Cowen Group, Inc. Announces 2010 Third Quarter Financial Results

NEW YORK, Nov 10, 2010 (BUSINESS WIRE) —

Cowen Group, Inc. (NASDAQ: COWN) today announced its operating results
for the third quarter ended September 30, 2010.

2010 Third Quarter GAAP Financial Overview

As a result of the business combination of Ramius LLC (“Ramius”) and
Cowen Group, Inc. (“Cowen”) on November 2, 2009, the Company’s 2010 GAAP
third quarter results reflect three months of the combined business.
2009 GAAP third quarter results reflect three months of legacy Ramius
results only. Similarly, GAAP results for the nine month period ended
September 30, 2010, reflect nine months of the combined business,
whereas results for the nine months period ended September 30, 2009,
include nine months of legacy Ramius results only.

For the third quarter of 2010, the Company reported a GAAP net loss of
$15.4 million, or $0.21 per share, compared to a GAAP net loss of $5.9
million in the third quarter of 2009, or $0.16 per share. GAAP revenue
in the 2010 third quarter was $52.2 million, as compared to $16.5
million in the prior year period.

For the nine month period ended September 30, 2010, the Company reported
a GAAP net loss of $49.5 million, or $0.68 per share, compared to a GAAP
net loss of $31.9 million, or $0.85 per share, in the prior year period.
GAAP revenue in the first nine months of 2010 was $164.1 million, as
compared to $54.2 million in the prior year period.

Pro Forma Economic Income (Loss)

For the purpose of providing more detailed disclosure, the Company is
also reporting pro forma economic income (loss) (“Economic Loss”)
representing the combined third quarter and nine month period results
for both legacy Ramius and Cowen in 2009. These figures reflect the
combination of Economic Loss for each entity during these periods.

Throughout the remainder of this press release the Company presents
Economic Loss financial measures that are not prepared in accordance
with GAAP. Economic Loss is considered by management to be a
supplemental measure to the GAAP results and is intended to provide a
more complete presentation of the Company’s performance as management
measures it. The primary differences between GAAP and Economic Loss are
the elimination of the impact of consolidation for any of our funds
(both 2009 and 2010), the exclusion of any goodwill impairment charges
(there were no charges for goodwill impairment in either period) and the
exclusion of reorganization expenses in connection with the transaction
and transaction-related equity awards (both 2009 and 2010). For a more
complete description of Economic Loss and a reconciliation of GAAP net
income (loss) to Economic Loss for the periods presented and additional
information regarding the reconciling adjustments, please see the
“Non-GAAP Financial Measures” section below.

Summary Information

  • Revenue increased by 26% to $61.3 million in the third quarter of 2010
    from $48.6 million in the 2010 second quarter and decreased by 17%
    from $73.8 million in the third quarter of 2009.
  • Economic Loss was reduced to $12.9 million in the third quarter of
    2010 from $17.9 million in the second quarter of 2010 and $15.3
    million in the third quarter of 2009.
  • Economic Loss excluding certain non-cash items was reduced to $3.9
    million in the third quarter of 2010 from $12.8 million in the second
    quarter of 2010 and $6.3 million in the third quarter of 2009.
  • Compensation and benefits expense increased by 28% to $45.9 million in
    the third quarter of 2010 from $35.9 million in the second quarter of
    2010 and decreased by 24% from $60.2 million in the third quarter of
    2009.
  • Excluding severance charges and reimbursed compensation expense,
    compensation expense as a percentage of revenue was 64% in the third
    quarter of 2010, as compared to 68% in the second quarter of 2010 and
    77% in the third quarter of 2009.
  • Non-compensation expenses decreased by 8% to $29.6 million in the
    third quarter of 2010 from $32.2 million in the second quarter of 2010
    and by 4% from $30.9 million in the third quarter of 2009.
  • Assets under management increased by $677 million to $8,226 million as
    of October 1, 2010, as compared to $7,549 million as of October 1,
    2009. As compared to July 1, 2010, assets under management increased
    by $333 million, including net subscriptions of $225 million and a
    performance-related appreciation in assets under management of $108
    million.
  • Investment income increased to $14.1 million in the third quarter of
    2010 from an investment loss of $2.9 million in second quarter of 2010
    and decreased from $15.3 million in the third quarter of 2009.
  • Investment banking revenues decreased by 28% to $7.2 million in the
    third quarter of 2010 from $9.9 million in the second quarter of 2010
    and by 39% from $11.8 million in the third quarter of 2009.
  • Brokerage revenues decreased by 13% to $26.0 million in the third
    quarter of 2010 from $29.8 million in the second quarter of 2010 and
    by 20% from $32.4 million in the third quarter of 2009.

“Over the past twelve months, we have reorganized many aspects of Cowen
Group’s businesses and we are pleased with the progress that has been
made to date in reshaping the strategic footprint of our organization,”
said Peter Cohen, Chairman and CEO. “We continue to be concerned about
the longer term sustainability of the economic recovery and remain
cautious in our investment profile and in our business build out.
Nonetheless, we have made progress on the cost savings initiatives that
we have implemented since the merger which is enabling us to make
tactical investments in businesses where we see revenue opportunities.”

“In our alternative investment management business, the decision to
focus efforts on delivering products and services that offer enhanced
liquidity and transparency has resulted in a steady increase in assets
under management over the course of 2010.”

“At Cowen and Company, we continued to maintain our sales & trading
market share and demonstrate the value of our franchise to our
institutional clients despite the fact that third quarter trading
volumes were generally light industry-wide. In investment banking, we
have focused the platform on industries where we can deliver the most
value and are developing a capital markets and advisory product set that
best meets the needs of our clients. We have also continued to invest in
professionals who we think will be very successful working with our
existing team on the Cowen platform. While it is early, we are starting
to see signs of traction in the new businesses we have been developing
in debt and private placements as well as in previously existing
businesses, particularly in China.”

Summary of Accomplishments Through the First
Anniversary of the Business Combination

  • Appointed new senior leadership in investment banking
  • Launched a Debt Capital Markets platform to support our investment
    banking effort
  • Integrated our capital markets areas by combining Equity Capital
    Markets, Private Equity Capital Markets and Debt Capital Markets into
    one unified Global Capital Markets Group
  • Built out our PIPEs / registered direct platform and added a
    convertible origination capability
  • Hired a new Head of M&A investment banking to increase our strategic
    advisory product capabilities
  • Increased our presence in the options, convertible and equity
    derivatives markets for aftermarket support and distribution
  • Created our first mutual fund, the Ramius Dynamic Replication Fund, an
    innovative product focusing on hedge fund replication
  • Established a commodity trading advisor and launched two funds that
    have shown strong performance
  • Reoriented hedge fund focus on single strategy liquid products,
    including our credit and deep value platforms
  • Reduced non-compensation expenses for three consecutive quarters
  • Negotiated the consolidation of our New York headquarter offices at a
    net cost savings

2010 Third Quarter Economic Loss

Overview

Economic Loss for the third quarter of 2010 was $12.9 million, as
compared to an Economic Loss of $17.9 million in the second quarter of
2010 and $15.3 million in the third quarter of 2009. The third quarter
of 2010 and third quarter of 2009 results exclude the impact of equity
award expense related to grants made in connection with the business
combination of $2.1 million and $2.7 million, respectively.

Economic Loss excluding certain non-cash items was $3.9 million in the
2010 third quarter, as compared to $12.8 million in the second quarter
of 2010 and $6.3 million in the third quarter of 2009. Non-cash items
are described in detail below and are reconciled to Economic Loss in the
“Non-GAAP Financial Measures” section below.

The third quarter of 2010 results included non-cash deferred
compensation expenses of $6.0 million, as compared to $2.4 million in
the second quarter of 2010 and $6.9 million in the third quarter of 2009.

The third quarter of 2010 and third quarter of 2009 results included
$0.9 million and $0.2 million, respectively, of non-cash, negative
incentive fees due to a subordination agreement with an investor in
certain real estate funds. The second quarter of 2010 results included
$0.4 million of non-cash, negative incentive fees due to the reversal of
previously booked incentive fees.

Other non-cash expenses include depreciation and amortization. The
depreciation and amortization expense for the third quarter of 2010 was
$2.2 million, compared to $2.4 million in the second quarter of 2010 and
$1.9 million in the third quarter of 2009.

Total Revenues

Total revenues for the third quarter of 2010 were $61.3 million, a 26%
increase compared to $48.6 million in the second quarter of 2010 and a
17% decrease compared to revenue of $73.8 million in the third quarter
of 2009.

The increase in revenues relative to the second quarter of 2010 was
primarily the result of an increase in investment income and incentive
income. The decrease in revenues relative to the third quarter of 2009
was primarily the result of a reduction in brokerage revenue as weak
cash equity volumes continued throughout the third quarter, a decline in
investment banking fees, and lower management fees and investment income.

Compensation and Benefits Expense

Compensation and benefits expense for the third quarter 2010 was $45.9
million, a 28% increase compared to $35.9 million in the second quarter
of 2010 and a 24% decline as compared to $60.2 million in the third
quarter of 2009. Compensation and benefits excludes transaction-related
award expense of $2.1 million and $2.7 million in the third quarter and
second quarter of 2010, respectively.

Employee compensation and benefits expense for the third quarter of 2010
included $6.0 million in share-based and other non-cash deferred
compensation expense. Compensation and benefits expense for the third
quarter of 2010 included $5.3 million of severance expense and $1.4
million of expenses associated with activities for which the Company
gets reimbursed. Employee compensation and benefits expense as a
percentage of total revenues was 75% in the third quarter. Excluding
severance and reimbursed compensation expense, employee compensation and
benefits expense was 64% of revenue.

Non-Compensation Expenses

Non-compensation expenses for the third quarter of 2010 were $29.6
million, an 8% decrease compared to $32.2 million in the second quarter
of 2010 and a 4% decrease compared to $30.9 million in the third quarter
of 2009. The decrease in non-compensation expenses relative to the
second quarter of 2010 was primarily the result of a decline in floor
brokerage and execution, and marketing and business development
expenses; partially offset by an increase in service and professional
fees. The decrease in non-compensation expenses relative to the third
quarter of 2009 was primarily the result of a decline in floor brokerage
and execution, professional fees, and occupancy and equipment expenses;
partially offset by an increase in service fees and depreciation and
amortization.

Non-compensation expenses in the quarter included $23.9 million of fixed
non-compensation expenses and $5.7 million of variable non-compensation
expenses, which include trade clearing and execution expenses. Fixed
non-compensation expenses declined relative to both the second quarter
of 2010 and the third quarter of 2009 and are expected to continue to
decline in 2011 as we continue to realize the impact of cost savings
initiatives that were implemented following the business combination.

Alternative Investment Management

Assets Under Management

As of October 1, 2010, the Company had assets under management of $8,226
million compared to assets under management of $7,893 million as of July
1, 2010. The $333 million increase in assets under management during
this period resulted from net subscriptions of $225 million (including
redemptions effective on October 1, 2010) and a performance-related
appreciation in assets of $108 million.

Refer to the “Assets under management by platform” table below for a
breakout of total assets under management as of October 1, 2010.

Assets Under Management by Platform:

Total Assets under Management
Platform

October 1, 2010

July 1, 2010 Primary Strategies
Hedge Funds $ 1,423

(1)

$ 1,388

(1)

Multi-Strategy
Single Strategy
Fund of Funds 1,914

(2)

1,737

(2)

Multi-Strategy
Single Strategy
Customized Solutions
Hedging Strategies
Commodity Trading Advisory
1,114 1,057 Advisory
Real Estate (3) 1,628

(4)

1,628

(4)

Debt
Equity
Cowen Healthcare Royalty Partners (5) 903

(4)

903

(4)

Royalty Interests
Other (6) 1,244 1,180 Cash Management
Mortgage Advisory
Total $ 8,226 $ 7,893
(1) This amount includes the Company’s invested capital of
approximately $174 million and $197 million as of October 1, 2010,
and July 1, 2010, respectively.
(2) This amount includes the Company’s invested capital of
approximately $63 million (which includes the notional amount of one
of the fund of funds products) and $30 million as of October 1,
2010, and July 1, 2010, respectively.

(3) Ramius owns between 30% and 55% of the general partners of the
real estate business. We do not possess unilateral control over
any of these general partners.

(4) This amount reflects committed capital.

(5) The Company shares the management fees from the CHRP Funds
equally with the founders of the CHRP Funds. In addition, the
Company receives a share of the carried interests of the general
partners of the CHRP Funds of between 33.3% and 40.2%.

(6) Ramius’s cash management services business provides clients with
investment guidelines for managing cash and establishes investment
programs for managing their cash in separately managed accounts.
Ramius also provides mortgage advisory services where Ramius manages
collateralized debt obligations (“CDOs”) held by investors and
liquidates CDOs that were historically managed by others.

Assets Under Management by Period:

Three Months Ended Three Months Ended
October 1, 2010 July 1, 2010
Beginning Assets under Management (1) $ 7,893,242 $ 7,865,150
Net Subscriptions (Redemptions) 224,522 110,195
Net Performance (2) 108,183 (82,103 )
Ending Assets under Management $ 8,225,947 $ 7,893,242
(1) Beginning assets under management is as of July 1, 2010, for the
three months ended October 1, 2010, and as of April 1, 2010, for the
three months ended July 1, 2010.
(2) Net performance is net of all management and incentive fees and
includes the effect of any foreign exchange translation adjustments
and leverage in certain funds.

Fund Performance

The table below sets forth performance information as of September 30,
2010, for the Company’s funds with assets greater than $200 million as
well as information with respect to the firm’s single-strategy hedge
funds. The performance reflected below is representative of the net
return of the most recently issued full fee paying class of fund
interests offered for the respective fund. The net returns are net of
all management and incentive fees, and are calculated monthly based on
the change in an investor’s current month ending equity as a percentage
of their prior month’s ending equity, adjusted for the current month’s
subscriptions and redemptions. Such returns are compounded monthly in
calculating the final net year to date return. Performance information
for the Cowen Healthcare Royalty Partners funds are not presented due to
existing confidentiality provisions.

Fund Performance by Period:

Performance for
3 Months Ended 9 Months Ended Year Ended December 31,
Platform Strategy Largest Fund (1) September 30, 2010 September 30, 2010 2009 2008 2007
Hedge Funds Single Strategy Ramius Value and Opportunity 10.13% 18.03% 16.88% (20.81)% 6.34%
Overseas Fund Ltd.
(Inception Mar. 1, 2006)

Ramius Global Credit Fund LP (2)(3)

5.97% 14.34% 3.25% N/A N/A
(Inception Oct. 1, 2009)
Multi-Strategy Ramius Multi-Strategy Fund Ltd 1.88% 2.92% 8.50% (22.64)%

(4)

6.05%
(Inception Jan. 1, 1996)
Ramius Enterprise LP 0.72% 1.14% 4.92% (25.38)%

(4)

24.91%

(5)

(Inception Jan. 1, 2008)
Fund of Funds Managed Accounts Activist Portfolio with Hedging Overlay 1.45% 3.91% 12.03% (8.90)% 2.47%
(Inception Sept. 1, 2007)
Real Estate Debt

RCG Longview Debt Fund IV, L.P. (6)

5.61% 9.54% (19.46)% (8.57)% 8.34%
(Inception Nov. 12, 2007)
Equity

RCG Longview Equity Fund, L.P. (6)

4.88% 18.16% (0.87)% (14.85)% (3.64)%
(Inception Nov. 22, 2006)
Other Cash Management 0.21% 1.08% (0.28)% 3.67% 5.24%
(1) Comprised of funds with assets under management greater than
$200 million (excluding CHRP) and Ramius’s single-strategy funds.
The inception date for a fund represents the initial date that the
fund accepted capital from third party investors. As of October 1,
2010, the net assets of the funds presented above were $3.00
billion, or 36.5% of the total assets under management as of October
1, 2010 of $8.23 billion. These funds represent funds with net
assets greater than $200 million (excluding CHRP) and Ramius’
single-strategy hedge funds. Excluded from the table above are funds
with $5.22 billion in the aggregate, or 63.5% of total assets under
management as of October 1, 2010. These include a total of 65
smaller individual funds and managed accounts, and the Cowen
Healthcare Royalty Partners fund.
(2) As of October 1, 2010, the Ramius Global Credit master fund had
$149.5 million of assets under management, not including managed
accounts, which had an additional $103 million in assets under
management, and retail related accounts that have an additional
$75mm in assets under management.
(3) Effective July 1, 2010 the fund is no longer offering Class A to
new investors, as such, the returns included above reflect only
Class B returns.
(4) Performance does not reflect any decrease in valuation for LBIE
assets which have been segregated.
(5) Reflects returns on Ramius’s own invested capital prior to the
creation of the Enterprise Fund with the application to such
performance of (i) an annual management fee of 2% on average
invested assets; (ii) an annual performance fee of 20% on net
income; and (iii) annual estimated expenses of 0.26% on average
invested assets.
(6) Returns for each period represent net internal rates of return
to limited partners after management fees and incentive allocations,
if any, and are computed on a year-to-year basis consistent with
industry standards. Incentive allocations are computed based on a
hypothetical liquidation of net assets of each fund as of the
balance sheet date. Returns are calculated for the investors as a
whole. The computation of such returns for an individual investor
may vary from these returns based on different management fee and
incentive arrangements and the timing of capital transactions. The
hypothetical liquidation value may not reflect the ultimate value
that may be realized from the real estate investments, particularly
given the relatively long period of time that the real estate
investments may be held under the terms of the real estate fund
documents.

The hedge funds and fund of funds listed above have perpetual high-water
marks. These high-water marks require the funds to recover cumulative
losses before the Company can begin to earn incentive income in 2010 and
beyond on the assets that suffered losses in 2008. Since December 2009,
the Activist Portfolio with Hedging Overlay Fund has achieved returns in
excess of its high-water mark threshold for an investor who had
participated fully in the 2008 loss and the subsequent gains. During the
month of July, our deep value fund achieved returns in excess of its
high-water mark threshold for investors who had participated fully in
the 2008 loss and the subsequent gains.

Management Fees:

Revenue from management fees was $11.5 million in the third quarter of
2010, a decrease of 5% compared to $12.2 million in the second quarter
of 2010 and 20% compared to $14.3 million in the third quarter of 2009.
The decrease in management fees during the period was a result of
product mix and a decrease in the fees charged to UniCredit. The average
management fee in the third quarter was 0.57%, as compared to 0.62% in
the second quarter of 2010 and 0.73% in the third quarter of 2009.

Incentive Income:

The Company had incentive income of $1.8 million in the third quarter of
2010 largely due to the performance of certain fund of funds products,
the global credit products, and the deep value funds. Incentive income
increased in the third quarter of 2010 from incentive income losses of
$0.5 million in the second quarter of 2010 and $0.0 million in the third
quarter of 2009.

Investment Income:

The Company had investment income of $14.1 million in the third quarter
of 2010 due to positive performance across our various investment
strategies, particularly our credit, event driven, real estate and
commodity trading strategies. Investment income increased in the 2010
third quarter from an investment income loss of $2.9 million in the
second quarter of 2010, but decreased from investment income of $15.3
million in the third quarter of 2009.

Brokerage

The Company’s brokerage revenue decreased by $3.8 million, or 13%, to
$26.0 million for the third quarter of 2010 from $29.8 million in the
second quarter of 2010. As compared to the third quarter of 2009,
brokerage revenue decreased by $6.4 million, or 20%, from $32.4 million.

The third quarter decrease was primarily associated with decreased
customer activity in the Company’s facilitation business as cash
equities volumes continue to decline.

Investment Banking

Investment banking revenue was $7.2 million in the third quarter of
2010, a decrease of $2.7 million, or 27%, compared to $9.9 million in
the second quarter of 2010. The decline was primarily due to a decrease
in revenues generated from strategic advisory assignments and
underwriting activities, partially offset by an increase in private
placement and registered direct activities. As compared to the third
quarter of 2009, investment banking revenue decreased by 39% from $11.8
million due to decreased revenue from underwriting, strategic advisory,
and private placement and registered direct activities.

  • Underwriting revenue was $3.5 million in the third quarter of 2010,
    flat compared to the second quarter of 2010 and a decrease of $0.4
    million from $3.9 million in the third quarter of 2009. During the
    third quarter of 2010, the Company completed eight underwritten
    transactions with an aggregate transaction value of $5.0 billion, as
    compared to eight transactions in the second quarter of 2010 with a
    transaction value of $782 million, and four transaction in the third
    quarter of 2009 with a transaction value of $379 million.
  • Private placement and registered direct revenue was $1.1 million in
    the third quarter of 2010, an increase of $0.3 million compared to
    $0.8 million in the second quarter of 2010 and a decrease of $1.5
    million compared to $2.6 million in the third quarter of 2009. During
    the third quarter of 2010, the Company completed one private
    transaction, as compared to one transaction in the second quarter of
    2010 and four transactions in the third quarter of 2009.
  • Strategic advisory revenue was $2.7 million in the third quarter of
    2010, a decrease of $2.9 million and $2.6 million compared to $5.6
    million in the second quarter of 2010 and the $5.3 million in the
    third quarter of 2010, respectively. During the third quarter of 2010,
    the Company completed two strategic advisory assignments with an
    aggregate disclosed transaction value of $91 million, as compared to
    three assignments completed in the second quarter of 2010 with an
    undisclosed aggregate value and two assignments completed in the third
    quarter of 2009 with an aggregate disclosed value of $421 million.

Earnings Conference Call with Management

The Company will host a conference call to discuss its third quarter
financial results on Thursday, November 11, 2010, at 9:00 am EST. The
call can be accessed by dialing 1-800-706-7749 domestic or
1-617-614-3474 international. The passcode for the call is 80581569. A
replay of the call will be available beginning at 12:00 pm November 11,
2010 through November 18, 2010. To listen to the replay of this call,
please dial 1-888-286-8010 domestic or 1-617-801-6888 international and
enter passcode 75911863. The call can also be accessed through live
audio webcast or by delayed replay on the Company’s website at www.cowen.com.

About Cowen Group, Inc.

Cowen Group, Inc. is a leading diversified financial services firm
providing alternative investment management, investment banking,
research, and sales and trading services through its business units,
Ramius and Cowen and Company. Its alternative investment management
products include hedge funds, fund of funds, real estate funds,
healthcare royalty funds, cash management and commodity trading funds,
offered primarily under the Ramius name. Cowen and Company offers
industry focused investment banking for growth-oriented companies,
domain knowledge-driven research and a sales and trading platform for
institutional investors. Founded in 1918, the firm is headquartered in
New York and has offices located in major financial centers around the
world.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking
statements provide the Company’s current expectations or forecasts of
future events. Forward-looking statements include statements about the
Company’s expectations, beliefs, plans, objectives, intentions,
assumptions and other statements that are not historical facts.
Forward-looking statements are subject to known and unknown risks and
uncertainties and are based on potentially inaccurate assumptions that
could cause actual results to differ materially from those expected or
implied by the forward-looking statements. The Company’s actual results
could differ materially from those anticipated in forward-looking
statements for many reasons, including the factors described in the
section entitled “Risk Factors” in the Company’s Annual Report on Form
10-K and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in the Company’s Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q, as filed with the Securities and
Exchange Commission. The Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q are available at our website at www.cowen.com
and at the Securities and Exchange Commission website at www.sec.gov.
Unless required by law, the Company undertakes no obligation to publicly
update or revise any forward-looking statement to reflect circumstances
or events after the date of this press release.

Cowen Group, Inc.
Preliminary Unaudited Condensed Consolidated Statements of
Operations
(Dollar amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Revenues
Investment banking $ 7,199 $ $ 23,142 $
Brokerage 26,020 85,389
Management fees 8,278 8,974 26,429 31,408
Incentive income 2,672 177 4,666 177
Interest and dividends 4,270 47 7,054 225
Reimbursement from affiliates 1,380 2,342 4,864 7,832
Other 622 577 1,642 2,265
Consolidated Funds
Interest and dividends 1,764 4,319 10,510 12,186
Other (3 ) 26 384 126
Total revenues 52,202 16,462 164,080 54,219
Expenses
Employee compensation and benefits 47,994 22,083 130,005 50,869
Floor brokerage and trade execution 3,664 12,637
Interest and dividends 1,299 435 2,366 1,122
Professional, advisory and other fees 3,258 3,993 8,519 12,022
Service fees 3,783 470 12,359 1,611
Communications 3,584 228 10,198 755
Occupancy and equipment 5,609 2,446 17,559 7,519
Depreciation and amortization 2,212 1,129 7,096 3,563
Client services and business development 2,885 1,537 11,316 4,850
Other 4,712 1,375 15,529 6,628
Consolidated Funds
Interest and dividends 109 2,286 1,499 6,917
Professional, advisory and other fees 843 2,552 2,352 4,259
Floor brokerage and trade execution 6 1,000
Other 287 473 753 655
Total expenses 80,245 39,007 233,188 100,770
Other income (loss)
Net gains (losses) on securities, derivatives and other investments 8,810 1,274 9,983 (2,702 )
Consolidated Funds net gains (losses):
Net realized and unrealized gains (losses) on investments and other

transactions

8,220 26,891 19,225 59,178
Net realized and unrealized gains (losses) on derivatives (1,312 ) (5,972 ) (813 ) (30,870 )
Net gains (losses) on foreign currency transactions (702 ) (1,563 ) (650 ) (3,040 )
Total other income (loss) 15,016 20,630 27,745 22,566
Loss before income taxes (13,027 ) (1,915 ) (41,363 ) (23,985 )
Income tax expense (benefit) 299 (5,929 ) 632 (5,978 )
Net loss (13,326 ) 4,014 (41,995 ) (18,007 )
(Net income) loss attributable to noncontrolling interests in

consolidated subsidiaries

(2,029 ) (9,899 ) (7,533 ) (13,888 )
Net loss attributable to Cowen Group, Inc. $ (15,355 ) $ (5,885 ) $ (49,528 ) $ (31,895 )
Earnings (loss) per share:
Basic $ (0.21 ) $ (0.16 ) $ (0.68 ) $ (0.85 )
Diluted $ (0.21 ) $ (0.16 ) $ (0.68 ) $ (0.85 )
Weighted average shares used in per share data:
Basic 73,385 37,537 72,866 37,537
Diluted 73,385 37,537 72,866 37,537
Other Metrics at September 30, 2010 and 2009
Cowen Group, Inc. stockholders’ equity $ 441,245 $ 301,628
Common shares outstanding 75,424 37,537
Book value per share $ 5.85 $ 8.04
Tangible book value per share * $ 5.31 $ 7.50
* Tangible book value per share, a non-GAAP financial measure, at
September 30, 2010, is calculated as follows: Cowen Group, Inc.
stockholders’ equity, less $40.8 million of goodwill and intangible
assets, divided by common shares outstanding. Tangible book value
per share at September 30, 2009, is calculated as follows: Cowen
Group, Inc. stockholders’ equity, less $20.2 million of goodwill and
intangible assets, divided by common shares outstanding.

Non-GAAP Financial Measures

In addition to the results presented above in accordance with generally
accepted accounting principles, or GAAP, the Company presents financial
measures that are non-GAAP measures, such as pro forma Economic Loss and
pro forma Economic Loss excluding certain non-cash items. The Company
believes that these non-GAAP measures, viewed in addition to and not in
lieu of the Company’s reported GAAP results, provide useful information
to investors regarding its performance and overall results of
operations. These metrics are an integral part of the Company’s internal
reporting to measure the performance of its business and the overall
effectiveness of senior management. Reconciliations to comparable GAAP
measures are available in the accompanying schedules. The non-GAAP
measures presented herein may not be comparable to similarly titled
measures presented by other companies, and are not identical to
corresponding measures used in our various agreements or public filings.

Pro Forma Economic Loss

Pro forma Economic Loss may not be comparable to similarly titled
measures used by other companies. Cowen uses pro forma Economic Loss as
a measure of its operating performance, not as a measure of liquidity.
Pro forma Economic Loss should not be considered in isolation or as a
substitute for operating income, net income, operating cash flows,
investing and financing activities, or other income or cash flow
statement data prepared in accordance with GAAP. As a result of the
adjustments made to arrive at pro forma Economic Loss described below,
pro forma Economic Loss has limitations in that it does not take into
account certain items included or excluded under GAAP, including its
consolidated funds. Pro forma Economic Loss is considered by management
as a supplemental measure to the GAAP results to provide a more complete
understanding of its performance as management measures it.

In general, pro forma Economic Loss is a pre-tax measure that (i)
presents the Company’s results of operations without the impact
resulting from the consolidation of any of the funds, (ii) excludes
goodwill impairment, and (iii) excludes the reorganization expenses for
the transaction and one-time equity awards made in connection with the
transaction. In addition, pro forma Economic 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 GAAP purposes, these items are included in each of their
respective line items. Pro forma Economic Loss revenues also includes
management fees, incentive income and investment income earned through
the Company’s investment as a general partner in certain real estate
entities. For GAAP purposes, all of these items are recorded in other
income (loss). In addition, pro forma Economic Income expenses are
reduced by reimbursement from affiliates, which for GAAP purposes is
shown as part of revenue.

Additionally, we have reported in this press release our pro forma
Economic Loss excluding certain non-cash expenses. We have adjusted pro
forma Economic Loss by the following non-cash expense items:

  • Depreciation and amortization,
  • Share-based and other non-cash deferred compensation expense, and
  • Real estate related incentive fee losses due to certain claw back and
    subordination agreements with investors in certain real estate funds.

Management believes that the non-GAAP calculation of pro forma Economic
Loss excluding certain non-cash items will allow for a better
understanding of the Company’s operating results.

Cowen Group, Inc.
Pro Forma Economic Income (Loss)
(Dollar amounts in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Revenues
Investment banking $ 7,199 $ 11,842 $ 23,142 $ 28,917
Brokerage 26,020 32,402 85,389 102,685
Management fees 11,548 14,278 36,322 47,388
Incentive income 1,784 (10 ) 3,316 (7,985 )
Investment income 14,132 15,272 22,641 19,341
Other revenue 627 63 782 653
Total revenues 61,310 73,847 171,592 190,999
Expenses
Employee compensation and benefits 45,916 60,217 123,114 149,365
Interest and dividends 246 430 714 1,102
Fixed non-compensation expenses 23,850 24,591 72,965 74,909
Variable non-compensation expenses 5,723 6,332 22,066 19,650
Reimbursement from affiliates (1,478 ) (2,558 ) (5,262 ) (8,314 )
Total expenses 74,257 89,012 213,597 236,712
Net economic income (loss) before non-controlling Interests (12,947 ) (15,165 ) (42,005 ) (45,713 )
Non-controlling interests (117 ) (1,146 )
Pro forma economic income (loss) $ (12,947 ) $ (15,282 ) $ (42,005 ) $ (46,859 )
Pro Forma Economic Income (Loss) Excluding Certain Non-cash Items
Pro forma economic income (loss) $ (12,947 ) $ (15,282 ) $ (42,005 ) $ (46,859 )
Exclusion of depreciation and amortization expense 2,212 1,923 7,096 5,862
Exclusion of share-based and other non-cash deferred compensation
expense
5,983 6,889 10,456 23,160
Exclusion of real estate related incentive fee loss 889 187 1,350 8,213
Pro Forma Economic Income (Loss) Excluding Certain Non-cash Items $ (3,863 ) $ (6,283 ) $ (23,103 ) $ (9,624 )
Cowen Group, Inc.
Unaudited Reconciliation of Pro Forma Economic Income and GAAP
Income for the Three Months Ended September 30, 2010
(Dollar amounts in thousands)
Three Months Ended September 30, 2010
Adjustments
GAAP Other Funds Pro Forma
Income Adjustments Consolidation Economic Income
Revenues
Investment banking $ 7,199 $ 7,199
Brokerage 26,020 26,020
Management fees 8,278 2,663 (a) 607 11,548
Incentive income 2,672 (888 ) (a) 1,784
Investment Income 14,132 (c) 14,132
Interest and dividends 4,270 (4,270 ) (c)
Reimbursement from affiliates 1,380 (1,478 ) (b) 98
Other Revenue 622 5 (c) 627
Consolidated Funds 1,761 (1,761 )
Total revenues 52,202 10,164 (1,056 ) 61,310
Expenses
Compensation & Benefits 47,994 (2,078 ) 45,916
Interest and dividends 1,299 (1,053 ) (c) 246
Non-compensation expenses – Fixed 23,850 (c)(d) 23,850
Non-compensation expenses – Variable 5,723 5,723
Non-compensation expenses 29,707 (29,707 ) (c)(d)
Reimbursement from affiliates (1,478 ) (b) (1,478 )
Consolidated Funds 1,245 (1,245 )

Total expenses

80,245 (4,743 ) (1,245 ) 74,257
Other income (loss)
Net gains (losses) on securities, derivatives and other investments 8,810 (8,810 ) (c)
Consolidated Funds net gains (losses) 6,206 (3,988 ) (2,218 )

Total other income (loss)

15,016 (12,798 ) (2,218 )
Income (loss) before income taxes and non-controlling interests (13,027 ) 2,109 (2,029 ) (12,947 )
Income taxes (Benefit) 299 (299 ) (b)
Economic Income (Loss) / Net income (loss) before non-controlling
interests
(13,326 ) 2,408 (2,029 ) (12,947 )
(Income) loss attributable to non-controlling interests (2,029 ) 2,029
Economic Income (Loss) / Net income (loss) available to Cowen
Group, Inc. Stockholders
($15,355 ) $ 2,408 ($12,947 )
Note: The following is a summary of the adjustments made to US GAAP
net income (loss) 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. Adjustments 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 recognizes revenues (i) net of distribution fees
paid to agents and (ii) our proportionate share of revenues of
certain real estate operating companies for which the investments
are recorded under the equity method of accounting for investments.
(b) Economic Income 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 recognizes our income from proprietary trading,
net of related expenses.

(d) Economic Income recognizes our proportionate share of expenses
for certain real estate operating companies for which the
investments are recorded under the equity method of accounting for
investments.

Cowen Group, Inc.
Unaudited Reconciliation of Pro Forma Economic Income and GAAP
Income for the Three Months Ended September 30, 2009
(Dollar amounts in thousands)

Three Months Ended September 30, 2009

Adjustments
GAAP Other Three Months Funds Pro Forma
Income Adjustments Legacy Cowen Consolidation Economic Income
Revenues
Investment banking $ 11,842 $ 11,842
Brokerage 32,402 32,402
Management fees 8,974 2,093 (a) 2,243 968 14,278
Incentive income 177 (187 ) (a) (10 )
Investment Income 13,675 (c) 1,597 15,272
Interest and dividends 47 (47 ) (c)
Reimbursement from affiliates 2,342 (2,558 ) (b) 216
Other Revenue 577 (514 ) (c) 63
Consolidated Funds 4,345 (4,345 )
Total revenues 16,462 12,462 48,084 (3,161 ) 73,847
Expenses
Compensation & Benefits 22,083 (253 ) 38,387 60,217
Interest and dividends 435 (5 ) (c) 430
Non-compensation expenses – Fixed 9,045 (c)(d) 15,546 24,591
Non-compensation expenses – Variable 721 5,611 6,332
Non-compensation expenses 11,178 (11,178 ) (c)(d)
Reimbursement from affiliates (2,558 ) (b) (2,558 )
Consolidated Funds 5,311 (5,311 )

Total expenses

39,007 (4,228 ) 59,544 (5,311 ) 89,012
Other income (loss)
Net gains (losses) on securities, derivatives and other investments 1,274 (1,274 ) (c)
Consolidated Funds net gains (losses) 19,356 (9,628 ) (9,728 )
Total other income (loss) 20,630 (10,902 ) (9,728 )
Income (loss) before income taxes and non-controlling interests (1,915 ) 5,788 (11,460 ) (7,578 ) (15,165 )
Income taxes (Benefit) (5,929 ) 3,640 (b) 2,289
Economic Income (Loss) / Net income (loss) before non-controlling
interests
4,014 2,148 (11,460 ) (9,867 ) (15,165 )
(Income) loss attributable to non-controlling interests (9,899 ) (85 ) 9,867 (117 )
Economic Income (Loss) / Net income (loss) available to Cowen
Group, Inc. Stockholders
($5,885 ) $ 2,148 ($11,545 ) ($15,282 )
Note: The following is a summary of the adjustments made to US GAAP
net income (loss) 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. Adjustments 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).
Three Months Legacy Cowen: The impact of legacy Cowen’s operating
results for the three month period ended September 30, 2009, are
included in Economic Income, but are not included in GAAP income.

Other Adjustments:

(a) Economic Income recognizes revenues (i) net of distribution fees
paid to agents and (ii) our proportionate share of revenues of
certain real estate operating companies for which the investments
are recorded under the equity method of accounting for investments.
(b) Economic Income 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 recognizes our income from proprietary trading
net of related expenses.

(d) Economic Income recognizes our proportionate share of expenses
for certain real estate operating companies for which the
investments are recorded under the equity method of accounting for
investments.

Cowen Group, Inc.
Unaudited Reconciliation of Pro Forma Economic Income and GAAP
Income for the Nine Months Ended September 30, 2010
(Dollar amounts in thousands)
Nine Months Ended September 30, 2010
Adjustments
GAAP Other Funds Pro Forma
Income Adjustments Consolidation Economic Income
Revenues
Investment banking $ 23,142 $ 23,142
Brokerage 85,389 85,389
Management fees 26,429 7,592 (a) 2,301 36,322
Incentive income 4,666 (1,350 ) (a) 3,316
Investment Income 22,641 (c) 22,641
Interest and dividends 7,054 (7,054 ) (c)
Reimbursement from affiliates 4,864 (5,262 ) (b) 398
Other Revenue 1,642 (860 ) (c) 782
Consolidated Funds 10,894 (10,894 )
Total revenues 164,080 15,707 (8,195 ) 171,592
Expenses
Compensation & Benefits 130,005 (6,891 ) 123,114
Interest and dividends 2,366 (1,652 ) (c) 714
Non-compensation expenses – Fixed 72,965 (c)(d) 72,965
Non-compensation expenses – Variable 22,066 22,066
Non-compensation expenses 95,213 (95,213 ) (c)(d)
Reimbursement from affiliates (5,262 ) (b) (5,262 )
Consolidated Funds 5,604 (5,604 )
Total expenses 233,188 (13,987 ) (5,604 ) 213,597
Other income (loss)
Net gains (losses) on securities, derivatives and other investments 9,983 (9,983 ) (c)
Consolidated Funds net gains (losses) 17,762 (12,820 ) (4,942 )
Total other income (loss) 27,745 (22,803 ) (4,942 )
Income (loss) before income taxes and non-controlling interests (41,363 ) 6,891 (7,533 ) (42,005 )
Income taxes (Benefit) 632 (632 ) (b)
Economic Income (Loss) / Net income (loss) before non-controlling
interests
(41,995 ) 7,523 (7,533 ) (42,005 )
(Income) loss attributable to non-controlling interests (7,533 ) 7,533
Economic Income (Loss) / Net income (loss) available to Cowen
Group, Inc. Stockholders
($49,528 ) $ 7,523 ($42,005 )
Note: The following is a summary of the adjustments made to US GAAP
net income (loss) 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. Adjustments 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 recognizes revenues (i) net of distribution fees
paid to agents and (ii) our proportionate share of revenues of
certain real estate operating companies for which the investments
are recorded under the equity method of accounting for investments.
(b) Economic Income 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 recognizes our income from proprietary trading,
net of related expenses.
(d) Economic Income recognizes our proportionate share of expenses
for certain real estate operating companies for which the
investments are recorded under the equity method of accounting for
investments.
Cowen Group, Inc.
Unaudited Reconciliation of Pro Forma Economic Income and GAAP
Income for the Nine Months Ended September 30, 2009
(Dollar amounts in thousands)
Nine Months Ended September 30, 2009
Adjustments
GAAP Other Nine Months Funds Pro Forma
Income Adjustments Legacy Cowen Consolidation Economic Income
Revenues
Investment banking $ 28,917 $ 28,917
Brokerage 102,685 102,685
Management fees 31,408 6,241 (a) 6,724 3,015 47,388
Incentive income 177 (8,162 ) (a) (7,985 )
Investment Income 16,467 (c) 2,874 19,341
Interest and dividends 225 (225 ) (c)
Reimbursement from affiliates 7,832 (8,314 ) (b) 482
Other Revenue 2,265 (1,612 ) (c) 653
Consolidated Funds 12,312 (12,312 )
Total revenues 54,219 4,395 141,200 (8,815 ) 190,999
Expenses
Compensation & Benefits 50,869 (424 ) 98,920 149,365
Interest and dividends 1,122 (20 ) (c) 1,102
Non-compensation expenses – Fixed 28,127 (c)(d) 46,782 74,909
Non-compensation expenses – Variable 2,546 17,104 19,650
Non-compensation expenses 36,948 (36,948 ) (c)(d)
Reimbursement from affiliates (8,314 ) (b) (8,314 )
Consolidated Funds 11,831 (11,831 )
Total expenses 100,770 (15,033 ) 162,806 (11,831 ) 236,712
Other income (loss)
Net gains (losses) on securities, derivatives and other investments (2,702 ) 2,702 (c)
Consolidated Funds net gains (losses) 25,268 (11,610 ) (13,658 )
Total other income (loss) 22,566 (8,908 ) (13,658 )
Income (loss) before income taxes and non-controlling interests (23,985 ) 10,520 (21,606 ) (10,642 ) (45,713 )
Income taxes (Benefit) (5,978 ) 3,689 (b) 2,289
Economic Income (Loss) / Net income (loss) before non-controlling
interests
(18,007 ) 6,831 (21,606 ) (12,931 ) (45,713 )
(Income) loss attributable to non-controlling interests (13,888 ) (189 ) 12,931 (1,146 )
Economic Income (Loss) / Net income (loss) available to Cowen
Group, Inc. Stockholders
($31,895 ) $ 6,831 ($21,795 ) ($46,859 )
Note: The following is a summary of the adjustments made to US GAAP
net income (loss) 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. Adjustments 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).
Nine Months Legacy Cowen: The impact of legacy Cowen’s operating
results for the nine month period ended September 30, 2009, are
included in Economic Income, but are not included in GAAP income.

Other Adjustments:

(a) Economic Income recognizes revenues (i) net of distribution fees
paid to agents and (ii) our proportionate share of revenues of
certain real estate operating companies for which the investments
are recorded under the equity method of accounting for investments.
(b) Economic Income 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 recognizes our income from proprietary trading
net of related expenses.
(d) Economic Income recognizes our proportionate share of expenses
for certain real estate operating companies for which the
investments are recorded under the equity method of accounting for
investments.

SOURCE: Cowen Group, Inc.

Cowen Group, Inc.
Chris White, 646-562-1197
Chief of Staff
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