Cowen Group, Inc. Announces 2014 Second Quarter Financial Results

Aug 07 2014

NEW YORK–(BUSINESS WIRE)–Aug. 7, 2014–
Cowen Group, Inc. (NASDAQ:COWN) (“Cowen” or “the Company”) today
announced its operating results for the second quarter ended June 30,
2014.

2014 Second Quarter and Six Month Highlights⁽¹⁾

Economic income was $8.5 million in the second quarter 2014, a $7.0
million increase over the prior year period of $1.5 million. For the
six months ended June 30, 2014, economic income was $18.5 million
versus $0.2 million in the prior year period.
Revenue for the second quarter and six months ended June 30, 2014 was
$111.5 million and $222.3 million, respectively. This compares to
revenue of $81.1 million and $156.0 million for second quarter and six
months ended June 30, 2013, respectively.
Broker-dealer segment revenue reflected year over year growth in both
the investment banking and brokerage businesses. Second quarter 2014
revenue was $70.4 million, a 20% increase over the prior year period
of $58.8 million. Revenue for the six months ended June 30, 2014 was
$154.0 million, a $48.1 million improvement from the year ago period
of $106.0 million.⁽²⁾
Assets under management (“AUM”) grew $1.1 billion in the second
quarter and $2.2 billion in the first half of 2014. As of July 1, 2014
AUM was $11.6 billion.
Fixed non compensation expenses were $23.5 million in the second
quarter 2014, compared to $22.4 million in the prior year period. For
the first six months of 2014, fixed non compensation expenses were
$46.4 million versus $44.8 million in the year ago period. The
increase in both the quarter and six month period is primarily
attributed to higher professional fees related to the debt issuance in
the first quarter of 2014.
On August 6, Cowen’s Board of Directors approved an $11.3 million
increase in the Company’s share repurchase program. With this
increase, the total amount available for repurchase under the program
is $25 million.

_________________________________________________________________________________________________

(1) All financial highlights are presented on an Economic Income basis.

(2) Includes broker-dealer segment’s allocation of Investment Income
(Loss) and Other Revenue.

Peter A. Cohen, Chairman and Chief Executive Officer of Cowen Group
said, “The six and 12 months ended June 30, 2014 marked Cowen’s most
profitable period since the Cowen / Ramius business combination in 2009.
During the second quarter 2014, the broker dealer saw solid contribution
from the equity capital markets and cash equities businesses. Although
the debt capital markets business did not contribute to revenue in the
second quarter, several transactions have already closed in the current
quarter. Ramius continues to have a successful asset raising year with
demand for existing products attracting $1.1 billion in new assets in
the quarter. Continued growth of existing and new products and
strategies, as well as partnerships such as the recently announced
planned strategic relationship with State Street Global Advisors, are
expected to drive additional demand.”

2014 Second Quarter GAAP Financial Information and Select Balance
Sheet Data

For the second quarter 2014, the Company reported GAAP net income of
$8.4 million, or $0.07 per share, as compared to a GAAP net income of
$1.1 million, or $0.01 per share, in the second quarter of 2013. The
year-over-year improvement was primarily due to gains on securities in
other income as well as increased revenues across Cowen’s business lines.

The following table summarizes the Company’s GAAP financial results for
the three months ended June 30, 2014 and 2013, and March 31, 2014, as
well as the six months ended June 30, 2014 and 2013.


Summary GAAP Financial Information

(Dollar amounts in millions, except per share information)	Three Months Ended										Six Months Ended
	June 30,				Mar. 31,						June 30,
	2014		2013		%		2014		%		2014		2013			%

Revenues	$	92.9	$	81.2	14	%	$	106.7	(13)	%	$	199.6	$	148.4		34	%
Expenses	107.9		86.6		25	%	106.0		2	%	213.9		169.7			26	%
Other income (loss)	28.6		8.9		221	%	13.5		113	%	42.1		25.9			63	%
Income tax (benefit) expense	—		0.2		(71)	%	0.1		(42)	%	0.1		0.3			(63)	%
Net income (loss)	$	13.6	$	3.3	NM		$	14.0	(3)	%	$	27.6	$	4.3		NM
Net income (loss) attributable to noncontrolling interests in consolidated subsidiaries	5.2		2.3		131	%	4.2		25	%	9.4		5.8			64	%
Net income (loss) attributable to Cowen Group, Inc.	$	8.4	$	1.1	NM		$	9.8	(15)	%	$	18.2	$	(1.5	)	NM

Earnings (loss) per share (basic):	$0.07		$0.01		NM		$0.09		NM		$	0.16	$	(0.01	)	NM
Note: Amounts may not add due to rounding.

The Company’s stockholders’ equity as of June 30, 2014, was $535.0
million, or book value per share of $4.65, compared to stockholders’
equity of $532.2 million, or book value per share of $4.61, as of
March 31, 2014.

At June 30, 2014, the Company’s tangible book value per share was $4.24
compared to $4.19 at March 31, 2014.


Select Balance Sheet Data

(Dollar amounts in millions, except per share information)	June 30,		March 31,		June 30,
	2014		2014		2013
Stockholders’ equity	$	535.0	$	532.2	$	506.1
Tangible stockholders’ equity	$	487.2	483.6		456.0
Common shares outstanding	115.0		115.4		117.9

Book value per share	$	4.65	$	4.61	$	4.29
Tangible book value per share	$	4.24	$	4.19	$	3.87

Economic Income (Loss)

Throughout the remainder of this press release the Company presents
Economic Income financial measures that are not prepared in accordance
with Generally Accepted Accounting Principles (“GAAP”). In general,
Economic Income (Loss) is a pre-tax measure that (i) eliminates the
impact of consolidation for consolidated funds and (ii) excludes certain
other acquisition-related and/or reorganization 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. 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.

For a more complete description of Economic Income (Loss) and a
reconciliation of GAAP net income (loss) to Economic Income (Loss) for
the periods presented and additional information regarding the
reconciling adjustments, please see the “Non-GAAP Financial Measures”
section of this press release.

The table below summarizes the Company’s Economic Income financial
results for the three months ended June 30, 2014 and 2013, and March 31,
2014.


Summary Economic Income (Loss) Financial Information

(Dollar amounts in millions, except per share information)	Three Months Ended								Six Months Ended
	June 30,					Mar. 31,			June 30,
	2014		2013		%	2014		%	2014		2013		%

Revenues	$	111.5	$	81.1	38%	$	110.8	1%	$	222.3	$	156.0	43	%
Expenses	99.2		78.0		27%	98.1		1%	197.3		151.7		30	%
Net Economic Income (Loss) before non-controlling interests	12.3		3.1		NM	12.6		(2)%	25.0		4.3		NM
Economic Income (Loss)	$	8.5	$	1.5	NM	$	10.0	(15)%	$	18.5	$	0.2	NM

Economic Income (Loss) per share	$	0.07	$	0.01	NM	$	0.09	NM	$	0.16	$	—	NM

Economic Income (Loss) excluding certain non-cash items	$	16.6	$	8.8	88%	$	17.2	(4)%	$	33.8	$	14.8	128	%
Note: Amounts may not add due to rounding.

2014 Second Quarter Economic Income Review

Total Economic Income Revenue

Total Economic Income Revenue for the second quarter 2014 was $111.5
million, a 38% increase compared to $81.1 million in the second quarter
2013. The increase in Economic Income Revenue was primarily the result
of an increase in investment banking and brokerage revenue, in addition
to increased revenue from the alternative investment business.


Economic Income Revenue

	Three Months Ended									Six Months Ended
	June 30,					Mar. 31,				June 30,
(Dollar amounts in millions)	2014		2013		%	2014			%	2014		2013			%

Investment banking	$	30.3	$	25.6	18%	$	49.6		(39)%	$	79.9	42.7			87	%
Brokerage	35.1		33.3		5%	34.3			2%	69.4		61.3			13	%
Management fees	16.2		14.6		11%	14.1			15%	30.3		28.8			5	%
Incentive income	8.2		3.8		118%	4.7			73%	12.9		8.9			45	%
Investment income	21.6		3.6		506%	8.2			164%	29.8		14.4			106	%
Other revenue	0.2		0.3		NM	(0.1		)	NM	0.1		(0.2		)	NM
Total Revenues	$	111.5	$	81.1	38%	$	110.8		1%	$	222.3	$	156.0		43	%
Note: Amounts may not add due to rounding.

Compensation and Benefits Expense

Second quarter 2014 compensation and benefits expense was $63.6 million,
a 35% increase compared to $47.0 million in the second quarter 2013. The
increase is due to higher revenues during the second quarter of 2014 as
compared to the 2013 period, which resulted in a higher compensation and
benefits accrual to remain consistent with the Company’s compensation to
revenue ratio despite a decline in headcount. Total headcount at the end
of the second quarter was 632, a decline of 2% from the prior year
period and 1% higher than the fourth quarter 2013.

The compensation to Economic Income revenue ratio was 57% in the current
quarter compared to 58% in the prior year period. Compensation and
benefits expense for the second quarter 2014 and 2013 included $5.7
million and $4.7 million in share-based compensation expense in both
periods, respectively.

Excluding $1.3 million of expenses associated with activities for which
the Company is reimbursed and $0.7 million of severance expense,
compensation and benefits expense was 55% of Economic Income revenue in
the second quarter 2014. Excluding these same two items, compensation
and benefits expense was 56% of Economic Income revenue in the prior
year period.

Fixed Non-Compensation Expenses

Fixed non-compensation expenses in the current quarter increased 5% to
$23.5 million compared to $22.4 million in the comparable prior year
quarter. This was primarily due to higher professional fees related to
the debt issuance during the first quarter of 2014, which were partially
offset with various firm-wide efforts to reduce fixed expenses.

Variable Non-Compensation Expenses

Variable non-compensation expenses were $11.1 million in the second
quarter 2014, an increase of 11% compared to $10.0 million in the second
quarter 2013. The increase was due to greater marketing and business
development expenses due to increased marketing activity firm wide.

Interest Expense

Interest expense was $2.7 million in the second quarter 2014 compared to
$0.1 million in the prior year quarter. The increase is primarily due to
the debt issued in the first quarter of 2014.

Non-Controlling Interest

Non-Controlling interest represents the portion of the net income or
loss attributable to certain non-wholly owned subsidiaries that is
allocated to other investors. The period over period increase was the
result of an extension of the partnership agreement relating to our
alternative solutions business which resulted in a profit split and
therefore more allocations of income to non-controlling interest holders.

Alternative Investment Segment (“Ramius”)

Assets Under Management

As of July 1, 2014, the Company had assets under management of $11.6
billion. The $1.1 billion AUM increase in the second quarter 2014
included $805 million in net subscriptions and $249 million of net
positive performance.

Management Fees and Incentive Income

For the second quarter 2014, management fees were $16.2 million,
compared to $14.6 million in the prior year. This increase was primarily
related to an increase in management fees for our activist funds.

The average annualized management fee charged in the second quarter 2014
was 0.59%, unchanged from the first quarter, and 0.65% in the prior year
period. The difference is related to undrawn committed capital in
certain strategies that operate with private equity structures where
fees are not yet generated as well as increases in certain large
mandates with tiered management fee schedules.

Incentive income was $8.2 million in the second quarter 2014 compared to
$3.8 million in the prior year period. This increase was primarily
related to an increase in performance fees from our credit and activist
funds.

Investment Income

Investment income represents net revenues generated on our invested
capital and includes interest and dividend income received or accrued as
well as realized and unrealized gains/losses recognized during the
period. Year over year investment income increased by $18.0 million to
$21.6 million in the second quarter 2014. The increase is due to an
increase in performance from certain investment strategies, including
activist, event and equities driven, as well as increases in performance
from our other investments.

Broker-Dealer Segment (“Cowen and Company”)

Brokerage

Brokerage revenue was $35.1 million in the second quarter 2014, an
increase of 5%, compared to $33.3 million in the second quarter 2013.
This was attributable to a decrease in losses related to the
facilitation of customer transactions and an increase in electronic
trading revenues.

Investment Banking

Investment banking revenue was $30.3 million in the second quarter 2014,
an increase of 18%, compared to $25.6 million in the second quarter
2013. The increase in revenue was due to an increase in equity
underwriting activity.

Equity underwriting revenue was $29.9 million from 32 transactions in
the second quarter 2014, as compared to $16.2 million from 17
transactions in the comparable prior year period. Of these
transactions, the Company completed nine bookrun assignments in both
the second quarter 2014, and the prior year period.

Debt capital markets revenue was nil in the second quarter 2014, as
compared to $6.8 million from the completion of five transactions in
the prior year period.
Strategic advisory revenue was $0.4 million in the second quarter
2014, as compared to $2.6 million in the second quarter 2013. The
Company did not complete any strategic advisory transactions in the
second quarter 2014 as compared to three strategic advisory
transactions in the prior year period.

Share Repurchase Program

Cowen today announced that its Board of Directors approved an increase
to the Company’s share repurchase program that authorizes Cowen to
purchase up to an additional $11.3 million of Cowen’s Class A common
shares from time to time. With this increase, the total amount available
for repurchase under the program is $25 million.

The $11.3 million increase is in addition to the Company’s existing $60
million share purchase program, under which the Company has acquired
14.2 million shares for $46.3 million. Also, since the program was
initially announced in July 2011, the Company has acquired an additional
5.3 million shares as a result of net share settlement relating to the
vesting of equity awards.

The program permits the Company to purchase shares from time to time
through a variety of methods, including in the open market or through
privately negotiated transactions, in accordance with applicable
securities laws. It does not obligate the Company to make any purchases
at any specific time or situation. The program may be suspended or
discontinued at any time. As of June 30, 2014, Cowen had approximately
115.0 million Class A shares outstanding.

In the second quarter 2014, the Company repurchased a total of 2.0
million shares under the program.

Earnings Conference Call with Management

The Company will host a conference call to discuss its 2014 second
quarter financial results on Thursday, August 7, 2014, at 9:00 am EST.
The call can be accessed by dialing 1-866-510-0712 domestic or
1-617-597-5380 international. The passcode for the call is 34936653. A
replay of the call will be available beginning at 1:00 pm EST August 7,
2014 through August 14, 2014. To listen to the replay of this call,
please dial 1-888-286-8010 domestic or 1-617-801-6888 international and
enter passcode 61327673.

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 diversified financial services firm and, together
with its consolidated subsidiaries, provides alternative asset
management, investment banking, research, and sales and trading services
through its two business segments: Ramius and its affiliates make up the
Company’s alternative investment segment, while Cowen and Company and
its affiliates make up the Company’s broker-dealer segment. Ramius
provides alternative asset management solutions to a global client base
and manages a significant portion of Cowen’s proprietary capital. Cowen
and Company and its affiliates offer 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 worldwide.

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					Six Months Ended
	June 30,					June 30,
	2014			2013		2014			2013
Revenues
Investment banking	$	30,292		$	25,571	$	79,854		$	42,737
Brokerage	33,311			31,521		66,141			58,121
Management fees	9,692			9,698		18,616			19,191
Incentive income	2,724			1,954		5,222			4,565
Interest and dividends	12,460			10,521		21,712			19,842
Reimbursement from affiliates	3,018			1,214		4,918			2,699
Other	752			485		1,307			963
Consolidated Funds
Interest and dividends	655			241		1,141			253
Other	(2		)	2		668			77
Total revenues	92,902			81,207		199,579			148,448
Expenses
Employee compensation and benefits	64,404			47,507		131,965			91,730
Floor brokerage and trade execution	5,858			6,320		11,513			12,173
Interest and dividends	10,193			7,489		17,265			14,109
Professional, advisory and other fees	4,374			3,002		7,975			6,855
Service fees	2,086			2,687		4,228			5,264
Communications	3,022			2,771		6,268			6,510
Occupancy and equipment	6,324			6,548		12,721			12,267
Depreciation and amortization	2,382			2,609		4,762			5,162
Client services and business development	5,635			4,659		10,149			8,758
Other	3,228			2,535		6,386			5,977
Consolidated Funds
Interest and dividends	189			106		299			106
Professional, advisory and other fees	140			92		274			488
Floor brokerage and trade execution	4			180		6			180
Other	65			107		121			145
Total expenses	107,904			86,612		213,932			169,724
Other income (loss)
Net (losses) gains on securities, derivatives and other investments	23,037			4,994		34,391			16,801
Consolidated Funds net (losses) gains:
Net realized and unrealized (losses) gains on investments and other transactions	5,778			3,711		7,942			8,781
Net realized and unrealized (losses) gains on derivatives	(190		)	158		(211		)	462
Net (losses) gains on foreign currency transactions	21			48		(19		)	(167		)
Total other income (loss)	28,646			8,911		42,103			25,877

Income (loss) before income taxes	13,644			3,506		27,750			4,601
Income tax (benefit) expense	46			158		125			334
Net income (loss)	13,598			3,348		27,625			4,267
Net income (loss) attributable to noncontrolling interests in consolidated subsidiaries	5,216			2,255		9,403			5,750
Net income (loss) attributable to Cowen Group, Inc. stockholders	$	8,382		$	1,093	$	18,222		$	(1,483	)

Earnings (loss) per share:
Basic	$	0.07		$	0.01	$	0.16		$	(0.01	)
Diluted	$	0.07		$	0.01	$	0.15		$	(0.01	)

Weighted average shares used in per share data:
Basic	115,569			117,235		115,626			115,471
Diluted	120,199			120,901		120,635			115,471

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 Economic Income (Loss) and
Economic Income (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 businesses 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 public companies, and are not identical to
corresponding measures used in our various agreements or public filings.

Economic Income (Loss)

Economic Income (Loss) may not be comparable to similarly titled
measures used by other public companies. Cowen uses Economic Income
(Loss) as a measure of its operating performance, not as a measure of
liquidity. Economic Income (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 Economic Income (Loss) described below,
Economic Income (Loss) has limitations in that it does not take into
account certain items included or excluded under GAAP, including its
consolidated funds. Economic Income (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, Economic Income (Loss) is a pre-tax measure that
(i) eliminates the impact of consolidation for consolidated funds and
(ii) excludes certain other acquisition-related and/or reorganization
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.
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.

Additionally, we have reported in this press release our Economic Income
(Loss) excluding certain non-cash expenses. For this measure, we have
adjusted Economic Income (Loss) by the following non-cash expense items:

Depreciation and amortization and
Share-based compensation expense.

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

Cowen Group, Inc.
Unaudited Economic Income (Loss)
(Dollar amounts in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Revenues
Investment banking	$	30,292		$	25,571		$	79,854		$	42,737
Brokerage	35,052			33,300			69,401			61,317
Management fees	16,166			14,606			30,255			28,750
Incentive income	8,193			3,765			12,919			8,892
Investment income	21,596			3,563			29,770			14,436
Other revenue	242			278			97			(163		)
Total revenues	111,541			81,083			222,296			155,969
Expenses
Employee compensation and benefits	63,632			47,026			130,589			90,860
Fixed non-compensation expenses	23,544			22,356			46,359			44,760
Variable non-compensation expenses	11,136			9,989			20,573			18,714
Interest expense	2,654			72			3,297			196
Reimbursement from affiliates	(1,756		)	(1,411		)	(3,482		)	(2,830		)
Total expenses	99,210			78,032			197,336			151,700
Net Economic Income (Loss) before non-controlling Interests	12,331			3,051			24,960			4,269
Non-controlling interests	(3,818		)	(1,581		)	(6,444		)	(4,067		)
Economic Income (Loss)	$	8,513		$	1,470		$	18,516		$	202

Economic Income (Loss) Excluding Certain Non-cash Items

Economic Income (Loss)	$	8,513		$	1,470		$	18,516		$	202
Exclusion of depreciation and amortization expense	2,380			2,601			4,757			5,142
Exclusion of share-based compensation expense	5,674			4,721			10,477			9,474
Economic Income (Loss) Excluding Certain Non-cash Items	$	16,567		$	8,792		$	33,750		$	14,818


Cowen Group, Inc.
Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended June 30, 2014
(Dollar amounts in thousands)

	Three Months Ended June 30, 2014
			Adjustments
			Other			Funds		Economic
	GAAP		Adjustments			Consolidation		Income
Revenues
Investment banking	$	30,292	$	—		$	—	$	30,292
Brokerage	33,311		1,741		(e)	—		35,052
Management fees	9,692		6,231		(a)	243		16,166
Incentive income	2,724		5,315		(a)	154		8,193
Investment income	—		21,596		(c)	—		21,596
Interest and dividends	12,460		(12,460)		(c)	—		—
Reimbursement from affiliates	3,018		(3,102)		(f)	84		—
Other revenue	752		(510)		(c)	—		242
Consolidated Funds	653		—			(653)		—
Total revenues	92,902		18,811			(172)		111,541

Expenses
Compensation & Benefits	64,404		(772)			—		63,632
Non-compensation expenses – Fixed	—		23,544		(c)(d)	—		23,544
Non-compensation expenses – Variable	—		11,136		(c)(d)	—		11,136
Non-compensation expenses	32,909		(32,909)		(c)(d)	—		—
Interest and dividends	10,193		(7,539)		(c)	—		2,654
Reimbursement from affiliates	—		(1,756)		(f)	—		(1,756)
Consolidated Funds	398		—			(398)		—
Total expenses	107,904		(8,296)			(398)		99,210

Other income (loss)
Net gains (losses) on securities, derivatives and other investments	23,037		(23,037)		(c)	—		—
Consolidated Funds net gains (losses)	5,609		(3,195)			(2,414)		—
Total other income (loss)	28,646		(26,232)			(2,414)		—

Income (loss) before income taxes and non-controlling interests	13,644		875			(2,188)		12,331

Income taxes (Benefit)	46		(46)		(b)	—		—
Economic Income (Loss) / Net income (loss) before non-controlling interests	13,598		921			(2,188)		12,331

(Income) loss attributable to non-controlling interests in consolidated subsidiaries	(5,216)		(790)			2,188		(3,818)
Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc. Stockholders	$	8,382	$	131		$	—	$	8,513

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 management and incentive fees of certain real estate operating entities and activist business.
(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 Company income from proprietary trading net of related expenses.
(d) Economic Income recognizes Companies 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 (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue.
(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.


Cowen Group, Inc.
Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended June 30, 2013
(Dollar amounts in thousands)

	Three Months Ended June 30, 2013
			Adjustments
			Other			Funds		Economic
	GAAP		Adjustments			Consolidation		Income
Revenues
Investment banking	$	25,571	$	—		$	—	$	25,571
Brokerage	31,521		1,779		(e)	—		33,300
Management fees	9,698		4,622		(a)	286		14,606
Incentive income	1,954		1,811		(a)	—		3,765
Investment income	—		3,563		(c)	—		3,563
Interest and dividends	10,521		(10,521)		(c)	—		—
Reimbursement from affiliates	1,214		(1,410)		(f)	196		—
Other revenue	485		(207)		(c)	—		278
Consolidated Funds	243		—			(243)		—
Total revenues	81,207		(363)			239		81,083

Expenses
Compensation & Benefits	47,507		(481)			—		47,026
Non-compensation expenses – Fixed	—		22,356		(c)(d)	—		22,356
Non-compensation expenses – Variable	—		9,989		(c)(d)	—		9,989
Non-compensation expenses	31,131		(31,131)		(c)(d)	—		—
Interest and dividends	7,489		(7,417)			—		72
Reimbursement from affiliates	—		(1,411)		(f)	—		(1,411)
Consolidated Funds	485		—			(485)		—
Total expenses	86,612		(8,095)			(485)		78,032

Other income (loss)
Net gains (losses) on securities, derivatives and other investments	4,994		(4,994)		(c)	—		—
Consolidated Funds net gains (losses)	3,917		(2,539)			(1,378)		—
Total other income (loss)	8,911		(7,533)			(1,378)		—

Income (loss) before income taxes and non-controlling interests	3,506		199			(654)		3,051

Income taxes (Benefit)	158		(158)		(b)	—		—
Economic Income (Loss) / Net income (loss) before non-controlling interests	3,348		357			(654)		3,051

(Income) loss attributable to non-controlling interests in consolidated subsidiaries	(2,255)		20			654		(1,581)
Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc. Stockholders	$	1,093	$	377		$	—	$	1,470

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 management and incentive fees of certain real estate operating entities.
(b) Economic Income excludes goodwill impairment and 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 Company income from proprietary trading net of related expenses.
(d) Economic Income recognizes Companies 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 (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue.
(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.


Cowen Group, Inc.
Unaudited Reconciliation of Economic Income and GAAP Income for the Six Months Ended June 30, 2014
(Dollar amounts in thousands)

	Six Months Ended June 30, 2014
			Adjustments
			Other			Funds		Economic
	GAAP		Adjustments			Consolidation		Income
Revenues
Investment banking	$	79,854	$	—		$	—	$	79,854
Brokerage	66,141		3,260		(e)	—		69,401
Management fees	18,616		11,162		(a)	477		30,255
Incentive income	5,222		7,543		(a)	154		12,919
Investment income	—		29,770		(c)	—		29,770
Interest and dividends	21,712		(21,712)		(c)(e)	—		—
Reimbursement from affiliates	4,918		(5,082)		(f)	164		—
Other revenue	1,307		(1,210)		(c)	—		97
Consolidated Funds	1,809		—			(1,809)		—
Total revenues	199,579		23,731			(1,014)		222,296

Expenses
Compensation & Benefits	131,965		(1,376)			—		130,589
Non-compensation expenses – Fixed	—		46,359		(c)(d)	—		46,359
Non-compensation expenses – Variable	—		20,573		(c)(d)	—		20,573
Non-compensation expenses	64,002		(64,002)		(c)(d)	—		—
Interest and dividends	17,265		(13,968)			—		3,297
Reimbursement from affiliates	—		(3,482)		(f)	—		(3,482)
Consolidated Funds	700		—			(700)		—
Total expenses	213,932		(15,896)			(700)		197,336

Other income (loss)
Net gains (losses) on securities, derivatives and other investments	34,391		(34,391)		(c)	—		—
Consolidated Funds net gains (losses)	7,712		(5,091)			(2,621)		—
Total other income (loss)	42,103		(39,482)			(2,621)		—

Income (loss) before income taxes and non-controlling interests	27,750		145			(2,935)		24,960

Income taxes (Benefit)	125		(125)		(b)	—		—
Economic Income (Loss) / Net income (loss) before non-controlling interests	27,625		270			(2,935)		24,960

(Income) loss attributable to non-controlling interests in consolidated subsidiaries	(9,403)		24			2,935		(6,444)
Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc. Stockholders	$	18,222	$	294		$	—	$	18,516

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 management and incentive fees of certain real estate operating entities and activist business.
(b) Economic Income excludes income taxes as management does not consider this item when evaluating the performance of the segment.
(c) Economic Income recognizes Company income from proprietary trading net of related expenses.
(d) Economic Income recognizes Companies 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 (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue.
(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.


Cowen Group, Inc.
Unaudited Reconciliation of Economic Income and GAAP Income for the Six Months Ended June 30, 2013
(Dollar amounts in thousands)

	Six Months Ended June 30, 2013
			Adjustments
			Other			Funds		Economic
	GAAP		Adjustments			Consolidation		Income
Revenues
Investment banking	$	42,737	$	—		$	—	$	42,737
Brokerage	58,121		3,196		(e)	—		61,317
Management fees	19,191		8,962		(a)	597		28,750
Incentive income	4,565		4,327		(a)	—		8,892
Investment income	—		14,436		(c)	—		14,436
Interest and dividends	19,842		(19,842)		(c)	—		—
Reimbursement from affiliates	2,699		(2,830)		(f)	131		—
Other revenue	963		(1,126)		(c)	—		(163)
Consolidated Funds	330		—			(330)		—
Total revenues	148,448		7,123			398		155,969

Expenses
Compensation & Benefits	91,730		(870)			—		90,860
Non-compensation expenses – Fixed	—		44,760		(c)(d)	—		44,760
Non-compensation expenses – Variable	—		18,714		(c)(d)	—		18,714
Non-compensation expenses	62,966		(62,966)		(c)(d)	—		—
Interest and dividends	14,109		(13,913)			—		196
Reimbursement from affiliates	—		(2,830)		(f)	—		(2,830)
Consolidated Funds	919		—			(919)		—
Total expenses	169,724		(17,105)			(919)		151,700

Other income (loss)
Net gains (losses) on securities, derivatives and other investments	16,801		(16,801)		(c)	—		—
Consolidated Funds net gains (losses)	9,076		(5,405)			(3,671)		—
Total other income (loss)	25,877		(22,206)			(3,671)		—

Income (loss) before income taxes and non-controlling interests	4,601		2,022			(2,354)		4,269

Income taxes (Benefit)	334		(334)		(b)	—		—
Economic Income (Loss) / Net income (loss) before non-controlling interests	4,267		2,356			(2,354)		4,269

(Income) loss attributable to non-controlling interests in consolidated subsidiaries	(5,750)		(671)			2,354		(4,067)
Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc. Stockholders	$	(1,483)	$	1,685		$	—	$	202

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 management and incentive fees of certain real estate operating entities.
(b) Economic Income excludes goodwill impairment and 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 Company income from proprietary trading net of related expenses.
(d) Economic Income recognizes Companies 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 (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue.
(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

Source: Cowen Group, Inc.

Cowen Group, Inc.
Stephen Lasota, 212-845-7919