	29,658
Incentive income (loss)	16,851		6,896		23,747		(52)		(20,578)		(c)	3,117
Investment income (loss)	53,593		2,753		56,346		—		(56,346)		(d)(g)	—
Interest and dividends	—		—		—		—		108,009		(d)	108,009
Reimbursement from affiliates	—		—		—		(269)		1,307		(e)	1,038
Aircraft lease revenue	—		—		—		—		1,852		(g)	1,852
Reinsurance premiums	—		—		—		—		38,096		(f)	38,096
Other revenue	(1,619)		451		(1,168)		—		5,672		(f)	4,504
Consolidated Funds revenues	—		—		—		9,838		—			9,838
Total revenues	893,651		15,809		909,460		7,004		50,452			966,916
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)	17,489		5,524		23,013		—		81,103		(d)	104,116
Total net revenues	876,162		10,285		886,447		7,004		(30,651)			862,800
Expenses
Non interest expense	788,272		17,087		805,359		—		76,970		(a)(e)(h)(i)	882,329

Consolidated Funds expenses	—		—		—		8,615		—			8,615
Total expenses	788,272		17,087		805,359		8,615		76,970			890,944
Total other income (loss)	—		—		—		35,494		88,248		(c)(d)(i)(j)	123,742
Income taxes expense / (benefit)	—		—		—		—		15,719		(h)	15,719
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds	4,212		742		4,954		33,883		(1,777)			37,060
Income (loss) attributable to Cowen Inc.	83,678		(7,544)		76,134		—		(33,315)			42,819
Less: Preferred stock dividends	5,162		1,630		6,792		—		—			6,792
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders	78,516		(9,174)		69,342		$	—	$	(33,315)		$	36,027
Add back: Depreciation and Amortization expense	11,402		181		11,583
Economic operating income (loss)	$	89,918	$	(8,993)	$	80,925



	Year Ended December 31, 2017
							Adjustments
	Operating Company		Asset Company		Total Economic Income (Loss)		Funds Consolidation		Other Adjustments			US GAAP Net Income (Loss)
	(dollars in thousands)
Revenues
Investment banking	$	223,614	$	—	$	223,614	$	—	$	—		$	223,614
Brokerage	312,780		—		312,780		—		(19,170)		(b)	293,610
Management fees	45,007		10,380		55,387		(2,593)		(19,549)		(c)	33,245
Incentive income (loss)	17,872		8,156		26,028		(1,739)		(18,906)		(c)	5,383
Investment income (loss)	7,204		37,938		45,142		—		(45,142)		(d)(g)	—
Interest and dividends	—		—		—		—		49,440		(b)(d)	49,440
Reimbursement from affiliates	—		—		—		(297)		3,157		(e)	2,860
Aircraft lease revenue	—		—		—		—		3,751		(g)	3,751
Reinsurance premiums	—		—		—		—		30,996		(f)	30,996
Other revenue	3,307		(76)		3,231		—		5,330		(f)	8,561
Consolidated Funds revenues	—		—		—		7,321		—			7,321
Total revenues	609,784		56,398		666,182		2,692		(10,093)			658,781
Interest expense	13,599		5,289		18,888		—		42,061		(d)	60,949
Total net revenues	596,185		51,109		647,294		2,692		(52,154)			597,832
Expenses
Non interest expense	584,816		40,571		625,387		(199)		58,935		(a)(e)(h)(i)	684,123

Consolidated Funds expenses	—		—		—		12,526		—			12,526
Total expenses	584,816		40,571		625,387		12,327		58,935			696,649
Total other income (loss)	—		—		—		31,073		74,706		(c)(d)(i)(j)(k)	105,779
Income taxes expense / (benefit)	—		—		—		—		44,053		(h)	44,053
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds	5,178		894		6,072		21,438		(3,719)			23,791
Income (Loss) attributable to Cowen Inc.	6,191		9,644		$	15,835	$	—	$	(76,717)		$	(60,882)
Less: Preferred stock dividends	4,890		1,902		6,792							6,792
Income (Loss) attributable to Cowen Inc. common stockholders	1,301		7,742		9,043							$	(67,674)
Add back: Depreciation and amortization expense	11,211		347		11,558
Economic Operating Income (Loss) attributable to Cowen Inc. common stockholders	$	12,512	$	8,089	$	20,601

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 fund start-up costs and 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) for which the majority of this activity is shown in other income (loss) for US GAAP reporting.

(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. The costs are recorded within expenses for US GAAP reporting.

(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.

(k)			Economic Income (Loss) excludes the bargain purchase gain which resulted from the Convergex Group acquisition.

For the years ended December 31, 2019 and 2018, there was no one investment fund or other customer which represented more than 10% of the Company's total revenues.