UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended JuneSeptember 30, 2006
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
001-32975
(Commission File Number)
EVERCORE PARTNERS INC.
(Exact name of registrant as specified in its charter)
Delaware | 20-4748747 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
55 East 52nd Street
43rd floor
New York, New York 10055
(Address of principal executive offices)
Registrant’s telephone number: (212) 857-3100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of the Registrant’sregistrant’s Class A common stock, par value $0.01 per share, outstanding as of September 21,November 10, 2006 was 4,587,738. The number of shares of the Registrant’sregistrant’s Class B common stock, par value $0.01 per share, outstanding as of September 21,November 10, 2006 was 51 (excluding 49 shares of Class B common stock held by a subsidiary of the Registrant)registrant).
In this report, references to “Evercore Partners,” “Evercore,” “the Company,” “we,” “our,” or “us,” refer to Evercore Partners Inc. a Delaware company, and its subsidiaries.
References to “Evercore Holdings” or “the Company,” refer to Evercore Holdings, which, prior to the August 2006 Reorganization described herein, was comprised of certain condensed combined entities under the common ownership of the Evercore Senior Managing Directors (the “Members”) and common control of two of the founding Members (the “Founding Members”).
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Part I. Financial Information | ||
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
Item 3.Quantitative and Qualitative Disclosures About Market Risk | ||
Part II. Other Information | ||
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds | ||
i
Item 1. | Financial Statements |
Condensed CombinedCombined/Consolidated Financial Statements of Evercore HoldingsPartners Inc. (Unaudited)*
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2 | ||
3 | ||
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5 | ||
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EVERCORE HOLDINGSPARTNERS INC.
CONDENSED COMBINEDCOMBINED/CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)thousands, except share data)
Combined 2005 | (UNAUDITED) Consolidated 2006 | |||||||||||
December 31, 2005 | (UNAUDITED) 2006 | PREDECESSOR | SUCCESSOR | |||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and Cash Equivalents | $ | 37,855 | $ | 14,838 | $ | 37,855 | $ | 58,930 | ||||
Restricted Cash | 1,519 | 1,519 | 1,519 | 1,519 | ||||||||
Securities | — | 4,083 | — | 4,708 | ||||||||
Accounts Receivable (net of allowances of $256 on December 31, 2005 and June 30, 2006) | 12,921 | 17,519 | ||||||||||
Financial Instruments Owned and Pledged as Collateral at Fair Value | — | 275,531 | ||||||||||
Securities Purchased Under Agreements to Resell | — | 74,027 | ||||||||||
Accounts Receivable (net of allowances of $256 on December 31, 2005 and $250 on September 30, 2006) | 12,921 | 11,873 | ||||||||||
Receivable from Members and Employees | 1,739 | 1,426 | 1,739 | 81 | ||||||||
Receivable from Uncombined Affiliates | 1,255 | 2,923 | 1,255 | 1,688 | ||||||||
Debt Issuance Costs | 607 | 206 | 607 | — | ||||||||
Prepaid Expenses | 604 | 1,965 | 604 | 2,326 | ||||||||
Accounts Receivable - Other | 353 | 71 | ||||||||||
Accounts Receivable—Other | 353 | 1,491 | ||||||||||
Total Current Assets | 56,853 | 44,550 | 56,853 | 432,174 | ||||||||
Investments | 16,755 | 26,013 | 16,755 | 13,271 | ||||||||
Deferred Offering and Acquisition Costs | 5,138 | 9,892 | 5,138 | 1,639 | ||||||||
Furniture, Equipment and Leasehold Improvements, Net | 2,263 | 2,900 | 2,263 | 4,086 | ||||||||
Goodwill | — | 30,986 | ||||||||||
Intangible Assets | — | 2,702 | ||||||||||
Other Assets | 403 | 547 | 403 | 486 | ||||||||
TOTAL ASSETS | $ | 81,412 | $ | 83,902 | $ | 81,412 | $ | 485,344 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||||||
LIABILITIES AND MEMBERS’ AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Short-Term Borrowings | — | 30,000 | ||||||||||
Accrued Compensation and Benefits | 13,165 | 10,607 | 13,165 | 12,916 | ||||||||
Accounts Payable and Accrued Expenses | 11,672 | 12,882 | 11,672 | 7,042 | ||||||||
Securities Sold Under Agreements to Repurchase | — | 349,669 | ||||||||||
Deferred Revenue | 935 | 512 | 935 | 1,391 | ||||||||
Payable to Members and Employees | 659 | — | 659 | 1,870 | ||||||||
Payable to Uncombined Affiliates | 440 | 18 | 440 | — | ||||||||
Capital Leases Payable - Current | 193 | 176 | ||||||||||
Capital Leases Payable—Current | 193 | 160 | ||||||||||
Taxes Payable | 1,711 | 947 | 1,711 | 2,460 | ||||||||
Other Current Liabilities | 626 | 97 | 626 | 202 | ||||||||
Total Current Liabilities | 29,401 | 55,239 | 29,401 | 375,710 | ||||||||
Capital Leases Payable - Long-term | 232 | 150 | ||||||||||
Capital Leases Payable—Long-Term | 232 | 119 | ||||||||||
TOTAL LIABILITIES | 29,633 | 55,389 | 29,633 | 375,829 | ||||||||
Minority Interest | 274 | 273 | 274 | 22,344 | ||||||||
Members’ Equity | ||||||||||||
Members’ and Stockholders’ Equity | ||||||||||||
Members’ Capital | 51,301 | 28,119 | 51,301 | — | ||||||||
Common Stock: | ||||||||||||
Class A, par value $0.01 per share (1,000,000,000 shares authorized, 4,587,738 issued and outstanding) | — | 46 | ||||||||||
Class B, par value $0.01 per share (100,000,000 shares authorized, 51 issued and outstanding) | — | — | ||||||||||
Additional Paid-in-Capital | — | 86,775 | ||||||||||
Retained Earnings | — | 298 | ||||||||||
Accumulated Other Comprehensive Income | 204 | 121 | 204 | 52 | ||||||||
TOTAL MEMBERS’ EQUITY | 51,505 | 28,240 | ||||||||||
TOTAL MEMBERS’ AND STOCKHOLDERS’ EQUITY | 51,505 | 87,171 | ||||||||||
TOTAL LIABILITIES AND MEMBERS’ EQUITY | $ | 81,412 | $ | 83,902 | ||||||||
TOTAL LIABILITIES AND MEMBERS’ AND STOCKHOLDERS’ EQUITY | $ | 81,412 | $ | 485,344 | ||||||||
�� |
See notesNotes to unaudited condensed combined financial statements.Unaudited Condensed Combined/Consolidated Financial Statements.
EVERCORE HOLDINGSPARTNERS INC.
CONDENSED COMBINEDCOMBINED/CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollars in thousands)thousands, except share data)
Combined | Consolidated | Combined | Consolidated | ||||||||||||||||||||||||||||||
Combined September 30, 2005 | For the Period | Combined Months Ended September 30, 2005 | For the Period | ||||||||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | July 1, 2006 through August 9, 2006 | August 10, 2006 through | January 1, 2006 through August 9, 2006 | August 10, 2006 through September 30, 2006 | ||||||||||||||||||||||||||||
2005 | 2006 | 2005 | 2006 | PREDECESSOR | PREDECESSOR | SUCCESSOR | PREDECESSOR | PREDECESSOR | SUCCESSOR | ||||||||||||||||||||||||
REVENUES | |||||||||||||||||||||||||||||||||
Advisory Revenue | $ | 12,243 | $ | 40,173 | $ | 30,513 | $ | 72,570 | $ | 39,382 | $ | 23,552 | $ | 12,574 | $ | 69,895 | $ | 96,122 | $ | 12,574 | |||||||||||||
Investment Management Revenue | 2,000 | 3,138 | 6,120 | 16,246 | 6,997 | 614 | 4,152 | 13,117 | 16,860 | 4,152 | |||||||||||||||||||||||
Interest Income and Other Revenue | 31 | 179 | 75 | 300 | 60 | 343 | 3,819 | 135 | 643 | 3,819 | |||||||||||||||||||||||
TOTAL REVENUES | 14,274 | 43,490 | 36,708 | 89,116 | 46,439 | 24,509 | 20,545 | 83,147 | 113,625 | 20,545 | |||||||||||||||||||||||
Interest Expense | — | — | 3,319 | — | — | 3,319 | |||||||||||||||||||||||||||
NET REVENUES | 46,439 | 24,509 | 17,226 | 83,147 | 113,625 | 17,226 | |||||||||||||||||||||||||||
EXPENSES | |||||||||||||||||||||||||||||||||
Employee Compensation and Benefits | 5,204 | 8,093 | 10,614 | 16,852 | 6,971 | 3,746 | 10,969 | 17,585 | 20,598 | 10,969 | |||||||||||||||||||||||
Occupancy and Equipment Rental | 739 | 990 | 1,421 | 1,828 | 728 | 405 | 807 | 2,149 | 2,233 | 807 | |||||||||||||||||||||||
Professional Fees | 4,638 | 5,053 | 7,234 | 10,721 | 9,037 | 2,806 | 663 | 16,271 | 13,527 | 663 | |||||||||||||||||||||||
Travel and Related Expenses | 890 | 1,642 | 2,204 | 3,493 | 987 | 683 | 964 | 3,191 | 4,176 | 964 | |||||||||||||||||||||||
Communications and Information Services | 112 | 464 | 289 | 880 | 277 | 195 | 311 | 566 | 1,075 | 311 | |||||||||||||||||||||||
Financing Costs | — | 631 | — | 1,225 | — | 481 | 11 | — | 1,706 | 11 | |||||||||||||||||||||||
Depreciation and Amortization | 171 | 283 | 322 | 545 | 186 | 121 | 1,093 | 508 | 666 | 1,093 | |||||||||||||||||||||||
Other Operating Expenses | 260 | 770 | 516 | 1,088 | 565 | 231 | 396 | 1,081 | 1,319 | 396 | |||||||||||||||||||||||
TOTAL EXPENSES | 12,014 | 17,926 | 22,600 | 36,632 | 18,751 | 8,668 | 15,214 | 41,351 | 45,300 | 15,214 | |||||||||||||||||||||||
OPERATING INCOME | 2,260 | 25,564 | 14,108 | 52,484 | 27,688 | 15,841 | 2,012 | 41,796 | 68,325 | 2,012 | |||||||||||||||||||||||
Minority Interest | 8 | 6 | 10 | (1 | ) | (7 | ) | (1 | ) | 1,417 | 3 | 6 | 1,417 | ||||||||||||||||||||
Provision for Income Taxes | 377 | 905 | 1,047 | 1,884 | 776 | 484 | 297 | 1,823 | 2,368 | 297 | |||||||||||||||||||||||
NET INCOME | $ | 1,875 | $ | 24,653 | $ | 13,051 | $ | 50,601 | $ | 26,919 | $ | 15,358 | $ | 298 | $ | 39,970 | $ | 65,951 | $ | 298 | |||||||||||||
Net Income Available to Holders of Shares of Class A Common Stock | N/A | $ | 298 | N/A | $ | 298 | |||||||||||||||||||||||||||
Weighted Average Shares of Class A Common Stock Outstanding: | |||||||||||||||||||||||||||||||||
Basic | N/A | 4,795 | N/A | 4,795 | |||||||||||||||||||||||||||||
Diluted | N/A | 4,795 | N/A | 4,795 | |||||||||||||||||||||||||||||
Net Income Available to Holders of Shares of Class A Common Stock Per Share: | |||||||||||||||||||||||||||||||||
Basic | N/A | $ | 0.06 | N/A | $ | 0.06 | |||||||||||||||||||||||||||
Diluted | N/A | $ | 0.06 | N/A | $ | 0.06 | |||||||||||||||||||||||||||
See notesNotes to unaudited condensed combined financial statements.Unaudited Condensed Combined/Consolidated Financial Statements.
EVERCORE HOLDINGSPARTNERS INC.
CONDENSED COMBINEDCOMBINED/CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ AND STOCKHOLDERS’ EQUITY
(UNAUDITED)
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2006
(dollars in thousands)
Members’ Capital | Accumulated Other Comprehensive Income | Total Members’ Equity | ||||||||||
BALANCE - at January 1, 2006 | $ | 51,301 | $ | 204 | $ | 51,505 | ||||||
Net Income | 50,601 | — | 50,601 | |||||||||
Other Comprehensive Income: | ||||||||||||
Unrealized (Losses) on Available-For-Sale Securities | — | (83 | ) | (83 | ) | |||||||
Total Comprehensive Income | 50,518 | |||||||||||
Members’ Contributions | 2,644 | — | 2,644 | |||||||||
Members’ Distributions | (76,427 | ) | — | (76,427 | ) | |||||||
BALANCE - at June 30, 2006 (unaudited) | $ | 28,119 | $ | 121 | $ | 28,240 | ||||||
Members’ Equity | Common Stock | Additional Paid-In-Capital | Accumulated Other Comprehensive Income | Retained Earnings | Total Stockholder’s Equity / Member’s Capital | |||||||||||||||||||
Shares | Dollars | |||||||||||||||||||||||
Combined | ||||||||||||||||||||||||
PREDECESSOR | ||||||||||||||||||||||||
Balance at January 1, 2006 | $ | 51,301 | $ | 204 | $ | 51,505 | ||||||||||||||||||
Net Income Allocable to Members through IPO Date | 65,951 | 65,951 | ||||||||||||||||||||||
Members’ Contributions through IPO Date | 2,644 | 2,644 | ||||||||||||||||||||||
Members’ Distributions through IPO Date | (100,711 | ) | (100,711 | ) | ||||||||||||||||||||
Members’ Draw through IPO Date | (6,503 | ) | (6,503 | ) | ||||||||||||||||||||
Private Equity Distributions through IPO Date | (3,872 | ) | (3,872 | ) | ||||||||||||||||||||
Distribution of Available-For-Sale Securities | (204 | ) | (204 | ) | ||||||||||||||||||||
Elimination of Non-Contributed Entities | (16,452 | ) | (16,452 | ) | ||||||||||||||||||||
Capital Issuance Related to Acquisition | 27,510 | 27,510 | ||||||||||||||||||||||
Transfer to Minority Interest | (19,868 | ) | (19,868 | ) | ||||||||||||||||||||
Balance at August 9, 2006 | — | — | — | |||||||||||||||||||||
Consolidated | ||||||||||||||||||||||||
SUCCESSOR | ||||||||||||||||||||||||
Balance at August 10, 2006 | ||||||||||||||||||||||||
Net Income Available to Class A Common Shareholders | $ | 298 | 298 | |||||||||||||||||||||
Proceeds—Issuance Common Stock | 4,542,500 | $ | 45 | $ | 95,347 | 95,392 | ||||||||||||||||||
Issuance of Common Stock Related to Repayment of Debt | 45,238 | 1 | 949 | 950 | ||||||||||||||||||||
Costs Related to Issuance of Common Stock | (13,870 | ) | (13,870 | ) | ||||||||||||||||||||
Issuance of Restricted Stock Units | 207,116 | 4,349 | 4,349 | |||||||||||||||||||||
Foreign Currency Translation Adjustment | 52 | 52 | ||||||||||||||||||||||
Balance at September 30, 2006 | $ | — | 4,794,854 | $ | 46 | $ | 86,775 | $ | 52 | $ | 298 | $ | 87,171 | |||||||||||
See notesNotes to unaudited condensed combined financial statements.Unaudited Condensed Combined/Consolidated Financial Statements.
EVERCORE HOLDINGSPARTNERS INC.
CONDENSED COMBINEDCOMBINED/CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
Six Months Ended June 30, 2005 | Six Months Ended June 30, 2006 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income | $ | 13,051 | $ | 50,601 | ||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 322 | 946 | ||||||
Minority Interest | 10 | (1 | ) | |||||
Bad Debt Expense | 2 | — | ||||||
Net Gains and Losses on Private Equity Investments | 2,554 | (4,935 | ) | |||||
Net Gains and Losses Under Equity Investments | — | 299 | ||||||
Net Gains and Losses on Trading Securities | — | 75 | ||||||
(Increase) Decrease in Operating Assets: | ||||||||
Accounts Receivable | 3,896 | (4,598 | ) | |||||
Placement Fees Receivable | 1,244 | — | ||||||
Receivable from Members and Employees - Current | 680 | 313 | ||||||
Receivable from Uncombined Affiliates | (889 | ) | (1,668 | ) | ||||
Prepaid Expenses | (395 | ) | (1,361 | ) | ||||
Accounts Receivable - Other | 1 | 282 | ||||||
Deferred Offering and Acquisition Costs | (1,489 | ) | (4,754 | ) | ||||
Other Assets | (191 | ) | (144 | ) | ||||
Increase (Decrease) in Operating Liabilities: | ||||||||
Accrued Compensation and Benefits | (2,648 | ) | (2,558 | ) | ||||
Accounts Payable and Accrued Expenses | 2,122 | 1,210 | ||||||
Placement Fees Payable | (1,244 | ) | — | |||||
Deferred Revenue | 268 | (423 | ) | |||||
Payable to Members and Employees | (239 | ) | (659 | ) | ||||
Payable to Uncombined Affiliates | 201 | (422 | ) | |||||
Taxes Payable | 470 | (764 | ) | |||||
Other Current Liabilities | (170 | ) | (529 | ) | ||||
Net Cash Provided by Operating Activities | 17,556 | 30,910 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from Investments | 410 | 3,497 | ||||||
Investments Purchased | (3,941 | ) | (12,360 | ) | ||||
Purchase of Furniture, Equipment and Leasehold Improvements | (337 | ) | (1,182 | ) | ||||
Restricted Cash Deposits | 21 | — | ||||||
Net Cash Used In Investing Activities | (3,847 | ) | (10,045 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Payments for Capital Lease Obligations | (70 | ) | (99 | ) | ||||
Contributions from Members | 971 | 2,644 | ||||||
Distributions to Members | (43,625 | ) | (76,427 | ) | ||||
Borrowing - Line of Credit | — | 30,000 | ||||||
Net Cash Used in Financing Activities | (42,724 | ) | (43,882 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (29,015 | ) | (23,017 | ) | ||||
CASH AND CASH EQUIVALENTS - Beginning of Period | 37,379 | 37,855 | ||||||
CASH AND CASH EQUIVALENTS - End of Period | $ | 8,364 | $ | 14,838 | ||||
SUPPLEMENTAL CASH FLOW DISCLOSURE | ||||||||
Payments for Interest | $ | 68 | $ | 458 | ||||
Payments for Income Taxes | $ | 1,122 | $ | 3,808 | ||||
Fixed Assets Acquired Under Capital Leases | $ | 113 | $ | — | ||||
Combined For the Nine | Combined January 1, 2006 through | Consolidated August 10, 2006 through | ||||||||||
PREDECESSOR | PREDECESSOR | SUCCESSOR | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net Income | $ | 39,970 | $ | 65,951 | $ | 298 | ||||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||||||
Stock Compensation | — | — | 4,349 | |||||||||
Depreciation and Amortization | 508 | 1,273 | 1,093 | |||||||||
Minority Interest | 3 | 6 | 1,417 | |||||||||
Bad Debt Expense | 2 | — | — | |||||||||
Net Gains on Investments | (1,761 | ) | (4,845 | ) | (2,405 | ) | ||||||
Net Gains on Securities | — | 160 | (111 | ) | ||||||||
(Increase) Decrease in Operating Assets: | ||||||||||||
Financial Instruments Owned and Pledged as Collateral, at Fair Value | — | — | (77,021 | ) | ||||||||
Securities Purchased Under Agreements to Resell | — | — | 133,570 | |||||||||
Accounts Receivable | 1,071 | 4,097 | 2,576 | |||||||||
Placement Fees Receivable | 2,487 | — | — | |||||||||
Receivable from Members and Employees—Current | 933 | 379 | 1,279 | |||||||||
Receivable from Uncombined Affiliates | (1,069 | ) | (302 | ) | (1,382 | ) | ||||||
Prepaid Expenses | (469 | ) | (1,270 | ) | (452 | ) | ||||||
Accounts Receivable—Other | (3 | ) | 308 | (454 | ) | |||||||
Deferred Offering and Acquisition Costs | (3,420 | ) | (7,089 | ) | (26 | ) | ||||||
Other Assets | (169 | ) | (49 | ) | 406 | |||||||
Increase (Decrease) in Operating Liabilities: | ||||||||||||
Accrued Compensation and Benefits | 321 | 2,488 | (3,316 | ) | ||||||||
Accounts Payable and Accrued Expenses | 5,874 | 740 | (6,395 | ) | ||||||||
Securities Sold Under Agreements to Repurchase | — | — | (56,481 | ) | ||||||||
Placement Fees Payable | (1,244 | ) | — | — | ||||||||
Deferred Revenue | 964 | 1,344 | (888 | ) | ||||||||
Payable to Members and Employees | (240 | ) | (243 | ) | (4,505 | ) | ||||||
Payable to Uncombined Affiliates | 210 | 832 | — | |||||||||
Taxes Payable | (861 | ) | 31 | (362 | ) | |||||||
Other Current Liabilities | (184 | ) | (529 | ) | 105 | |||||||
Net Cash (Used in) Provided by Operating Activities | 42,923 | 63,282 | (8,705 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Proceeds from Investments | 523 | 3,497 | — | |||||||||
Cash Acquired from Protego | — | 3,972 | — | |||||||||
Securities Purchased | — | (4,158 | ) | (594 | ) | |||||||
Investments Purchased | (3,953 | ) | (8,202 | ) | (273 | ) | ||||||
Purchase of Furniture, Equipment and Leasehold Improvements | (598 | ) | (1,272 | ) | (542 | ) | ||||||
Elimination of Non-Contributed Entities | — | (54 | ) | — | ||||||||
Restricted Cash Deposits | 21 | — | — | |||||||||
Net Cash Used in Investing Activities | (4,007 | ) | (6,217 | ) | (1,409 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Payments for Capital Lease Obligations | (113 | ) | (120 | ) | (31 | ) | ||||||
Contributions from Members | 971 | 2,644 | — | |||||||||
Net Proceeds from Initial Public Offering | — | — | 88,715 | |||||||||
Repayment of Short-Term Borrowings | — | — | (30,000 | ) | ||||||||
Payment of Notes Payable—Protego | — | — | (6,050 | ) | ||||||||
Short-Term Borrowings | — | 30,000 | — | |||||||||
Distributions to Members | (57,224 | ) | (111,086 | ) | — | |||||||
Net Cash (Used in) Provided by Financing Activities | (56,366 | ) | (78,562 | ) | 52,634 | |||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | — | — | 52 | |||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (17,450 | ) | (21,497 | ) | 42,572 | |||||||
CASH AND CASH EQUIVALENTS—Beginning of Period | 37,379 | 37,855 | 16,358 | |||||||||
CASH AND CASH EQUIVALENTS—End of Period | $ | 19,929 | $ | 16,358 | $ | 58,930 | ||||||
Combined For the Nine Combined January 1, 2006 through Consolidated August 10, 2006 through SUPPLEMENTAL CASH FLOW DISCLOSURE Payments for Interest Payments for Income Taxes Fixed Assets Acquired Under Capital Leases Non-Cash Distribution of Available-For-Sale Securities Purchase of Protego Non-Interest-Bearing Evercore LP Notes Evercore LP Partnership Units Acquisition costs Total Purchase Price Accounts Receivable Financial Instruments Owned and Pledged, Fair Value Securities Purchased Under Agreements to Resell Investments Fixed Assets Intangible Assets Goodwill Other Assets Current Liabilities Securities Sold Under Agreements to Repurchase Dividend Payable Minority Interest Cash Acquired from Purchase Elimination of Non-Contributed Entities Members’ Equity of Non-Contributed Entities Due To/From Members and Employees Due To/From Uncombined Affiliates Investments Accounts Payable and Accrued Liabilities Minority Interest Cash Withdrawal from General Partner Entity Issuance of Common Stock to Repay Note Payable Non-Cash deferred IPO Costs Transfer of Members Equity to Minority Interest
Months Ended
September 30, 2005
August 9, 2006
September 30, 2006 PREDECESSOR PREDECESSOR SUCCESSOR $ 91 $ 917 $ 203 $ 3,097 $ 3,808 $ — $ 113 $ — $ — $ — $ 416 $ — $ — $ 7,000 $ — — 27,510 — — 3,420 — — 37,930 — — (6,582 ) — — (198,511 ) — — (207,596 ) — — (1,670 ) — — (990 ) — — (3,480 ) — — (30,986 ) — — (483 ) — — 2,756 — — 406,150 — — 6,375 — — 1,059 — $ — $ 3,972 $ — — 16,452 — — 1,255 — — (1,257 ) — — (16,757 ) — — 88 — — 273 — $ — $ 54 $ — $ — $ — $ 950 $ — $ — $ 7,193 $ — $ 19,868 $ —
See notesNotes to unaudited condensed combined financial statements.Unaudited Condensed Combined/Consolidated Financial Statements.
EVERCORE HOLDINGSPARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINEDCOMBINED/CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Note 1 – 1—Organization
Evercore HoldingsPartners Inc. and subsidiaries (the “Company”“Successor Company”) is an investment banking firm, incorporated in Delaware on July 21, 2005 and headquartered in New York, New York, which,York. The Successor Company is a holding company and its sole material asset is a controlling equity interest in Evercore LP. The Successor Company is the sole general partner of Evercore LP and, through Evercore LP and its operating entity subsidiaries, the Successor Company has continued to conduct the same business as prior to the reorganization referred to below was comprised ofby certain condensed combined and consolidated entities under the common ownership of the Evercore Senior Managing Directors (the “Members”) and common control of two of the founding Members (the “Founding Members”).
On August 10, 2006, pursuant to a contribution and sale agreement dated May 12, 2006, (1) the Members contributed to Evercore LP each of the various entities included in the Company’s historical combined financial statements of Evercore Holdings (the “Predecessor Company”), with the exception of the general partners of Evercore Capital Partners L.P. and its affiliated entities (collectively “ECP I”), Evercore Capital Partners II L.P. and its affiliated entities (collectively, “ECP II”) and Evercore Venture Partners L.P. and its affiliated entities (collectively, “EVP”), which are Company sponsored private equity funds, and of Evercore Founders L.L.C. and Evercore Founders Cayman Ltd., which are the entities through which the Founding Members fund their additional commitments to ECP I (collectively, the “Founders”) and acquired an interest in the general partner of ECP II, and EVM andwhich will permit Evercore LP to receive 8% to 9% (depending on the particular fund investment) of any carried interest from that fund following the Founders (as such terms are defined below)contribution (the “Formation Transaction”), and(2) Evercore LP acquired Protego Asesores S. de R.L. and its subsidiaries and Protego SI from its directors and other stockholders. On August 16, 2006, Evercore Partners Inc., the sole general partner of Evercore LP,Company completed the initial public offeringInitial Public Offering (“IPO”) of its Class A common stock. This reorganization is described in greater detail inThe Formation Transaction and IPO are collectively referred to as the Registration Statement on Form S-1 (File No. 333-134087) (the “Registration Statement”) filed with“Reorganization.”
The Successor Company’s Condensed Combined/Consolidated Financial Statements include the Securities and Exchange Commission in connection withaccounts of the initial public offering.Company’s subsidiaries. The financial statementssole direct subsidiary of the Company presented in this report represent the resultsis Evercore LP. The subsidiaries of operations and financial condition of the Company prior to the reorganization.
The entities comprising the CompanyEvercore LP are as follows:
In December 2003, the above entities were reorganized. Prior to the reorganization, these entities were operated as a series of limited partnerships with their own general partner entities. Under the terms of the reorganization, these limited partnerships were converted to limited liability companies. Pursuant to such conversions, the limited partnership interests were cancelled and, in consideration therefore, the holders of such limited partnership interests received limited partnership interest of EGH that corresponded to the respective limited liability companies into which such limited partnership were converted and were equivalent to the respective limited partnership interests held immediately prior to such conversions. The resulting limited liability companies are held by Evercore Partners Services East L.L.C., a wholly owned subsidiary of EGH. Subsequent to the reorganization, the former general partner entities were dissolved. The transaction was accounted for as a reorganization of entities under common control at historical cost.
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
The Predecessor Company, prior to the Reorganization referred to above, was comprised of certain combined entities under the common ownership of the Members and common control of two of the Founding Members.
The Condensed Combined Financial Statements of the Predecessor are comprised of the following entities:
Where reference is made to the “Founders”).periods prior and subsequent to the IPO, the term “the Company” refers to the Predecessor Company and Successor Company, respectively.
The Company’s principal activities are divided into two businessreportable segments:
Investment Management – prior to the IPO, Investment Management includes the management of outside capital invested in the Company’s sponsored private equity funds: ECP I, ECP II and EVP, (collectively referred to as the “Private Equity Funds”); and the Company’s principal investments in such Private Equity Funds. Each ofECP I, ECP II and EVP, and the Private Equity Funds isCompany’s investments in, and managed by, its own general partners andEvercore Asset Management L.L.C. (“EAM”); subsequent to the IPO, Investment Management includes the management of outside investors participatecapital invested in the Private Equity Funds as limited partners.
The Condensed Combined Financial Statements includeCompany’s sponsored private equity funds: ECP I, ECP II, EVP and Discovery Americas I, L.P. (the “Discovery Fund”), the accounts of the following entities all of which are under the common controlCompany’s principal investments in ECP II, GP Holdings, Discovery Fund and management of the Founding Members:EAM. Where reference
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EVERCORE HOLDINGSPARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2005 AND& 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
is made to the periods prior and subsequent to the IPO, the term “Private Equity Funds” refers to the Company’s principal investments in the respective private equity funds mentioned above. Each of the Private Equity Funds is managed by its own general partners and outside investors participate in the Private Equity Funds as limited partners. Investment Management also includes the management of outside funds by PCB. |
Note 2 – 2—Significant Accounting Policies
Basis of Presentation – —The accompanying unaudited condensed combined financial statementsCondensed Combined/Consolidated Financial Statements of the Company have been prepared in accordance with the instructions to Form 10-Q. As permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”),SEC, the financial statements contain certain condensed financial information and exclude certain footnote disclosures normally included in audited combinedconsolidated financial statements prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring accruals, necessary to fairly present the accompanying financial statements. For further information, refer to the combined financial statements for the year ended December 31, 2005 and footnotes thereto included in the Company’s Registration Statement on Form S-1. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2006.
The Condensed CombinedCombined/Consolidated Financial Statements of the Company compriseare comprised of the consolidation of Evercore LP, EGH and its general partner, GP Holdings, Evercore LP’s wholly owned subsidiaries, with Evercore Group Holdings L.L.C., Evercore Advisors Inc., Evercore Properties Inc.Protego and, Evercore Group L.L.C., andprior to the Reorganization, the combination of its wholly owned and majority owned general partners of the Private Equity Funds and Founders, entities that are wholly owned or controlled by the Company.
The current period financials reflect each financial statement category including the activity as the Company stood prior to the Reorganization through the IPO date of August 10, 2006. For the remainder of the period after August 10, 2006, the results of just those entities contributed to Evercore LP under the Reorganization are reflected in the Condensed Consolidated Financial Statements.
The Company accounted for the Formation Transaction as an exchange between entities under common control and recorded the net assets and members’ equity of the contributed entities at historical cost.
Subsequent to the IPO, the Company became the sole general partner of Evercore LP. The Company’s interest in Evercore LP is within the scope of the Emerging Issues Task Force Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”). Although the Company has a minority economic interest in Evercore LP, it has a majority voting interest and controls the management of Evercore LP. Additionally, although the limited partners have an economic majority of Evercore LP, they do not have the right to dissolve the partnership or substantive kick-out rights or participating rights, and therefore lack the ability to control Evercore LP. Accordingly, the Company consolidates Evercore LP and records minority interest for the economic interest in Evercore LP held directly by the Members and Founding Members.
EGH has consolidated all operating companies in which it has a controlling financial interest, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 94, “Consolidation of All Majority-Owned Subsidiaries,” (“SFAS 94”) which requires the consolidation of all majority-owned subsidiaries.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Investments in non-majority-owned companies in which the Company has significant influence are accounted for by the Company using the equity method.
These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
All material intercompany transactions and balances have been eliminated.
The following accounting policies apply to both the Predecessor Company and Successor Company unless otherwise specified.
Minority Interest– —Minority interest recorded on the Condensed Combined Financial Statements of the Predecessor Company relates to the minority interest of an unrelated third-party in EVM, the general partner of EVP. TheEVM is owned by the two members, an unrelated third-party, which owns approximately 53%, and Evercore Venture Partners LLC, which owns approximately 47%. Evercore Venture Partners LLC is under common ownership of the Company consolidates EVM, which it controls but does not wholly own.and is the managing member of EVM. As a result, the Company includesconsolidates, including in its Condensed Combined Statements of Income all of the net income of EVM with an appropriate minority interest of approximately 53%. Minority interest recorded on the Condensed Consolidated Financial Statements of the Successor Company relates to the minority interest of the Members in Evercore LP and the portion of PCB not owned by Protego.
Use of Estimates – —The preparation of the Condensed CombinedCombined/Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed combined financial statementsCondensed Combined/Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Such estimates relate to the valuation of portfolio investments in companies owned by the Private Equity Funds (the “Portfolio Companies”), financial instruments, owned the allowance for doubtful accounts for accounts receivables, compensation liabilities, tax liabilities, deferred tax assets and liabilities, goodwill, intangible assets and other matters that affect reported amounts of assets and liabilities. Actual amounts could differ from those estimates and such differences could be material to the Condensed CombinedCombined/Consolidated Financial Statements.
Cash and Cash Equivalents – —Cash and cash equivalents consist of short-term highly liquid investments with originalremaining maturities of three months or less.
Restricted Cash – —At December 31, 2005 and JuneSeptember 30, 2006, the Company was required to maintain compensating balances of $1,519 as collateral for letters of credit issued, by a third party, in lieu of a cash security deposit, as required by the Company’s lease for certain of its New York office space.
Financial Instruments Owned and Pledged as Collateral—The Successor Company’s financial instruments owned, which consist principally of foreign government obligations, are recorded on a trade date basis and are stated at quoted market values. Related gains and losses are reflected in Interest Income and Other Revenue on the Condensed Combined/Consolidated Statements of Income. The Successor Company pledges the financial instruments owned to collateralize certain financing arrangements which permits the counterparty to pledge the securities.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase—The Successor Company has securities purchased under agreements to resell of $74.0 million at September 30, 2006, for which it received collateral with a fair value of $74.2 million at September 30, 2006. Additionally, the Company has securities sold under agreements to repurchase of $349.7 million at September 30, 2006, for which it pledged collateral with a fair value of $349.7 million at September 30, 2006. Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as collateralized financing transactions. The agreements provide that the transferor will receive substantially the same securities in return at the maturity of the agreement and the transferor will obtain from the transferee sufficient cash or collateral to
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
purchase such securities during the term of the agreement. These transactions are carried at the amounts at which
the related securities will be subsequently resold or repurchased, plus accrued interest payables or receivable. As these transactions are short-term in nature, their carrying amounts are a reasonable estimate of fair value.
Accounts Receivable – —Accounts receivable consists primarily of advisory fees and expense reimbursements charged to the Company’s clients, and transaction and monitoring fees charged to Portfolio Companies. Accounts receivable as of December 31, 2005 and JuneSeptember 30, 2006 include unbilled client expense receivables in the amount of $1,451 and $968,$780, respectively.
Accounts Receivable are reported net of any allowance for doubtful accounts. Management of the Company derives the estimate for the allowance for doubtful accounts by utilizing past client transaction history and an assessment of the client’s creditworthiness, and has determined that an allowance for doubtful accounts was $256 as of December 31, 2005 and June$250 as of September 30, 2006.
Fair Value of Financial Instruments – —The fair value of financial assets and liabilities, consisting of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilitiesexpenses are considered to approximate their recorded value, as they are short-term in nature.
Investments – —The Company’s investments consist primarily of investments in the Private Equity Funds and assets managed by Evercore Asset Management, L.L.C. (“EAM”) that are carried at fair value on the Condensed CombinedCombined/Consolidated Statements of Financial Condition, with realized and unrealized gains and losses included in Investment Management Revenue on the Condensed CombinedCombined/Consolidated Statements of Income.
Realized and Unrealizedunrealized gains and losses on Available-For-SaleAvailable-for-Sale Securities are included in Accumulated Other Comprehensive Income as a separate component of Member’s Equity, but are excluded from net income.
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
The Private Equity Funds consist primarily of investments in marketable and non-marketable securities of the Portfolio Companies. The underlying investments held by the Private Equity Funds are valued based on quoted market prices or estimated fair value if there is no public market. The fair value of the Private Equity Funds’ investments in non-marketable securities areis ultimately determined by the Company in its capacity as general partner.Company. The Company determines fair value of non-marketable securities by giving consideration to a range of factors, including but not limited to market conditions, operating performance (current and projected) and subsequent financing transactions. Due to the inherent uncertainty in the valuation of these non-marketable securities, estimated values may materially differ from the values that would have been used had a ready market existed for these investments.
Investments in publicly traded securities are valued using quoted market prices.
Available-For-SaleAvailable-for-Sale Securities and Trading Securities are valued using quoted market prices for publicly traded securities or estimated fair value if there is no public market.
Goodwill and Intangible Assets—SFAS No. 142, “Goodwill and Other Intangible Assets,” does not permit the amortization of goodwill and indefinite-lived assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment. Other intangible assets are amortized over their estimated useful lives.
Furniture, Equipment and Leasehold Improvements – —Fixed assets, including office equipment, hardware and software and leasehold improvements, are stated at cost, net of accumulated depreciation and amortization. Furniture, equipment and computer hardware and software are depreciated using the straight-line method over
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
the estimated useful lives of the assets, ranging from three to seven years. Leasehold improvements are amortized over the shorter of the term of the lease or the useful life of the asset.
The Company capitalizes certain costs of computer software obtained for internal use and amortizes the amounts over the estimated useful life of the software, generally not exceeding three years. Capitalized internal-use software costs include only external direct costs of materials and services consumed in developing or obtaining the software. Capitalization of these costs ceases no later than the point at which software development projects are substantially complete and ready for their intended purposes.
Upon retirement or disposition of assets, the cost and related accumulated depreciation or amortization is removed from the accounts and the resulting gain or loss, if any, is recognized as a gain or loss on disposition of assets in other operating income or expense. Expenditures for maintenance and repairs are expensed as incurred.
Leases – —Leases are accounted for in accordance with SFAS No. 13, “Accounting for Leases.” Leases are classified as either capital or operating as appropriate. For capital leases, the present value of the future minimum lease payments is recorded as a liability. Amortization of capitalized leased assets is computed on the straight-line method over the lesser of the lease term or useful life of the asset.
Advisory Revenue – —The Company earns advisory revenue through a) retainer arrangements, b) success fees based on the occurrence of certain events which may include announcements or completion of various types of financial transactions, b) retainer arrangements and c) fairness opinions.
The Company recognizes advisory revenue when the services related to the underlying transactions such as mergers, acquisitions, restructurings and divestitures are completed in accordance with the terms of its engagement agreements.
Fees that are paid in advance are initially recorded as deferred revenue and recognized as advisory revenue ratably over the period in which the related service is rendered.
Investment Management Revenue – —Investment Management revenue is derived from the Company’s activities in private equity and traditional asset management and consists of a) management fees from the Private Equity Funds, b) portfolio company fees, c) gains (losses) on investments in the Private Equity Funds, and d) Carried Interest.Interest, e) asset management fees (Successor Company only) and (f) net interest revenue (Successor Company only).
Management Fees – —Management fees are contractually based and are derived from investment management services provided in originating, recommending and consummating investment opportunities to the Private Equity
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
Funds. Management fees are payable semi-annually in advance on committed capital during the Private Equity Funds’ investment period, and on invested capital, thereafter. Management fees are initially recorded as deferred revenue and revenue is recognized ratably, thereafter, over the period for which services are provided.
The Private Equity Funds partnership agreements provide for a reduction of management fees for certain portfolio company fees earned by the Company. Portfolio company fees are recorded as revenue when earned and are offset, in whole or in part, against future management fees. Such offsets amounted to $0$977 and $552$2,583 for the sixnine months ended JuneSeptember 30, 2005, and 2006, respectively.
The ECP II partnership agreement also provides that placement fees paid by its limited partners are offset against future management fees. Such offsets amounted to $1,243$1,865 and $0 for the sixnine months ended JuneSeptember 30, 2005, and 2006.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Portfolio Company Fees – —Portfolio company fees include monitoring, director and transaction fees associated with services provided to the portfolio companiesPortfolio Companies of the private equity fundsPrivate Equity Funds the Company manages.
Monitoring fees are earned by the Company for services provided to the Portfolio Companies with respect to the development and implementation of strategies for improving operating, marketing and financial performance. Monitoring fee revenue is recognized ratably over the period for which services are provided.
Director fees are earned by the Company for the services provided by Members who serve on the Board of Directors of Portfolio Companies. Director fees are recorded as revenue when payment is received. This policy does not yield results that are materially different compared to recording revenue when services are provided, as required by U.S GAAP.
Transaction fees are earned by the Company for providing advisory services to Portfolio Companies. These fees are earned and recognized on the same basis as advisory revenue.
Gains (Losses) on Investments in the Private Equity Funds –—Prior to the IPO, the Company’s Investments in the Private Equity Funds consist of the Company’s general partnership interest and related commitments in investment partnerships that it manages. TheseSubsequent to the IPO, these investments are accounted for on the fair value method based on the Company’s percentage interest in the underlying partnerships. The Company recognizes revenue on investments in the Private Equity Funds based on its allocable share of realized and unrealized gains (or losses). See Note 6,7, Investments.
Carried Interest – —The Company records incentive fee revenue from the Private Equity Funds when the returns on the Private Equity Funds’ investments exceed certain threshold minimums. These incentive fees (or “Carried Interest”) are computed in accordance with the underlying Private Equity Funds’ partnership agreements and are based on investment performance over the life of each investment partnership. Prior to the IPO, all of the Carried Interest earned from ECP I, ECP II and EVP was included in revenues. For the period subsequent to the IPO, the Company recognizes as revenue, through its equity interest in the general partner of ECP II, its pro rata share of any Carried Interest.
Future investment underperformance of the Private Equity Funds may require amounts of Carried Interest previously distributed to the Company to be returned to the respective investment partnerships. As required by the Private Equity Funds’ partnership agreements, the general partners of each Private Equity Fund maintain a defined amount in escrow in the event that distributions received by such general partner mustfunds to be returned due to investment underperformance. These escrow funds are not included in the accounts of the Company.returned. The Members, in their capacity as members of the general partnerspartner of ECP I, have severally but not jointly guaranteed their pro rata share of the Private Equity Funds, have guaranteed theECP I general partners’partner’s obligation (which may arise due to investment underperformance) to repay or refund to outside investors in the Private Equity Funds interimECP I amounts of Carried Interest previously distributed to the Company.ECP I general partner. The Members, in their capacity as members of the general partner of ECP II, including the Company for the period after the IPO, have jointly and severally guaranteed their pro rata share of the ECP II general partner’s obligation (which may arise due to investment underperformance) to refund to outside investors in ECP II amounts of Carried Interest previously distributed to the ECP II general partner, however each member’s obligation pursuant to such guarantee is capped at 125% of such member’s pro rata share of such amount.
As required by the ECP I and ECP II partnership agreements, the general partner of each of ECP I and ECP II have established third party escrow accounts and deposited a portion of Carried Interest in such accounts to satisfy any obligation of such general partner, including the obligation to return all or a portion of Carried Interest previously distributed to such general partner due to investment underperformance of the related fund. Prior to the IPO, these escrowed amounts were not included in the Company’s accounts. Subsequent to the IPO, the Company reflects its pro rata share of ECP II Carried Interest held in escrow on its balance sheet.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Asset Management Fees—Subsequent to the IPO, asset management fees are contractually based and are derived from investment management services provided in originating, recommending and consummating investment opportunities to clients of PCB. PCB receives fixed management fees, success fees and earns a spread when transacting certain securities orders on behalf of clients. These fees are recognized over the relevant contract period, generally quarterly or annually.
Net Interest Revenue—Subsequent to the IPO, Net Interest Revenue is derived from investing customer funds in financing transactions by PCB. These transactions are primarily repurchases and resales of Mexican government securities.
Client Expense Reimbursement – —In the conduct of its financial advisory service engagements and in the pursuit of successful Portfolio Company investments for the Private Equity Funds, the Company receives reimbursement for certain transaction-related expenses incurred by the Company on behalf of its clients. Such reimbursements
are classified as either Advisory or Investment Management Revenues, as applicable.
Transaction-related expenses, which are billable to clients, are recognized as revenue in accordance with EITF 01-14, “Income“Income Statement Characterization of Reimbursement Received for Out of Pocket Expenses Incurred”Incurred,” and recorded in accounts receivable on the later of a) the date of an executed engagement letter or b) the date the expense is incurred. The Company reported such expense reimbursement as revenue on the Condensed CombinedCombined/Consolidated Statements of Income in the amount of $1,099$676 and $2,463$972 for the sixthree months ended JuneSeptember 30, 2005 and 2006, respectively, and $1,775 and $3,435 for the nine months ended September 30, 2005, and 2006, respectively.
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 ANDShare-Based Payment—On December 16, 2004, the Financial Accounting Standards Board, (“FASB”), issued SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”), which is a revision of SFAS No. 123 “Accounting for Stock Based Compensation.” SFAS 123(R) supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” Prior to the IPO, the Company operated as a series of partnerships, limited liability companies and sub-chapter S corporations and did not historically issue stock-based compensation awards. The Company adopted SFAS 123(R) on January 1, 2006
(dollars and the impact on the company’s condensed consolidated financial condition and results of operations subsequent to the IPO is discussed in thousands unless otherwise noted)Note 12.
Compensation and Benefits – —Compensation includes salaries, bonuses (discretionary awards and guaranteed amounts) and severance and excludesbut historically excluded any compensatory payments made to Members. After the Company’s IPO, compensatory payments made to Members are included in Compensation. Bonuses are accrued over the service period to which they relate. Benefits includes both Member and employee benefit expense.
Foreign Currency Translation—Subsequent to the IPO, foreign currency assets and liabilities have been translated at rates of exchange prevailing at the end of the periods presented. Income and expenses transacted in foreign currency have been translated at average monthly exchange rates during the period. Translation gains and losses are included in the foreign currency translation adjustment as a component of other comprehensive income in the Condensed Consolidated Statement of Changes in Members’ and Stockholders’ Equity.
Income Taxes – —The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of tax benefits or expenses on the temporary differences between the financial reporting and tax bases of assets and liabilities. The Company’s operations arewere historically organized as a series of partnerships, limited liability companies and sub-chapter S corporations. Accordingly, the Company’s income iswas not subject to U.S. federal income taxes. Taxes related to income earned by these entities represent obligations of the individual members, partners or shareholders and have not historically been reflected in the accompanying Condensed CombinedCombined/Consolidated Financial Statements. Income taxes shown on the Company’s historical Condensed Company’s CombinedCombined/Consolidated Statements of Income are attributable to the New
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
York City Unincorporated Business Tax and the New York City general corporate tax. After the Company’s IPO, the income from operations attributable to the Company is taxed at the prevailing federal, state and local and foreign income tax rates.
Net Income Per Share—Subsequent to the IPO, the Company computes net income per share in accordance with SFAS No. 128, “Earnings Per Share – The.” Basic Net Income per Share is computed by dividing income available to common shareholders by the weighted average of common shares outstanding for the period. Diluted Net Income per Share reflects the assumed conversion of all dilutive securities. See Note 11. Prior to the Reorganization, the Company has historically operated as a series of related partnerships, limited liability companies and sub-chapter S corporations under the common control of the Founding Members. There iswas no single capital structure upon which to calculate historical earnings per share information. Accordingly, historical earnings per share information has not been presented.presented for the Predecessor Company.
Comprehensive Income – —Comprehensive income consists of net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that are included in Accumulated Other Comprehensive Income as a separate component of Members’ Equity but are excluded from net income. The Company’s other comprehensive income is comprised of unrealized gains on Available-For-Sale Securities.Available-for-Sale Securities and foreign currency translation.
Net Income – —As a result of the Company operating as a series of partnerships, limited liability companies and sub-chapter S corporations, payment for services rendered by the Members has historically been accounted for as a distribution from Members’ capital rather than as compensation and benefits expense. As a result, the Company’s operating income historically has not reflected payments for services rendered by its Members. These compensatory payments that occur after the Company’s IPO are included in Compensation and Benefits on the Statement of Income.
The Members have historically received periodic distributions of operating proceeds which are reported in the Statements of Changes in Members’ Equity as distributions. The amount of cash and non-cash distributions received by the Members was $76,427,$107,214 for the sixnine months ended JuneSeptember 30, 2006.
Note 3 – 3—Recently Issued Accounting Pronouncements
SFAS 123(R) – On December 16, 2004, the Financial Accounting Standards Board, (“FASB”), issued SFAS No. 123 (revised 2004), “Share-Based Payment,” or SFAS 123(R), which is a revision of SFAS No. 123 “Accounting for Stock Based Compensation.” SFAS 123(R) supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the Condensed Combined Statements of Income based on their fair values. Pro forma disclosure is no longer an alternative. The Company has operated as a series of partnerships, limited liability companies and sub-chapter S corporations and has not historically issued stock-based compensation awards. The Company adopted SFAS 123(R) on January 1, 2006 and there was no material impact on the Company’s condensed combined financial condition or results of operations.
FIN 47 – —In March 2005, the FASB issued Financial Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 clarifies guidance provided in SFAS No. 143, “Accounting for Asset Retirement Obligations.” The term, asset retirement obligation, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Entities are required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 was effective for fiscal years ending after December 15, 2005. The adoption of FIN 47 did not have a material effect on the Company’s condensed combinedcombined/consolidated financial condition or results of operations.
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
SFAS 154 – —In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections,”, which replaces APB Opinion No. 20 and SFAS No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date SFAS 154 was issued.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
The adoption of SFAS 154 did not have a material effect on the Company’s condensed combinedcombined/consolidated financial condition or results of operations.
Emerging Issues Task Force Issue No. 04-5 – In June 2005 the Emerging Issues Task Force reached a consensus on Issue No. 04–5,“Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” Under Issue 04–5, the general partners in a limited partnership or similar entity are presumed to control that limited partnership regardless of the extent of the general partners’ ownership interest in the limited partnership. A general partner should assess the limited partners’ rights and their impact on the presumption of control. If the limited partners have either a) the substantive ability to dissolve the limited partnership or otherwise remove the general partners without cause or b) substantive participating rights, the general partners do not control the limited partnership. For general partners of all new limited partnerships formed and for existing limited partnerships for which the partnership agreement is modified, Issue 04–5 is effective after June 29, 2005. For general partners in all other limited partnerships, Issue 04–5 is effective for the first reporting period in fiscal years beginning after December 15, 2005, and allows either of two transition methods. As of December 31, 2005 the Company determined that consolidation of the Private Equity Funds will not be required pursuant to Issue 04-5.
SFAS 155 – —In February 2006, the FASB issued SFAS No. 155 “Accounting for Certain Hybrid Financial Instruments – Instruments—an amendment of FASB Statements No. 133 and 140”140”(“SFAS 155”).SFAS 155 permits an entity to measure at fair value any financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company is currently assessing the impact of adopting SFAS 155, but does not expect the standard to have a material impact on the financial condition, results of operations, and cash flows of the Company.
SFAS 156– —In March 2006, the FASB issued SFAS No. 156156““Accounting for Servicing of Financial Assets – Assets—an amendment of FASB Statement No. 140”140”(“SFAS 156”), which requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and for subsequent measurements, permits an entity to choose either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. SFAS 156 also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS 156 is effective in fiscal years beginning after September 15, 2006. The Company is currently assessing the impact of adopting SFAS 156, but does not expect the standard to have a material impact on the financial condition, results of operations, and cash flows of the Company.
FIN 48– —In July 2006, the FASB issued Financial Interpretation No. 48“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”(“FIN 48”), which clarifies the criteria that must be met prior to recognition of the financial statement benefit of a position taken in a tax return. FIN 48 provides a benefit recognition model with a two-step approach consisting of a “more-likely-than-not” recognition criteria, and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the financial statements. FIN 48 is effective as of the beginning of the first annual period beginning after December 15, 2006. The Company is currently assessing the impact of adopting FIN 48 on the financial condition, results of operations, and cash flows of the Company.
SFAS 157 – —In September 2006, the FASB issued SFAS No. 157 “Fair“Fair Value Measurements”Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective in fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of adopting SFAS 157 on the financial condition, results of operations, and cash flows of the Company.
SFAS 158—In September 2006, the FASB issued SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”), which requires an employer to recognize the overfunded or underfunded status of a defined benefit post-retirement plan (other than a multi-employer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 is effective in fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of adopting SFAS 158 on the financial condition, results of operations, and cash flows of the Company.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
SAB 108—In September 2006, the SEC released Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 permits the Company to adjust for the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings in the year of adoption. SAB 108 also requires the adjustment of any prior quarterly financial statements within the fiscal year of adoption for the effects of such errors on the quarters when the information is next presented. Such adjustments do not require previously filed reports with the SEC to be amended. The Company is currently assessing the impact of adopting SAB 108 on the financial condition, results of operations, and cash flows of the Company.
Note 4 – Related Parties4—Business Changes and Developments
Business Combination with Protego—The Company combined its business with that of Protego and its subsidiaries and Protego SI, a leading investment banking boutique in Mexico. The Protego combination happened prior to but in conjunction with the Formation Transaction and the closing of the IPO on August 16, 2006. Protego approaches its advisory business in much the same way as Evercore, by building long-standing relationships and acting as a trusted advisor to company management, free from the conflicts that larger institutions may encounter. Pursuant to the executed contribution and sales agreement, which is referred to collectively as the “Protego Combination:,”
Of the $7.0 million in notes issued in consideration for the Protego Combination, $6.05 million was paid in cash and $0.95 million was issued in shares of Class A common stock valued at the IPO price of $21.00 per share. The Company issued 45,238 shares of Class A common stock upon the repayment of such notes. In addition, Protego distributed to its Directors cash and, to the extent cash was not available, notes or interest in certain accounts receivable, so as to distribute to its Directors all earnings for the period from January 1, 2005 through the closing date of August 9, 2006.
For U.S. GAAP and financial statement purposes, the Company accounted for the vested partnership units of Evercore LP issued in the Protego Combination as a component of the estimated purchase price pursuant to SFAS No. 141 “Business Combinations.” The estimated value of the vested Evercore LP partnership units was determined by management. The estimated value of the vested Evercore LP partnership units was determined by estimating the total value of the Company, post Formation Transaction, including Protego, as of the date of the contribution and sale agreement. The total value of these entities was then multiplied by the percentage ownership implied by the vested Evercore LP partnership units issued in connection with the Protego Combination.
For U.S. GAAP and financial purposes, the Company accounted for the unvested partnership units issued in the Protego Combination as future compensation expense and not as part of the purchase consideration. In accordance with SFAS No. 123(R), the unvested partnership units of Evercore LP will be charged to expense at the time a vesting event occurs or, if earlier, at the time a vesting event becomes probable. The expense will be based on the grant date fair value of the partnership units of Evercore LP, which will be the IPO price of the Class A common stock into which these partnership units are exchangeable.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
The results of operations for Protego subsequent to the IPO are reflected in the September 30, 2006 Condensed Consolidated Financial Statements of Evercore Partners Inc.
If the Protego Combination was effective as of January 1, 2005, the additional impact on the operating results of the Company would have been:
3 Months Ended September 30, 2006 | 9 Months Ended September 30, 2006 | 3 Months Ended September 30, 2005 | 9 Months Ended September 30, 2005 | |||||||||||
Net Revenues | $ | 1,668 | $ | 9,183 | $ | 3,908 | $ | 15,452 | ||||||
Operating Income | (890 | ) | (2,157 | ) | 536 | 1,446 | ||||||||
Net Income | (390 | ) | (2,173 | ) | 202 | 74 | ||||||||
Net Income Per Share | $ | (0.08 | ) | $ | (0.45 | ) | $ | 0.04 | $ | 0.02 |
Supplemental pro forma disclosure and the nature of any material, nonrecurring items of the Protego Combination is included elsewhere within this Form 10-Q as part of Item 1A Pro Forma Financial Information.
Pursuant to the executed contribution and sales agreement, the final purchase price of the combination had been allocated to the assets acquired and liabilities assumed using the fair values as of the acquisition date. The computation of the purchase price to net assets of Protego—based on their respective fair values as of August 9, 2006—and resulting goodwill are presented below.
August 9, 2006 | |||||||
Purchase Interest | |||||||
Non-Interest-Bearing Evercore LP Notes | $ | 7,000 | |||||
Evercore LP Partnership Units | 27,510 | ||||||
Acquisition Costs | 3,420 | ||||||
Total Purchase Price | $ | 37,930 | |||||
Fair Value of Assets Acquired and Liabilities Assumed | |||||||
Cash | $ | 3,972 | |||||
Accounts Receivable | 6,582 | ||||||
Financial Instruments Owned and Pledged as Collateral | 198,511 | ||||||
Securities Purchased Under Agreement to Resell | 207,596 | ||||||
Investments | 1,670 | ||||||
Fixed Assets | 990 | ||||||
Intangible Assets | 3,480 | ||||||
Other Assets | 483 | ||||||
Current Liabilities | (2,756 | ) | |||||
Securities Sold Under Agreements to Repurchase | (406,150 | ) | |||||
Dividend Payable | (6,375 | ) | |||||
Minority Interest | (1,059 | ) | |||||
Identifiable Net Assets | $ | 6,944 | |||||
Goodwill Resulting From the Business Combination | $ | 30,986 | |||||
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
The Intangible Assets were valued at the date of acquisition at their fair value, as determined by management. The assets will be amortized over their useful lives, ranging from 0.5 years to 5 years.
Acquisition of Braveheart Financial Services Limited—On July 31, 2006, the Company entered into a sale and purchase agreement to acquire Braveheart Financial Services Limited (“Braveheart”), a private company limited by shares incorporated in England, which provides for a business referral arrangement. Braveheart was organized to provide corporate finance and private equity advisory services, subject to its receipt of applicable regulatory approvals. In exchange for 100% of the outstanding share capital of Braveheart, the Company would pay, subject to the terms and conditions of the sale and purchase agreement, initial consideration, deferred consideration and earn-out consideration, each of which is subject to reduction in the event that the value of Braveheart on the date of the sale and purchase agreement declines prior to the date on which such consideration is payable. The initial consideration will be comprised of 1,181,213 shares of Evercore Partners Inc. Class A common stock. The deferred consideration, payable not later than the seventh anniversary of the closing, will be comprised of additional shares of Class A common stock of not less than 50% and not more than 100% of the number of shares of Class A common stock issued as initial consideration, which percentage shall be determined by the Company based on the success of Braveheart’s business over the period from the consummation of the acquisition to the date of issuance of these shares. The Braveheart shareholders are also eligible to receive earn-out consideration based on gross revenues generated by the financial advisory business carried on by the Company and Braveheart in Europe. The maximum aggregate amount of earn-out consideration issuable to the Braveheart shareholders, collectively, is $3,000. Any earn-out consideration payable to the Braveheart shareholders will be paid in the form of loan notes due 2010 which bear interest at LIBOR plus 1% per annum and which are redeemable by the holder at any time after the date which is six months after the date of issuance. The closing of the Braveheart acquisition is subject to a number of conditions, including the recent IPO of the Company, the absence of any breach of law and the receipt of the approval of the change of control of Braveheart from the United Kingdom Financial Services Authority. The closing of the Braveheart acquisition is expected to occur no later than the first half of 2007. As stated as part of Item 1, Note 5—Related Parties, on July 20, 2006 EGL, paid Braveheart a retainer fee in the amount of $933, pursuant to the Co-Operation Agreement. See Note 5—Related Parties.
Note 5—Related Parties
The Company remits payment for expenses on behalf of the Private Equity Funds and is reimbursed accordingly. During the sixnine months ended JuneSeptember 30, 2005 and 2006, the Company disbursed $432,$462, and $733,$830, respectively, on behalf of these entities. Included in Receivable from Uncombined Affiliates on the Statements of Financial Condition as of December 31, 2005 and JuneSeptember 30, 2006 are accrued and unpaid management fees, reimbursable expenses relating to the Private Equity Funds and investment advances made to an affiliate in the amounts of $1,255 and $2,923,$1,688, respectively. Payables to Uncombined Affiliates amounted to $440 and $18$0 as of December 31, 2005 and JuneSeptember 30, 2006, respectively. These payables represent obligations of the general partner pursuant to the respective partnership agreements of the Private Equity Funds and are payable to the Private Equity Funds.
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
Included in Receivable from Members and Employees on the Condensed CombinedCombined/Consolidated Statements of Financial Condition are loans to Members, employees and former employees of the Company. These loans are collateralized by the Members, employees, or former employees respective investments in the Private Equity Funds, are carried at face value and bear interest at the prime rate. The amount of such loans outstanding as of December 31,
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
2005 and JuneSeptember 30, 2006 were $83 and $85,$56, respectively. Interest on these loans was $3$(1) and $3,$1, for the quarters ended JuneSeptember 30, 2005, and 2006, respectively, and $4$1 and $4 for the sixnine months ended JuneSeptember 30, 2005 and 2006. This interest revenue is included in Interest Income and Other Revenue on the Condensed CombinedCombined/Consolidated Statements of Income. Subsequent to June 30, 2006, the amounts receivable from Members were received by the Company. Advances in the amount of $61 made to individuals who havehad accepted employment offers with the Company, are also included in Receivable from Members and Employees on the Condensed Combined StatementsStatement of Financial Condition as of December 31, 2005 and June 30, 2006.2005.
Also, included in Receivable from Members and Employees are advances made by the Company on behalf of such individuals in connection with their general partner obligation to the Private Equity Funds. These advances are non-interest bearing and the amounts outstanding as of December 31, 2005 and JuneSeptember 30, 2006 were $1,540 and $1,257,$0, respectively. Subsequent to June 30, 2006, the amounts receivable from Members were received by the Company. Payable to Members and Employees for Private Equity distributions amounted to $659 and $0 as of December 31, 2005 and JuneSeptember 30, 2006.
Amounts due in connection with personal expenses paid by the Company on behalf of Members and employees totaled $51 and $17$22 as of December 31, 2005 and JuneSeptember 30, 2006, respectively, and are included in Receivable from Members and Employees. These receivables are non-interest bearing and are repaid to the Company on a periodic basis. Subsequent to June 30, 2006, these amounts were received by the Company.
The general partner investment interests of one of the Members and the general partner and Founder interests of one of the founding membersFounding Members serve to collateralize their personal loans with a third party financial institution.
Included in Payable to Members and Employees, is $1.9 million related to the assignment of certain accounts receivable that Protego has recorded as payable to shareholders of Protego as a part of Protego’s distribution of pre-combination profits.
Effective October 28, 2005, EGH acquired (indirectly through a wholly owned subsidiary) the right to invest in EAM, a newly formedan entity engaged primarily in the asset management business. The Company’s investment in EAM is accounted for under the equity method. Although EAM is considered a variable interest entity, the Company is not the primary beneficiary, and thus, not required to consolidate it.EAM.
Co-Operation Agreement with Braveheart Financial Services Limited – —On April 19, 2006, EGL entered into a Co-Operation Agreement with Braveheart Financial Services Limited (“Braveheart”), a private company limited by shares incorporated in England, which provides for a business referral arrangement. Braveheart was organized to provide corporate finance and private equity advisory services, subject to its receipt of applicable regulatory approvals.Braveheart. The arrangement under the Co-Operation Agreement is intended to generate incremental fee income for each of Evercore and Braveheart through mutual business referrals for financial advisory work and the sourcing and execution of private equity fundraising and investment opportunities. Pursuant to the Co-Operation Agreement, Braveheart will refer matters in North America to Evercore and Evercore will refer matters in Europe, the Middle East or Africa to Braveheart. Each of the parties is obligated to pay fees to the other party for services provided under the Co-Operation Agreement. On July 20, 2006, EGL paid Braveheart a retainer fee in the amount of $900,000.$933. The Co-Operation Agreement may be terminated by either party at any time on or after December 31, 2007, and will terminate upon consummation of the Company’s pending acquisition of Braveheart. See Note 15 – Subsequent Events.
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
Note 5 – 6—Deferred Offering and Acquisition Costs
The Company completed an initial public offeringIPO of its Class A Common Stock on August 16, 2006. The Company consummated a number of internal reorganization transactions to transition the Company to a corporate structure form. Costs directly attributable to the Company’s initial public offering have beenIPO were deferred and capitalized. These costs were charged against the proceeds of the offeringIPO once completed.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
The Company also executed a definitive agreement to acquire all the outstanding capital stock of Protego Asesores S.A. de C.V, a foreign investment bank based in Mexico, in exchange for both cash and equity consideration. The transaction was consummated immediately prior to but in conjunction with the initial public offeringIPO referred to above. The direct costs incurred in connection with the acquisition have been deferred and capitalized, and these costs will behave been allocated to the purchase price upon the completion of the acquisition.price.
The Company entered into a sale and purchase agreement to acquire Braveheart, an investment banking firm based in the U.K., inUnited Kingdom. In exchange for all orof the outstanding share capital of Braveheart, the Company wouldwill pay cash and equity consideration. The direct costs incurred in connection with the acquisition have been deferred and capitalized, and these costs will be allocated to the purchase price upon the completion of the acquisition. Costs related to an unsuccessful acquisition will be charged to operations at the termination date. See Note 15, Subsequent Events.
As of December 31, 2005 and JuneSeptember 30, 2006, respectively, $5,138 and $9,892$1,639 of costs incurred in connection with the initial public offeringIPO and the acquisitions, described above, were capitalized and are shown on the Condensed CombinedCombined/Consolidated Statements of Financial Condition in Deferred Offering and Acquisition Costs. The costs remaining as of September 30, 2006 were specifically related to the Braveheart acquisition (as described in Note 4).
Note 6 – 7—Investments
Investments
The fair value of the Company’s investments reported in the Condensed CombinedCombined/Consolidated Statements of Financial Condition are as follows:
December 31, 2005 | June 30, 2006 | December 31, 2005 | September 30, 2006 | |||||||||
Investment in ECP I | $ | 3,717 | $ | 4,363 | $ | 3,717 | $ | — | ||||
Investment in ECP II | 11,997 | 19,815 | 11,997 | 10,831 | ||||||||
Investment in EVP | 625 | 664 | 625 | — | ||||||||
Investments in Discovery Fund | — | 1,813 | ||||||||||
Total Private Equity Funds | 16,339 | 24,842 | 16,339 | 12,644 | ||||||||
Investments Available-For-Sale | 416 | 333 | ||||||||||
Investments, Equity Method | — | 838 | ||||||||||
Investments Available-for-Sale | 416 | — | ||||||||||
Investments Equity Method | — | 627 | ||||||||||
Total Investments | $ | 16,755 | $ | 26,013 | $ | 16,755 | $ | 13,271 | ||||
Investments in the Private Equity Funds – —Investments in the Private Equity Funds primarily include the general partner and Founders’ entities investments in the Private Equity Funds.Funds prior to the IPO. Subsequent to the IPO, the investments primarily include investments in ECP II and the Discovery Fund.
As of December 31, 2005, and June 30, 2006, the Company’s investment in ECP I represented 3.8% and 5.0%, respectively of the Private Equity Funds’ capital. The Company’s investments in ECP II and EVP were less than 5.0% of the respective Private Equity Funds’ capital as of December 31, 2005 and June 30, 2006.2005.
Net realized and unrealized gains and losses on Private Equity Fund investments, including Carried Interest and gains (losses)and losses on investments, were $(2,554), and $4,935$0 for the sixperiod from July 1, 2006 through August 9, 2006, $4,935
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
for the period from January 1, 2006 through August 9, 2006, $2,616 for the period August 10 through September 30, 2006, and were $4,317, and $1,761 for the three and nine months ended JuneSeptember 30, 2005, and 2006, respectively, and are included on the Condensed CombinedCombined/Consolidated Statements of Income in Investment Management Revenue.
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
See Note 10,13, Commitments and Contingencies, for commitments of future capital contributions to the Private Equity Funds.
The portfolio of investments in the Private Equity Funds at fair value by industry was as follows:
December 31, 2005 | June 30, 2006 | |||||
Energy | 24 | % | 30 | % | ||
Media | 20 | % | 10 | % | ||
Healthcare Services | 17 | % | 11 | % | ||
Financial Services | 9 | % | 23 | % | ||
Telecommunications | 6 | % | 5 | % | ||
Industrials | 6 | % | 3 | % | ||
Printing/Advertising | 4 | % | 4 | % | ||
Transportation/Waste Management | 0 | % | 4 | % | ||
Consumer Distributions | 5 | % | 3 | % | ||
Other | 9 | % | 7 | % | ||
Total | 100 | % | 100 | % | ||
Investments in Available-For-Sale Securities – —Investments in Available-For-SaleAvailable-for-Sale securities reflects the Company’s investment in options for the purchase of additional shares of common stock of a former Portfolio Company. The options were received at various dates, in lieu of cash payment for services rendered. Using the Black-Scholes Option Pricing Model, the options as of December 31, 2005 and June 30, 2006, were valued at $416 and $333, respectively.$416. The options were transferred to an uncombined affiliate prior to the Company’s IPO pursuant to the Company’s reorganization.
Investment, Equity Method – —On January 5, 2006, the Company invested $1,137 in EAM. The Company holds a 41.7% interest in EAM. For the three and sixnine months ended JuneSeptember 30, 2006, the investment resulted in an unrealized loss of $193$211 and $299,$510, respectively, and is included on the Condensed CombinedCombined/Consolidated Statements of Income in Investment Management Revenue.
Securities
Trading Securities -On March 20,—During the nine months ended September 30, 2006, the Company invested $2,000 in an investment portfolio managed by EAM and an additional $1,000 on May 31, 2006 in the same portfolio. On June 8, 2006, the Company invested an additional $1,000$4,000 in an investment portfolio managed by EAM, of which $848$266 remains in cash, andcash. The Company invested an additional $1,000 in a separate fund, product also managed by EAM,.EAM. These investments managed by EAM are reflected as Securities on the condensed combined statementCondensed Combined/Consolidated Statement of financial condition.Financial Condition. For the three and sixnine months ended JuneSeptember 30, 2006, the investments resulted in annet unrealized gain of $111 and net unrealized loss of $82$49, and $75, respectively, and isare included on the Condensed CombinedCombined/Consolidated Statements of Income in Investment Management Revenue.
Financial Instruments Owned and Pledged as Collateral—The Successor Company’s financial instruments owned, which consist principally of foreign government obligations, are recorded on a trade date basis and are stated at quoted market values. Related gains and losses are reflected in Interest Income and Other Revenue on the Condensed Combined/Consolidated Statements of Income. The Successor Company pledges financial instruments owned to collateralize certain financing agreements and permits the counterparty to pledge the securities. At September 30, 2006, the Company had $275.5 million included on the Condensed Combined/Consolidated Statement of Financial Condition as Financial Instruments Owned and Pledged as Collateral.
Note 7 – 8—Furniture, Equipment and Leasehold Improvements, Net
Furniture, equipment and leasehold improvements, net, consisted of the following:
December 31, 2005 | June 30, 2006 | |||||||
Furniture and Office Equipment | $ | 1,138 | $ | 1,235 | ||||
Leasehold Improvements | 878 | 1,658 | ||||||
Computer and Computer-related Equipment | 1,093 | 1,174 | ||||||
Capitalized Leases | 729 | 729 | ||||||
Software | 406 | 630 | ||||||
Total | 4,244 | 5,426 | ||||||
Less: Accumulated Depreciation and Amortization | (1,981 | ) | (2,526 | ) | ||||
Furniture, Equipment and Leasehold Improvements, Net | $ | 2,263 | $ | 2,900 | ||||
Depreciation and amortization expense totaled $171, and $283 for the three months ended June 30, 2005 and 2006, respectively, and totaled $322, and $545 for the six months ended June 30, 2005 and 2006, respectively.
December 31, 2005 | September 30, 2006 | |||||||
Furniture and Office Equipment | $ | 1,138 | $ | 1,790 | ||||
Leasehold Improvements | 878 | 2,269 | ||||||
Computer and Computer-related Equipment | 1,093 | 1,953 | ||||||
Capitalized Leases | 729 | 729 | ||||||
Software | 406 | 1,402 | ||||||
Total | 4,244 | 8,143 | ||||||
Less: Accumulated Depreciation and Amortization | (1,981 | ) | (4,057 | ) | ||||
Furniture, Equipment and Leasehold Improvements, Net | $ | 2,263 | $ | 4,086 | ||||
EVERCORE HOLDINGSPARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2005 AND& 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Depreciation and amortization expense totaled $121 for the period of July 1, 2006 through August 9, 2006, $1,093 for the period of August 10, 2006 through September 30, 2006, $666 for the period January 1, 2006 through August 9, 2006, and $186 and $508 for the three and nine months ended September 30, 2005, respectively.
Purchases of furniture, equipment and leasehold improvements totaled $80,$262, and $1,030,$632, for the three months ended JuneSeptember 30, 2005 and 2006, respectively, and totaled $337,$598, and $1,182,$1,814, for the sixnine months ended JuneSeptember 30, 2005 and 2006, respectively.
Note 8 – 9—Employee Benefit Plans
Defined Contribution Retirement Plan – —The Company, through a subsidiary, provides certain retirement benefits to employees through a qualified retirement plan. The Evercore Partners Services East L.L.C. Retirement Plan (the “Plan”) is a discretionary profit sharing plan with a salary deferral feature under Section 401(k) of the Internal Revenue Code. The Plan was formed on February 1, 1996 and amended February 1, 1999, February 1, 2000, February 1, 2001, January 1, 2002 and June 1, 2002. The plan year ends on January 31 of each year. The Company, at its sole discretion, determines the amount, if any, of profit to be contributed to the Plan.
The retirement and profit sharing plan costs for the sixnine months ended JuneSeptember 30, 2005 and 2006 totaled $135$20 and $303, respectively. Plan administration expenses incurred related to the retirement and profit sharing plans totaled $15$29 and $49$15 for the three months ended JuneSeptember 30, 2005 and 2006, respectively, and totaled $23$52 and $50$65 for the sixnine months ended JuneSeptember 30, 2005, and 2006, respectively.
Note 9 – 10—Line of Credit
On December 30, 2005, the Company executed a $30,000 Credit Agreement with a syndicated group of lenders that matures on the earlier of the consummation of the initial public offeringIPO or December 30, 2006 (the “Line of Credit”). The Line of Credit is a 364-day revolving facility that bears interest at a rate of either (i) Libor plus 200 basis points (the “Eurodollar Loan”) or (ii) the greater of (a) the Prime Rate or (b) Federal Funds Effective Rate plus 100 basis points (the “Base Rate Loan”) for any amount drawn. The Company may elect either the Eurodollar Loan or the Base Rate Loan and either election includes a commitment fee of 1/2 of 1% per annum for any unused portion. The Company is required to maintain liquid assets as a percentage of any amounts drawn on the facility based on the following schedule: From March 30, 2006 through June 30, 2006: 30%; From July 1, 2006 through September 30, 2006: 50% and; From October 1, 2006 through the termination date: 75%. The Members have also pledged their beneficial interests in the Company as collateral for the Line of Credit. At June 30, 2006, theThe Company was inmaintained compliance with all covenants under the Credit Agreement.
The Line of Credit will bewas used for additional working capital purposes including, but not limited to, funding of the Company’s ongoing investment programs. Costs incurred in connection with obtaining this credit facility totaled $607, and such costs are included in Debt Issuance Costs on the Condensed CombinedCombined/Consolidated Statements of Financial Condition. The costs are being amortized over the expected life of the draw down. The Company amortized $401all of these costs for the sixnine months ended JuneSeptember 30, 2006.2006, which is reflected in depreciation and amortization on the Condensed Combined/Consolidated Statement of Cash Flows.
On January 12, 2006, the Company drew down $25,000 on the Line of Credit for additional working capital purposes at an interest rate of 6.6%. On June 22, 2006, the Company drew down an additional $5,000 at an
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
effective interest rate of 7.48%. For the six months ended June 30,period July 1, 2006 through August 9, 2006, and the period of January 1, 2006 through August 9, 2006, the Company incurred $16$0 and $10 for the commitment fee expense, respectively, and $797$297 and $1,094 for the interest expense.expense, respectively.
The Line of Credit was repaidterminated on August 16, 2006 and repaid in full, subsequent to the initialIPO.
Note 11—Net Income Per Share
The Company’s net income and weighted average shares outstanding for the three month and nine month periods ended September 30, 2006 consists of the following:
Three Months Ended September 30, 2006 | Nine Months Ended September 30, 2006 | |||||
Net income | $ | 298 | $ | 298 | ||
Net income available for Class A common stockholders | $ | 298 | $ | 298 | ||
Weighted Average Shares Outstanding: | ||||||
Basic | 4,795 | 4,795 | ||||
Diluted | 4,795 | 4,795 |
Net income per share information is not applicable for reporting periods prior to August 10, 2006, the date of the closing of the equity public offering. The calculations of basic and diluted net income per share amounts for the three month and nine month periods ended September 30, 2006 are described and presented below.
Basic Net Income Per Share
Numerator—(i) utilizes net income available for Class A common stockholders for the three and nine month periods ended September 30, 2006.
Denominator—(i) utilizes the weighted average shares of Class A common stock, including vested restricted stock units, for the three and nine month periods ended September 30, 2006 including 207,116 restricted stock units that have vested and whose issuance is no longer contingent.
Diluted Net Income Per Share
Numerator—utilizes net income available for Class A common stockholders for the three and nine month periods ended September 30, 2006 as in the basic net income per share calculation described above.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Denominator—utilizes the weighted average number of shares of Class A common stock, including vested restricted stock units, for the three and nine month periods ended September 30, 2006 as in the basic net income per share calculation described above.
Three Months Ended September 30, 2006 | Nine Months Ended September 30, 2006 | |||||||
Basic Net Income Per Share of Class A Common Stock | ||||||||
Numerator: | ||||||||
Net income available for Class A common stockholders | $ | 298 | $ | 298 | ||||
Denominator: | ||||||||
Weighted average number of shares of Class A common stock outstanding | 4,795 | 4,795 | ||||||
Basic net income per share of Class A common stock | $ | 0.06 | $ | 0.06 | ||||
Diluted Net Income Per Share of Class A Common Stock | ||||||||
Numerator: | ||||||||
Net income available for Class A common stockholders | $ | 298 | $ | 298 | ||||
Add (deduct)—dilutive effect of: | ||||||||
Amounts applicable to Evercore LP’s share of Evercore Partners net income | 0 | (a) | 0 | (a) | ||||
Additional corporate tax | 0 | (a) | 0 | (a) | ||||
Diluted net income available for Class A common stockholders | $ | 298 | $ | 298 | ||||
Denominator: | ||||||||
Basic weighted average number of shares of Class A common stock | 4,795 | 4,795 | ||||||
Add—dilutive effect of: | ||||||||
Shares issuable relating to Evercore LP exchangeable interests | 0 | (a) | 0 | (a) | ||||
Weighted average number of shares of Class A common stock outstanding | 4,795 | 4,795 | ||||||
Diluted net income per share of Class A common stock | $ | 0.06 | $ | 0.06 | ||||
(a) | During the three and nine month periods ended September 30, 2006, the Evercore LP exchangeable interests (which, as of September 30, 2006, represent the right to receive shares of Class A common stock upon exchange) were antidilutive and consequently the effect of their conversion into shares of Class A common stock has been excluded from the calculation of diluted net income per share of Class A common stock. These interests included 13,433,265 vested Evercore LP partnership units. |
Note 10 – 12—Stock Based Compensation
Effective January 1, 2006, the Company adopted SFAS No. 123(R). SFAS No. 123(R) requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors including employee stock options and other forms of equity compensation based on estimated fair values.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
We granted 2,286,055 restricted stock units (“RSU”) to our non-Senior Managing Director employees at the time of the IPO. 207,116 of the restricted stock units are fully vested and, as a result, we recorded compensation expense at the time of the IPO equal to the value of these fully vested RSU. The remaining 2,078,939 of these RSU will vest only if certain conditions, described below, occur.
Compensation expense was recognized based on the fair value of RSU as determined on the date of grant and is being expensed when certain vesting events occur. In addition to the grant of 207,116 vested RSU granted at the consummation of the IPO, approximately 45% of RSU granted will vest if and when our Founding Members and the chairman of Protego, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 90% of the aggregate Evercore LP partnership units owned by them on the date the Reorganization was effected. The remaining unvested RSU grant will vest upon the earliest to occur of the following events:
In addition, 100% of the unvested RSU held by an employee will vest if such employee dies or becomes disabled while in our employ. Our Equity Committee, which is comprised of the Founding Members and the chairman of Protego, may also accelerate vesting of unvested RSU at any time. Management has concluded that at the current time it is not probable that the conditions relating to the vesting of unvested partnership units or RSU will be achieved or satisfied.
The Company recorded stock compensation expense of approximately $4.3 million during the nine months ended September 30, 2006 related to the grant of 207,116 vested RSU granted to employees at the date of the IPO and valued at the IPO price of $21.00 per share. Stock compensation expense is included in Compensation and Benefits in the Condensed Consolidated Statement of Income.
Each outside director received a one-time award of RSU with a value of $50 upon their initial appointment to the Board. These RSU will vest over two years.
There were no other grants, forfeitures or conversions of stock-based awards during the three and nine months ended September 30, 2006.
Note 13—Commitments and Contingencies
Operating Leases – —The Company leases office space under non-cancelable lease agreements, which expire on various dates through 2013.
Occupancy lease agreements, in addition to base rentals, generally are subject to escalation provisions based on certain costs incurred by the landlord. Occupancy and Equipment Rental on the Condensed CombinedCombined/Consolidated Statements of Income for the sixperiod of July 1, 2006 through August 9, 2006 includes $361, for the period January 1, 2006 through August 9, 2006 includes $1,747, for the period August 10, 2006 through
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
September 30, 2006 includes $525, for the three and nine months ended JuneSeptember 30, 2005, includes $513 and 2006 includes $1,023 and $1,328,$1,536, respectively, of rental expense relating to operating leases. As of JuneSeptember 30, 2006, the Company maintains, as part of the leases for office space in New York, irrevocable standby letters of credit as security in the amount of $1,446. With respect to such letters of
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
credit, $627 expires in 2007 and $819 expires each December 31, resetting annually through 2012. The Company maintained compensating balances of $1,519 as of December 31, 2005 and JuneSeptember 30, 2006. No amounts have been drawn down under the respective letters of credit.
The Company has agreed to sublease an additional 124,000 square feet of office space at the Company’s principal executive offices at 55 East 52nd Street, New York, New York. The rental payment obligations under the sublease are as follows: $9.5 million per year for years one through five of the sublease term; $10.2 million per year for years six through ten of the sublease term; $10.8 million per year for years 11 through 15 of the sublease term; and $11.4 million per year for year 16 through the expiration of the sublease term. Evercore intends to sublease a portion of this additional space The Company’s current annual lease expense is $3.2 million. In connection with the execution of the sublease, the Company delivered a security deposit in the form of an unsecured letter of credit in the amount of $4.8 million. If the Company does not meet certain covenants of the unsecured letter of credit agreement, the Company may be required to secure the letter of credit. The Company intends to take possession of this additional space between February 1, 2007 and April 30, 2007. The term of the sublease expires on April 29, 2023.
As of JuneSeptember 30, 2006, the approximate aggregate minimum future payments required on the operating leases are as follows:
2006 | $ | 1,717 | $ | 948 | ||
2007 | 2,517 | 12,258 | ||||
2008 | 2,060 | 11,766 | ||||
2009 | 2,164 | 11,863 | ||||
2010 | 2,176 | 11,754 | ||||
Thereafter | 4,244 | 134,193 | ||||
Total | $ | 14,878 | $ | 182,782 | ||
Capital Leases – —The Company has entered into various capital leases for office equipment. As of JuneSeptember 30, 2006, the leases had an aggregate outstanding balance of $326$279 with $176$160 classified as current. Interest expense on capital leases for the three months ended JuneSeptember 30, 2005, and 2006 was $15$7 and $12,$5, respectively. Interest expense on capital leases for the sixnine months ended JuneSeptember 30, 2005, and 2006 was $22 and $18,$16, respectively.
The Company’s net investment in these leases, which is included in Furniture, Equipment and Leasehold Improvements, net, as of December 31, 2005 and JuneSeptember 30, 2006, was $393 and $302,$257, respectively.
December 31, 2005 | June 30, 2006 | December 31, 2005 | September 30, 2006 | |||||||||||||
Capitalized Office Equipment Leases | $ | 729 | $ | 729 | $ | 729 | $ | 729 | ||||||||
Accumulated Depreciation | (336 | ) | (427 | ) | (336 | ) | (472 | ) | ||||||||
Net Investment | $ | 393 | $ | 302 | $ | 393 | $ | 257 | ||||||||
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
As of JuneSeptember 30, 2006, the approximate aggregate minimum future payments required on the capital leases are as follows:
2006 | $ | 103 | $ | 51 | ||||
2007 | 146 | 146 | ||||||
2008 | 95 | 95 | ||||||
2009 | 2 | 2 | ||||||
2010 | — | — | ||||||
Total Future Minimum Lease Payments | 346 | 294 | ||||||
Less Interest Discount | (20 | ) | (15 | ) | ||||
Total Present Value of Future Minimum Lease Payments | 326 | 279 | ||||||
Less Current Portion | (176 | ) | (160 | ) | ||||
Long-term Portion | $ | 150 | $ | 119 | ||||
Braveheart Operating Lease—Braveheart entered into an agreement to sub-lease office space, which, subject to the reasonable consent of the property owner, will allow Braveheart to sub-lease approximately 5,100 square feet of office space for its principal executive office at 10 Hill Street in London, United Kingdom. The sub-lease will expire on September 26, 2011. Annual rental payments under the sub-lease are £0.3 million per annum, exclusive of taxes, payable quarterly in advance. Braveheart is also responsible for 79.89% of the costs of maintaining and repairing the property, utilities and insurance costs, the aggregate of which is capped at an annual amount of £0.1 million, with subsequent year increases in such cap limited by changes in the United Kingdom retail price index. Evercore LP is acting as a guarantor of Braveheart’s obligations under the sub-lease, and at any time prior to the closing of the Braveheart acquisition, the Company may cause Braveheart to assign or sublease the property to an affiliate, subject to the landlord’s reasonable consent.
Other Commitments – —At JuneSeptember 30, 2006, the Company has commitments for capital contributions of $6,617$3,945 to the Private Equity Funds. These commitments primarily will be funded as required through the end of each Private Equity Funds’ investment period, subject to certain conditions. Such commitments are satisfied in cash and are generally required to be made as investment opportunities are consummated by the Private Equity Funds.
Legal – —In the past, the Company or its present personnel have been named as a defendant in civil litigation matters involving present or former clients.
In re High Voltage Engineering Corp. (“High Voltage”) in the U.S. Bankruptcy Court for the District of Massachusetts and Stephen S. Gray, Trustee (“Trustee”) of The High Voltage Engineering Liquidating Trust. v. Evercore Restructuring L.P. Evercore Restructuring L.L.C (collectively, “Evercore Restructuring”) et. al., in the United States District Court of Massachusetts.
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
In 2003, High Voltage engaged Evercore Restructuring to assist in its restructuring efforts. During the period of engagement, which ended in August 2004, High Voltage filed for Chapter 11 bankruptcy protection and later emerged from bankruptcy with new financing. However, in February 2005, High Voltage again filed for Chapter 11 bankruptcy protection. In addition, the Trustee conducted an informal investigation into the causes of the second bankruptcy and the knowledge of professionals who assisted High Voltage in its first bankruptcy.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
On August 15, 2006, the Trustee filed a motion in the bankruptcy court seeking to undo an order entered in November 2004 approving $2.34 million in fees and expenses for Evercore Restructuring’s services, alleging, among other matters, that Evercore Restructuring should have known that the projections prepared by High Voltage in connection with the first bankruptcy proceedings were inaccurate. On September 8, 2006, Evercore Restructuring responded in the bankruptcy court denying the factual allegations and asserting a variety of legal bases to deny the request. The bankruptcy court has not set a date for ruling on the dispute.
In addition, on August 15, 2006, the Trustee also filed a complaint against Evercore Restructuring and Jefferies & Company, Inc., financial advisor to certain of High Voltage’s creditors in the first bankruptcy, asserting claims against Evercore Restructuring for gross negligence and breach of fiduciary duty, based on the same underlying allegations included in the bankruptcy court motion. On September 15, 2006, High Voltage filed an amended complaint adding Fried, Frank, Harris, Shriver and Jacobson LLP, High Voltage’s counsel in the first bankruptcy, as an additional defendant. The Company intends to moveWe moved for judgment on the pleadings or summary judgment on a variety of affirmative defenses and other grounds, including failure to allege facts constituting gross negligence or breach of fiduciary duty, releases of Evercore Restructuring approved in the order confirming High Voltage’s plan of reorganization, and acknowledgements by High Voltage in Evercore Restructuring’s engagement letter, which was disclosed to the bankruptcy court prior to its approval of the retention of Evercore Restructuring, that Evercore Restructuring was not a fiduciary and would rely on management’s representations when rendering its advisory services. Briefing of theThe motion will be concluded before the end of the year and no date has been set for a ruling on the motion. The Companyhearing in January 2007. Evercore believes the litigations against it are meritless and its defenses are substantial.
General
In addition to the proceedings set forth above, from time to time the Company may be involved in judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its businesses, and U.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in the United States and Mexican Financial Authorities, conduct periodic examinations and initiate administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees. When those circumstances arise, management will make what it believes are adequate provisions in the financial statements for any expected liabilities which may result from disposition of pending lawsuits.result. Nevertheless, litigation issuch proceedings are subject to inherent uncertainties and unfavorable events could occur. If unfavorable events were to occur, there exists the possibility of a material adverse impact to the Company’s operating results, financial position or liquidity as of and for the period in which such events occur.
Note 11 – 14—Regulatory Authorities
EGL is a U.S. registered broker-dealer and is subject to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934. Rule 15c3-1 requires the maintenance of net capital, as defined, which shall be the greater of $5 or 6 2/3% of aggregate indebtedness, as defined. EGL’s regulatory net capital at December 31, 2005 and JuneSeptember 30, 2006 was $6,773 and $8,297,$5,968, respectively, which exceeded the minimum net capital requirement by $6,609 and $8,268,$5,951, respectively. PCB is subject to the equity requirements of Mexican CNBV. The CNBV required PCB to maintain minimum equity of $2,930 at September 30, 2006 which exceeded the minimum by $551.
EVERCORE HOLDINGSPARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2005 AND& 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Note 12 – 15—Income Taxes
ThePrior to August 10, 2006, the Company hashad not historically been subject to U.S. Federal income tax. However, the Company has historicallytax, but had been subject to the New York City Unincorporated Business tax and New York City general corporate tax on its U.S. earnings, andincluding certain taxesnon-income tax fees in other jurisdictions where the Company had registered offices and sourcedconducts business. As a result of the IPO, the operating business entities of the Company were restructured and a portion of the Company’s income in those jurisdictions.will be subject to US federal income taxes and taxed at the prevailing corporate tax rates.
Taxes payable as of December 31, 2005 and JuneSeptember 30, 2006 in the amount of $1,711 and $947,$2,460, respectively, include a reserve for taxes payable in the amount of $964 and $897,$831, respectively, for any future tax liability related to these periods.
The components of the provision for income taxes reflected on the condensed CombinedCondensed Combined/Consolidated Statements of Income for the three months and nine months ended JuneSeptember 30, 2005, and 2006 consist of:
Three Months Ended June 30, | Six Months Ended June 30, | Combined September 30, | Combined | Consolidated | Combined September 30, | Combined | Consolidated | |||||||||||||||||||||
2005 | 2006 | 2005 | 2006 | For the Period | For the Period | |||||||||||||||||||||||
Current | ||||||||||||||||||||||||||||
Combined September 30, | July 1, 2006 through August 9, 2006 | August 10, 2006 through September 30, 2006 | Combined September 30, | January 1, 2006 through August 9, 2006 | August 10, 2006 through September 30, 2006 | |||||||||||||||||||||||
PREDECESSOR | SUCCESSOR | PREDECESSOR | SUCCESSOR | |||||||||||||||||||||||||
Current: | ||||||||||||||||||||||||||||
Federal Income Tax | $ | — | $ | — | $ | 157 | $ | — | $ | — | $ | 157 | ||||||||||||||||
Foreign Taxes | — | — | 7 | — | — | 7 | ||||||||||||||||||||||
State and Local Tax Expense | $377 | $905 | $ | 1,047 | $ | 1,884 | 776 | 484 | 133 | 1,823 | 2,368 | 133 | ||||||||||||||||
Provision for Taxes | $377 | $905 | $ | 1,047 | $ | 1,884 | $ | 776 | $ | 484 | $ | 297 | $ | 1,823 | $ | 2,368 | $ | 297 | ||||||||||
A reconciliation ofFor the statutory U.S. Federal incomeperiod August 10, 2006 through September 30, 2006, an effective tax rate of 35%45.3% was used to compute the tax provision of $297 on the portion of the Company’s income subject to US federal income taxes. For the periods July 1, 2006 through August 9, 2006 and January 1, 2006 through August 9, 2006, taxes related to New York City UBT and general corporation tax expense for Evercore LP totaled $484 and $2,368, respectively.
The effective tax rate is set forth below:rates for the three and nine months ended September 30, 2006 were 4.38% and 3.79% respectively, compared to 2.80% and 4.36% for the corresponding periods in 2005.
Three Months Ended | Six Months Ended | |||||||||||
June 30, 2005 | June 30, 2006 | June 30, 2005 | June 30, 2006 | |||||||||
U.S. Statutory Tax Rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||
Increase Related to State and Local Taxes | 10.2 | % | 3.9 | % | 6.2 | % | 3.9 | % | ||||
Rate before Benefits and Other Adjustments | 45.2 | % | 38.9 | % | 41.2 | % | 38.9 | % | ||||
Rate Benefit as a Limited Liability Company | (28.5 | %) | (35.3 | %) | (33.8 | %) | (35.3 | %) | ||||
Provision for Taxes | 16.7 | % | 3.6 | % | 7.4 | % | 3.6 | % | ||||
Note 13 – 16—Concentrations of Credit Risk
Financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, foreign government obligations and receivables from clients. The Company has placed its cash and cash equivalents in interest-bearing deposits in U.S. banks, U.S. investment banks and U.S. branches of Cayman banks that meet certain rating and capital requirements. Concentrations of credit risk are limited due to the quality of the Company’s clients.
Revenues: For the three months ended JuneSeptember 30, 2006, three separate clients each individually accounted for 20.5%54.0%, 14.0%8.3% and 12.6%5.5%, respectively, of the Company’s combinedconsolidated revenues. For the sixnine months ended JuneSeptember 30, 2006, three separate clients each individually accounted for 9.4%17.9%, 7.4%9.2% and 7.4%6.1%, respectively, of the Company’s combinedconsolidated revenues.
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Accounts Receivable: As of JuneSeptember 30, 2006, three separate clients each individually accounted for 29.8%18.7%, 22.7%8.9% and 13.5%8.5%, respectively of the Company’s combinedconsolidated Accounts Receivable balance.
Note 14 – 17—Segment Operating Results
Business Segments – —The Company’s business results are categorized into the following two segments: Advisory and Investment Management. Advisory includes providing advice on mergers, acquisitions, divestitures, leveraged buyouts, restructurings, and similar corporate finance matters. Investment Management includes the management of outside capital invested in the Private Equity Funds, the management of outside capital by PCB, the Company’s principal investments in the Private Equity Funds and the Company’s share of the results of EAM and related investments.
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
The accounting policies of the segments are consistent with those described in the Significant Accounting Policies in Note 2 above.
The Company’s segment information for the sixnine months ended JuneSeptember 30, 2005 and 2006 is prepared using the following methodology:
Each segment’s operating expenses include: a) employee compensation and benefits expenses that are incurred directly in support of the segments and b) other operating expenses, which include expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, legal, facilities management and senior management activities.
The Company evaluates segment results based on net revenue and operating income.
Corporate-level activity represents operating expenses not specifically attributable to a segment. These expenses primarily include professional fees relating to the preparation of the Company’s historical financial statements that were not directly attributable to the initial public offering, andIPO, costs associated with our Line of Credit.Credit and costs of operating as a public entity.
Management believes that the following information provides a reasonable representation of each segment’s contribution to net revenue, operating expenses, operating income, and total assets.
EVERCORE HOLDINGSPARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2005 AND& 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Combined For the Three Months Ended September 30, 2005 | Combined | Consolidated | Combined For the Nine Months Ended September 30, 2005 | Combined | Consolidated | ||||||||||||||||||||||||||||||||||
For the Period | For the Period | ||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | July 1, 2006 through August 9, 2006 | August 10, 2006 though September 30, 2006 | January 1, 2006 through August 9, 2006 | August 10, 2006 through September 30, 2006 | ||||||||||||||||||||||||||||||||||
2005 | 2006 | 2005 | 2006 | PREDECESSOR | PREDECESSOR | SUCCESSOR | PREDECESSOR | PREDECESSOR | SUCCESSOR | ||||||||||||||||||||||||||||||
Advisory | Net Revenue(1) | $ | 12,266 | $ | 40,336 | $ | 30,570 | $ | 72,834 | Net Revenues (1) | $ | 39,432 | $ | 23,748 | $ | 12,861 | $ | 70,002 | $ | 96,582 | $ | 12,861 | |||||||||||||||||
Operating Expenses(2) | 8,437 | 11,903 | 15,903 | 23,118 | Operating Expenses (2) | 13,555 | 6,694 | 13,790 | 29,458 | 29,812 | 13,790 | ||||||||||||||||||||||||||||
Segment Operating Income | $ | 3,829 | $ | 28,433 | $ | 14,667 | $ | 49,716 | Segment Operating Income | $ | 25,877 | $ | 17,054 | $ | (929 | ) | $ | 40,544 | $ | 66,770 | $ | (929 | ) | ||||||||||||||||
Identifiable Segment Assets | $ | 23,023 | $ | 54,081 | $ | 23,023 | $ | 54,081 | Identifiable Segment Assets | $ | 38,122 | $ | 84,926 | $ | 107,807 | $ | 38,122 | $ | 84,926 | $ | 117,807 | ||||||||||||||||||
Investment Management | Net Revenue(1) | $ | 2,008 | $ | 3,154 | $ | 6,138 | $ | 16,282 | Net Revenues (1) | $ | 7,007 | $ | 761 | $ | 4,365 | $ | 13,145 | $ | 17,043 | $ | 4,365 | |||||||||||||||||
Operating Expenses(2) | 2,056 | 3,572 | 5,176 | 9,213 | Operating Expenses (2) | 3,249 | 1,597 | 935 | 8,425 | 10,810 | 935 | ||||||||||||||||||||||||||||
Segment Operating Income | ($ | 48 | ) | ($ | 418 | ) | $ | 962 | $ | 7,069 | Segment Operating Income | $ | 3,758 | $ | (836 | ) | $ | 3,430 | $ | 4,720 | $ | 6,233 | $ | 3,430 | |||||||||||||||
Identifiable Segment Assets | $ | 18,030 | $ | 29,821 | $ | 18,030 | $ | 29,821 | Identifiable Segment Assets | $ | 22,474 | $ | 420,703 | $ | 367,537 | $ | 22,474 | $ | 420,703 | $ | 367,537 | ||||||||||||||||||
Corporate | Operating Expenses | $ | 1,521 | $ | 2,451 | $ | 1,521 | $ | 4,301 | Operating Expenses | $ | 1,947 | $ | 377 | $ | 489 | $ | 3,468 | $ | 4,678 | $ | 489 | |||||||||||||||||
Total | Net Revenue(1) | $ | 14,274 | $ | 43,490 | $ | 36,708 | $ | 89,116 | Net Revenues (1) | $ | 46,439 | $ | 24,509 | $ | 17,226 | $ | 83,147 | $ | 113,625 | $ | 17,226 | |||||||||||||||||
Operating Expenses(2) | 12,014 | 17,926 | 22,600 | 36,632 | Operating Expenses (2) | 18,751 | 8,668 | 15,214 | 41,351 | 45,300 | 15,214 | ||||||||||||||||||||||||||||
Segment Operating Income | $ | 2,260 | $ | 25,564 | $ | 14,108 | $ | 52,484 | Segment Operating Income | $ | 27,688 | $ | 15,841 | $ | 2,012 | $ | 41,796 | $ | 68,325 | $ | 2,012 | ||||||||||||||||||
Identifiable Segment Assets | $ | 41,053 | $ | 83,902 | $ | 41,053 | $ | 83,902 | Identifiable Segment Assets | $ | 60,596 | $ | 505,629 | $ | 485,344 | $ | 60,596 | $ | 505,629 | $ | 485,344 | ||||||||||||||||||
EVERCORE PARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
(1) | Net |
Combined For the Three Months Ended September 30, 2005 | Combined | Consolidated | Combined For the Nine Months Ended September 30, 2005 | Combined | Consolidated | |||||||||||||||||||||||||
For the Period | For the Period | |||||||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | July 1, 2006 through August 9, 2006 | August 10, 2006 though September 30, 2006 | January 1, 2006 through August 9, 2006 | August 10, 2006 through September 30, 2006 | |||||||||||||||||||||||||
2005 | 2006 | 2005 | 2006 | PREDECESSOR | PREDECESSOR | SUCCESSOR | PREDECESSOR | PREDECESSOR | SUCCESSOR | |||||||||||||||||||||
Advisory | $ | 23 | $ | 163 | $ | 57 | $ | 264 | $ | 50 | $ | 196 | $ | 287 | $ | 107 | $ | 460 | $ | 287 | ||||||||||
Investment Management | 8 | 16 | 18 | 36 | 10 | 147 | 3,532 | 28 | 183 | 3,532 | ||||||||||||||||||||
Total Interest and Other Income | $ | 31 | $ | 179 | $ | 75 | $ | 300 | ||||||||||||||||||||||
Total Interest and Other Revenue | $ | 60 | $ | 343 | $ | 3,819 | $ | 135 | $ | 643 | $ | 3,819 | ||||||||||||||||||
Less Investment Management Interest Expense | — | — | 3,319 | — | — | 3,319 | ||||||||||||||||||||||||
Net Revenues | $ | 60 | $ | 343 | $ | 500 | $ | 135 | $ | 643 | $ | 500 | ||||||||||||||||||
(2) | Operating expenses include Depreciation and Amortization as set forth in the table below: |
Combined For the Three Months Ended September 30, 2005 | Combined | Consolidated | Combined For the Nine Months Ended September 30, 2005 | Combined | Consolidated | |||||||||||||||||||||||||
For the Period | For the Period | |||||||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | July 1, 2006 through August 9, 2006 | August 10, 2006 though September 30, 2006 | January 1, 2006 through August 9, 2006 | August 10, 2006 through September 30, 2006 | |||||||||||||||||||||||||
2005 | 2006 | 2005 | 2006 | PREDECESSOR | PREDECESSOR | SUCCESSOR | PREDECESSOR | PREDECESSOR | SUCCESSOR | |||||||||||||||||||||
Advisory | $ | 136 | $ | 241 | $ | 256 | $ | 450 | $ | 146 | $ | 100 | $ | 998 | $ | 402 | $ | 550 | $ | 998 | ||||||||||
Investment Management | 35 | 42 | 66 | 95 | 40 | 21 | 95 | 106 | 116 | 95 | ||||||||||||||||||||
Total Depreciation and Amortization | $ | 171 | $ | 283 | $ | 322 | $ | 545 | $ | 186 | $ | 121 | $ | 1,093 | $ | 508 | $ | 666 | $ | 1,093 | ||||||||||
EVERCORE HOLDINGSPARTNERS INC.
NOTES TO UNAUDITED CONDENSED COMBINED COMBINED/CONSOLIDATED
FINANCIAL STATEMENTS—(Continued)
THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2005 AND& 2006
(dollars in thousands, except per share amounts, unless otherwise noted)
Geographic Information – —The Company manages its business based on the profitability of the enterprise as a whole. The Company’s revenue wasnet revenues were derived from clients and Private Equity Funds located in the following geographical areas:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2005 | 2006 | 2005 | 2006 | ||||||||||||
Revenue:(1) | |||||||||||||||
United States | $ | 15,316 | $ | 26,113 | $ | 38,490 | $ | 69,421 | |||||||
Netherlands | 0 | 10,000 | 0 | 10,000 | |||||||||||
Switzerland | 0 | 5,125 | 0 | 5,125 | |||||||||||
United Kingdom | 0 | 2,757 | 0 | 2,757 | |||||||||||
Cayman Islands | (1,449 | ) | (745 | ) | (2,617 | ) | 1,433 | ||||||||
Mexico | 302 | 0 | 611 | 0 | |||||||||||
Other – Foreign | 74 | 61 | 149 | 80 | |||||||||||
Total | $ | 14,243 | $ | 43,311 | $ | 36,633 | $ | 88,816 | |||||||
Combined For the Three Months Ended | Combined | Consolidated | Combined For the Nine Months Ended September 30, 2005 | Combined | Consolidated | |||||||||||||||
For the Period | For the Period | |||||||||||||||||||
July 1, 2006 through August 9, 2006 | August 10, 2006 though September 30, 2006 | January 1, 2006 through August 9, 2006 | August 10, 2006 though September 30, 2006 | |||||||||||||||||
PREDECESSOR | PREDECESSOR | SUCCESSOR | PREDECESSOR | PREDECESSOR | SUCCESSOR | |||||||||||||||
Net Revenues: (1) | ||||||||||||||||||||
United States | $ | 44,582 | $ | 23,813 | $ | 15,049 | $ | 83,072 | $ | 93,234 | $ | 15,049 | ||||||||
Netherlands | 12 | — | — | 12 | 10,000 | — | ||||||||||||||
Switzerland | — | 67 | 2 | — | 5,192 | 2 | ||||||||||||||
United Kingdom | — | 287 | 13 | — | 3,044 | 13 | ||||||||||||||
Cayman Islands | 1,353 | — | — | (1,264 | ) | 1,433 | — | |||||||||||||
Mexico | 331 | 0 | 1,639 | 942 | 0 | 1,639 | ||||||||||||||
Other—Foreign | 101 | (1 | ) | 23 | 250 | 79 | 23 | |||||||||||||
Total | $ | 46,379 | $ | 24,166 | $ | 16,726 | $ | 83,012 | $ | 112,982 | $ | 16,726 | ||||||||
(1) | Excludes interest from bank deposits and other income. |
Note 15 – Subsequent Events
Acquisition of Braveheart Financial Services Limited –On July 31, 2006, the Company entered into a sale and purchase agreement to acquire Braveheart. In exchange for 100% of the outstanding share capital of Braveheart, the Company would pay, subject to the terms and conditions of the sale and purchase agreement, initial consideration, deferred consideration and earn-out consideration, each of which is subject to reduction in the event that the value of Braveheart on the date of the sale and purchase agreement declines prior to the date on which such consideration is payable. The initial consideration will be comprised of 1,181,213 shares of Evercore Partners Inc. Class A common stock. The deferred consideration, payable not later than the seventh anniversary of the closing, will be comprised of additional shares of Class A common stock of not less than 50% and not more than 100% of the number of shares of Class A common stock issued as initial consideration, which percentage shall be determined by the Company based on the success of Braveheart’s business over the period from the consummation of the acquisition to the date of issuance of these shares. The Braveheart shareholders are also eligible to receive earn-out consideration based on gross revenues generated by the financial advisory business carried on by the Company and Braveheart in Europe. The maximum aggregate amount of earn-out consideration issuable to the Braveheart shareholders, collectively, is $3,000,000. Any earn-out consideration payable to the Braveheart shareholders will be paid in the form of loan notes due 2010 which bear interest at LIBOR plus 1% per annum and which are redeemable by the holder at any time after the date which is six months after the date of issuance. The closing of the Braveheart acquisition is subject to a number of conditions, including the closing of the initial public offering, the absence of any breach of law and the receipt of the approval of the change of control of Braveheart from the U.K. Financial Services Authority. The closing of the Braveheart acquisition is expected to occur no later than the first half of 2007.
If the relevant U.K. tax authority determines that any portion of the consideration to be issued to the Braveheart shareholders under the sale and purchase agreement is taxable as employment income, the Company may be required to pay to the U.K. tax authority certain employer-related taxes, which under current U.K. tax laws would equal 12.8% of the value of any such consideration deemed to be taxable as employment income. In such an event, the Braveheart shareholders have agreed to bear the cost of certain other taxes payable by an employee and pay to Braveheart a sum equal to such tax liabilities (which may be collected from the employer), which under current U.K. tax laws would equal in total 41% of the value of any such consideration deemed to be taxable as employment income. If Braveheart receives a particular U.K. corporation tax relief as a result of any of such tax liabilities or the circumstances giving rise thereto, then the Company will be required to share with the Braveheart shareholders of up to 50% of the net tax benefit of any such relief, as determined in accordance with the purchase and sale agreement. If any taxes are payable by the Braveheart shareholders in connection with the shares of Class A common stock to be received by the Braveheart shareholders under the sale and purchase agreement, the Company has agreed that, in order to fund the payment of any such tax liabilities by the Braveheart shareholders, Evercore will: (i) buy back shares of Class A common stock from the Braveheart shareholders in exchange for cash, (ii) reduce the number of shares of Class A common stock to be issued to the Braveheart shareholders (Evercore may only elect this option with the prior written consent of the Braveheart shareholders), or (iii) waive the transfer restrictions to permit the sale of shares of Class A common stock by the Braveheart shareholders (Evercore may only elect this option to the extent that the Braveheart shareholders are able to sell a sufficient number of shares to fund their tax liabilities in accordance with U.S. securities laws).
EVERCORE HOLDINGS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006
(dollars in thousands unless otherwise noted)
Acquisition of Protego – On August 10, 2006, the Company acquired all of the outstanding capital stock of Protego Asesores S.A. de C.V., a foreign investment bank based in Mexico, in exchange for $7.0 million of non-interest bearing notes ($6.05 million payable in cash and $0.95 million payable in shares of Evercore Partners Inc. Class A common stock) and 1,760,187 vested and 351,362 unvested partnerships units of Evercore LP.
Initial Public Offering – Evercore Partners Inc. completed an initial public offering of its Class A common stock on August 16, 2006 on the New York Stock Exchange under the ticker “EVR”. Pursuant to this initial public offering, the Company consummated a number of internal reorganization transactions to transition the Company to a corporate structure.
Line of Credit – Pursuant to its initial public offering, the Company repaid the $30 million credit line outstanding discussed above in Note 9.
Operating Lease –The Company has agreed to sublease an additional 124,000 square feet of office space at the Company’s principal executive offices at 55 East 52nd Street, New York, New York. The rental payment obligations under the sublease are as follows: $9.5 million per year for years one through five of the sublease term; $10.2 million per year for years six through ten of the sublease term; $10.8 million per year for years 11 through 15 of the sublease term; and $11.4 million per year for year 16 through the expiration of the sublease term. Evercore intends to sublease a portion of this additional space The Company’s current annual lease expense is $3.2 million. In connection with the execution of the sublease, the Company delivered a security deposit in the form of a letter of credit in the amount of $4.8 million. The Company intends to take possession of this additional space between February 1, 2007 and April 30, 2007. The term of the sublease expires on April 29, 2023.
Braveheart Operating Lease – Braveheart entered into an agreement to sub-lease office space, which, subject to the reasonable consent of the property owner, will allow Braveheart to sub-lease approximately 5,100 square feet of office space for its principal executive office at 10 Hill Street in London, U.K. The sub-lease will expire on September 26, 2011. Annual rental payments under the sub-lease are £0.3 million per annum, exclusive of taxes, payable quarterly in advance. Braveheart is also responsible for 79.89% of the costs of maintaining and repairing the property, utilities and insurance costs, the aggregate of which is capped at an annual amount of £0.1 million, with subsequent year increases in such cap limited by changes in the U.K. retail price index. Evercore LP is acting as a guarantor of Braveheart’s obligations under the sub-lease, and at any time prior to the closing of the Braveheart acquisition, the Company may cause Braveheart to assign or sublease the property to an affiliate, subject to the landlord’s reasonable consent.
Partner Distributions – On August 9, 2006, the Company made distributions as part of its reorganization, and pursuant to the contribution and sale agreement among the Members, in the amount of $33.4 million.
PROTEGO ASESORES, S. A. DE C. V.
SUBSIDIARIES AND PROTEGO SI, S. C.
COMBINED AND CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(dollars in thousands)
December 31, 2005 | June 30, 2006 (unaudited) | ||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and Cash Equivalents | $ | 4,247 | $ | 4,169 | |||
Clients Accounts Receivable | 1,147 | 2,791 | |||||
Other Receivables | 128 | 162 | |||||
Recoverable Taxes | 500 | 119 | |||||
Total Current Assets | 6,022 | 7,241 | |||||
Furniture, Equipment and Leasehold Improvements | 1,053 | 1,018 | |||||
Long-Term Investment | 1,350 | 1,267 | |||||
Guaranty Deposits | 49 | 28 | |||||
Other Long-Term Assets | 635 | 597 | |||||
TOTAL ASSETS | $ | 9,109 | $ | 10,151 | |||
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Accounts Payable and Accrued Liabilities | $ | 638 | $ | 794 | |||
Bonus Payable | 273 | 512 | |||||
Income Tax Payable | 837 | 390 | |||||
Value Added Tax | 92 | 438 | |||||
Taxes Payable (withholding taxes) | 299 | 142 | |||||
Other Taxes | 71 | 85 | |||||
Total Current Liabilities | 2,210 | 2,361 | |||||
TOTAL LIABILITIES | 2,210 | 2,361 | |||||
Minority Interest | 1,279 | 1,371 | |||||
Commitment | — | — | |||||
STOCKHOLDERS’ EQUITY: | |||||||
Capital Stock (fixed) | 8 | 8 | |||||
Retained Earnings | 5,299 | 6,485 | |||||
Currency Translation Adjustment | 313 | (74 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 5,620 | 6,419 | |||||
TOTAL LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY | $ | 9,109 | $ | 10,151 | |||
See accompanying notes to unaudited combined and consolidated financial statements.
PROTEGO ASESORES, S. A. DE C. V.
SUBSIDIARIES AND PROTEGO SI, S. C.
COMBINED AND CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollars in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2006 | 2005 | 2006 | |||||||||||||
REVENUES | ||||||||||||||||
Advisory | $ | 1,985 | $ | 3,546 | $ | 10,303 | $ | 5,835 | ||||||||
Investment Management | 539 | 572 | 1,101 | 1,361 | ||||||||||||
Net Financial Gain | 120 | 156 | 140 | 319 | ||||||||||||
Total Revenues | 2,644 | 4,274 | 11,544 | 7,515 | ||||||||||||
EXPENSES | ||||||||||||||||
Compensation and Benefits | 2,072 | 2,262 | 5,395 | 3,841 | ||||||||||||
Occupancy and Equipment Rental | 136 | 121 | 245 | 255 | ||||||||||||
Professional Fees | 472 | (30 | ) | 874 | 592 | |||||||||||
Travel and Related Expenses | 139 | 173 | 241 | 315 | ||||||||||||
Communications and Information Services | 97 | 118 | 160 | 230 | ||||||||||||
Depreciation and Amortization | 56 | 125 | 107 | 243 | ||||||||||||
Other Operating Expenses | 297 | 255 | 805 | 499 | ||||||||||||
Total Expenses | 3,269 | 3,024 | 7,827 | 5,975 | ||||||||||||
OPERATING INCOME | (625 | ) | 1,250 | 3,717 | 1,540 | |||||||||||
Income Tax | (311 | ) | 534 | 1,476 | 770 | |||||||||||
Minority Interest | (270 | ) | (224 | ) | (712 | ) | (416 | ) | ||||||||
NET INCOME | $ | (44 | ) | $ | 940 | $ | 2,953 | $ | 1,186 | |||||||
See accompanying notes to unaudited combined and consolidated financial statements.
PROTEGO ASESORES, S. A. DE C. V.
SUBSIDIARIES AND PROTEGO SI, S. C.
COMBINED AND CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(dollars in thousands)
Capital stock | Retained earnings | Accumulated other comprehensive income (loss) | Total | |||||||||||
Balances at January 1, 2006 | $ | 8 | $ | 5,299 | $ | 313 | $ | 5,620 | ||||||
Currency Translation Adjustment | (387 | ) | (387 | ) | ||||||||||
Net Income for the Period of Six Months | 1,186 | 1,186 | ||||||||||||
Balances at June 30, 2006 | $ | 8 | $ | 6,485 | $ | (74 | ) | $ | 6,419 | |||||
See accompanying notes to unaudited combined and consolidated financial statements.
PROTEGO ASESORES, S. A. DE C. V.
SUBSIDIARIES AND PROTEGO SI, S. C.
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
June 30, | ||||||||
2005 | 2006 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income for the Year | $ | 2,953 | $ | 1,186 | ||||
Adjustments to Reconcile, Net Income to Net Cash From Operating Activities: | ||||||||
Depreciation and Amortization | 107 | 243 | ||||||
Minority Interest | 1,705 | 178 | ||||||
Net Change in Working Capital, Excluding Cash and Cash Equivalent | (568 | ) | (1,155 | ) | ||||
Net Cash Provided by Operating Activities | 4,197 | 452 | ||||||
INVESTING ACTIVITIES | ||||||||
Long-Term Investment | (8 | ) | 1 | |||||
Purchase of Furniture and Equipment | (251 | ) | (228 | ) | ||||
Net Cash Used in Investing Activities | (259 | ) | (227 | ) | ||||
EFFECT OF EXCHANGE RATE ON CASH | 169 | (303 | ) | |||||
DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS | 4,107 | (78 | ) | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 492 | 4,247 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 4,599 | 4,169 | ||||||
ADDITIONAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||
Taxes Paid: | $ | 1,573 | $ | 1,307 | ||||
See accompanying notes to unaudited combined and consolidated financial statements.
PROTEGO ASESORES, S. A. DE C. V.
SUBSIDIARIES AND PROTEGO SI, S. C.
NOTES TO THE UNAUDITED COMBINED AND CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2006
(dollars in thousands)
NOTE 1 - PURPOSE AND BASIS OF PREPARATION OF THESE FINANCIAL STATEMENTS:
The accompanying unaudited interim financial data have been prepared by Protego Asesores, S. A. de C. V., subsidiaries and Protego SI, S. C. (“Asesores”). In the opinion of the management Asesores, they contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of June 30, 2006 and 2005, and the results of operations for the six-month periods ended June 30, 2006 and 2005.
NOTE 2 - OPERATIONS OF THE COMPANY:
The accompanying combined and consolidated financial data include those of Asesores, its subsidiaries and Protego SI, S. C. (“PSI”) an associated Company. PSI’S financial statements are combined because both entities are under common control of the shareholders of Asesores.
As of June 30, 2006, Asesores main activities are as follows:
Following are Asesores’ principal subsidiaries, which Asesores effectively controls and substantially wholly owns:
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PROTEGO ASESORES, S. A. DE C. V.
SUBSIDIARIES AND PROTEGO SI, S. C.
NOTES TO THE UNAUDITED COMBINED AND CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2006
(dollars in thousands)
NOTE 3 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
FIN 47 - In March 2005, the FASB issued Financial Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 clarifies guidance provided in SFAS No. 143, “Accounting for Asset Retirement Obligations.” The term asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Entities are required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred in the liability’s fair value can be reasonably estimated. FIN 47 was effective for fiscal years ending after December 15, 2005. Asesores estimates that the adoption of FIN 47 had no potential impact on Asesores combined and consolidated financial condition or results of operations.
SFAS 154 - In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections”, which replaces APB Opinion No. 20 and SFAS No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date SFAS 154 was issued. Asesores estimates that the adoption of SFAS 154 had no potential impact on Asesores combined and consolidated financial condition or results of operations.
Emerging Issues Task Force Issued No. 04-5 - In June 2005 the Emerging Issues Task Force reached a consensus on Issued No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” Under Issue 04-5, the general partners in a limited partnership or similar entity are presumed to control that limited partnership regardless of the extent of the general partners’ ownership interest in the limited partnership. A general partner should assess the limited partners’ rights and their impact on the presumption of control. In the limited partners have either a) the substantive ability to dissolve the limited partnership or otherwise remove the general partners without cause or b) substantive participating rights, the general partners do not control the limited partnership. For general partners of all new limited partnerships formed and for existing limited partnerships for which the partnership agreement is modified, Issued 04-5 is effective after June 29, 2005. For general partners in all other limited partnerships, Issued 04-5 is effective for the first reporting period in fiscal years beginning after December 15, 2005, and allows either of two transition methods. As of June 30, 2006 the company has determined that consolidation of the private equity fund will not be required pursuant to Issued 04-5.
SFAS 155 – In February 2006, the FASB issued SFAS No. 155 “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140”(“SFAS 155”).SFAS 155 permits an entity to measure at fair value any financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. Asesores is currently assessing the impact of adopting SFAS 155, but does not expect the standard to have a material impact on the financial condition, results of operations, and cash flows of Asesores.
SFAS 156 – In March 2006, the FASB issued SFAS No. 156“Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140”(“SFAS 156”), which requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and for subsequent measurements, permits an entity to choose either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. SFAS 156 also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS 156 is effective in fiscal years beginning after September 15, 2006. Asesores is currently assessing the impact of adopting SFAS 156, but does not expect the standard to have a material impact on the financial condition, results of operations, and cash flows of Asesores.
FIN 48 – In July 2006, the FASB issued Financial Interpretation No. 48“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”(“FIN 48”), which clarifies the criteria that must be met prior to recognition of the financial statement benefit of a position taken in a tax return. FIN 48 provides a benefit recognition model with a two-step approach consisting of a “more-likely-than-not” recognition criteria, and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the financial statements. FIN 48 is effective as of the beginning of the first annual period beginning after December 15, 2006. Asesores is currently assessing the impact of adopting FIN 48 on the financial condition, results of operations, and cash flows of Asesores.
SFAS 157 – In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective in fiscal years beginning after November 15, 2007. Asesores is currently assessing the impact of adopting SFAS 157 on the financial condition, results of operations, and cash flows of Asesores.
PROTEGO ASESORES, S. A. DE C. V.
SUBSIDIARIES AND PROTEGO SI, S. C.
NOTES TO THE UNAUDITED COMBINED AND CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2006
(dollars in thousands)
NOTE 4 - COMMITMENTS:
Asesores leases certain office space. Future annual minimum lease payments under all non- cancelable operating leases are $117 and $32 in 2006 and 2007, respectively.
NOTE 5 - SUBSEQUENT EVENTS:
On May 12, 2006 Asesores agreed to combine its business with that of Evercore Partners, Inc., an investment banking boutique in the US. Evercore Partners, Inc. provides advisory services to prominent multinational corporations on significant mergers, acquisitions, divestitures, restructurings and other strategic corporate transactions. Evercore Partners, Inc. approaches its advisory business in much the same way as Asesores, by building long-standing relationships and acting as a trusted advisor to company management free from the conflicts that larger institutions may encounter.
On August 10, 2006 Asesores was acquired by Evercore Partners Inc. and Evercore Partners Inc. completed an initial public offering of its Class A common stock on August 16, 2006.
Asesores has incurred in certain expenses that should be reimbursed by Evercore Partners Inc. once the combination is achieved. As of July 31, 2006, these expenses are estimate at $1,269.
Asesores has signed a service agreement with a former Senior Managing Director whose employment terminated in June of 2006. Once certain conditions are met, this agreement could represent an expense for Protego of $2,289, including VAT.
Item 1A. | Pro Forma Financial Information (Unaudited) |
Page | ||
37 | ||
As described below and elsewhere in this quarterly report on Form 10-Q, the historical results of operations for periods prior to August 10, 2006, the date of the Reorganization, are not comparable to results of operations for subsequent periods. Accordingly, for periods prior to August 10, 2006, Evercoremanagement believes that investors would find the inclusion of pro forma financial information useful to compare the results provideof the mostCompany prior and subsequent to the IPO. This pro forma financial information is not intended to represent, and should not be considered more meaningful basis for comparison of historical periods.than, or as an alternative to, measures determined in accordance with GAAP.
The following unaudited condensed consolidated pro forma statements of income for the three month and the sixnine month periods ended JuneSeptember 30, 2006,2005 and the unaudited condensed consolidated pro forma statements of financial condition at June 30, 2006 present the consolidated results of operations and financial position of Evercore Partners assuming that the Reorganization had been completed as of January 1 2006.of each year. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the reorganization transactions on the historical financial information of Evercore. The adjustments are described in the notes to the unaudited condensed consolidated pro forma statements of income and financial condition.income. The Evercore LP pro forma adjustments principally give effect to the following items:
The Evercore Partners Inc. pro forma adjustments principally give effect to the Formation Transaction and the Protego Combination described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reorganization” as well as the following items:
The unaudited condensed consolidated pro forma financial information of Evercore Partners Inc. should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Evercore Holdings and ProtegoPartners Inc. historical financial statements and related notes included elsewhere in this Form 10-Q.
The unaudited condensed consolidated pro forma financial information is included for informational purposes only and does not purport to reflect the results of operations or financial position of Evercore that would have occurred had we operated as a public company during the periods presented. The unaudited condensed consolidated pro forma financial information should not be relied upon as being indicative of our results of operations or financial condition had the transactions contemplated in connection with the Reorganization been completed on the dates assumed. The unaudited condensed consolidated pro forma financial information also does not project the results of operations or financial position for any future period or date.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
Six Months Ended JuneTHREE MONTHS ENDED SEPTEMBER 30, 2006
(dollars in thousands, except per share data)
Evercore LP Pro-Forma Adjustments | |||||||||||||||||||||||||||||||||||||||||||||||||
Evercore Historical | Adjustments for Formation | Evercore Post Formation | Protego Historical | Protego Combination Adjustments | Protego as Adjusted | Evercore LP Pro Forma | Adjustments For Offering | Evercore Partners Inc. Pro Forma | Combined Historical* | Adjustments for Formation | Protego Combination Adjustments (c) | Total | Pro-Forma Adjustments for the IPO | Evercore Partners Inc. Pro Forma | |||||||||||||||||||||||||||||||||||
Advisory Revenue | 72,570 | — | 72,570 | 5,835 | — | 5,835 | 78,405 | — | 78,405 | $ | 36,126 | $ | — | $ | 1,213 | 37,339 | $ | — | $ | 37,339 | |||||||||||||||||||||||||||||
Investment Management Revenue | 16,246 | (4,943 | )(a) | 11,303 | 1,361 | — | 1,361 | 12,664 | — | 12,664 | 4,766 | — | (a) | 449 | 5,215 | — | 5,215 | ||||||||||||||||||||||||||||||||
Interest Income and Other Revenue | 300 | — | 300 | 319 | — | 319 | 619 | — | 619 | 4,162 | — | 2,262 | 6,424 | — | 6,424 | ||||||||||||||||||||||||||||||||||
Total Revenues | 89,116 | (4,943 | ) | 84,173 | 7,515 | — | 7,515 | 91,688 | — | 91,688 | 45,054 | — | 3,924 | 48,978 | — | 48,978 | |||||||||||||||||||||||||||||||||
Interest Expense | 3,319 | — | 2,256 | 5,575 | — | 5,575 | |||||||||||||||||||||||||||||||||||||||||||
Net Revenues | 41,735 | — | 1,668 | 43,403 | — | 43,403 | |||||||||||||||||||||||||||||||||||||||||||
Compensation and Benefits | 16,852 | — | 16,852 | 3,841 | — | 3,841 | 20,693 | 25,151 | (f) | 45,844 | 14,715 | — | 662 | 15,377 | 4,462 | (g) | 19,839 | ||||||||||||||||||||||||||||||||
Professional Fees | 10,721 | — | 10,721 | 592 | — | 592 | 11,313 | — | 11,313 | 3,469 | — | 2,157 | 5,626 | (2,100 | )(h) | 3,526 | |||||||||||||||||||||||||||||||||
Other Operating Expense | 9,059 | (26 | )(a) | 9,033 | 1,542 | — | 1,542 | 10,575 | — | 10,575 | 4,920 | — | 470 | 5,390 | — | 5,390 | |||||||||||||||||||||||||||||||||
Amortization of Intangibles | — | — | — | — | 2,739 | (c) | 2,739 | 2,739 | — | 2,739 | 778 | — | (731 | )(d) | 47 | — | 47 | ||||||||||||||||||||||||||||||||
Total Expenses | 36,632 | (26 | ) | 36,606 | 5,975 | 2,739 | 8,714 | 45,320 | 25,151 | 70,471 | 23,882 | — | 2,558 | 26,440 | 2,362 | 28,802 | |||||||||||||||||||||||||||||||||
Income Before Minority Interest and Income Tax | 52,484 | (4,917 | ) | 47,567 | 1,540 | (2,739 | ) | (1,199 | ) | 46,368 | (25,151 | ) | 21,217 | 17,853 | — | (890 | ) | 16,963 | (2,362 | ) | 14,601 | ||||||||||||||||||||||||||||
Minority Interest | (1 | ) | 1 | (a) | — | (416 | ) | 161 | (d) | (255 | ) | (255 | ) | 15,365 | (g) | 15,110 | 1,416 | — | (4 | )(e) | 1,412 | 9,036 | (i) | 10,448 | |||||||||||||||||||||||||
Income Before Income Taxes | 52,485 | (4,918 | ) | 47,567 | 1,956 | (2,900 | ) | (944 | ) | 46,623 | (40,516 | ) | 6,107 | ||||||||||||||||||||||||||||||||||||
Income Before Taxes | 16,437 | — | (886 | ) | 15,551 | (11,398 | ) | 4,153 | |||||||||||||||||||||||||||||||||||||||||
Provision for Income Taxes | 1,884 | (106 | )(b) | 1,778 | 770 | — | (e) | 770 | 2,548 | 635 | (h) | 3,183 | 781 | (90 | )(b) | (496 | )(f) | 195 | 1,906 | (j) | 2,101 | ||||||||||||||||||||||||||||
Net Income | 50,601 | (4,812 | ) | 45,789 | 1,186 | (2,900 | ) | (1,714 | ) | 44,075 | (41,151 | ) | 2,924 | $ | 15,656 | $ | 90 | $ | (390 | ) | $ | 15,356 | $ | (13,304 | ) | $ | 2,052 | ||||||||||||||||||||||
Weighted Average Shares of Class A Common Stock Outstanding | |||||||||||||||||||||||||||||||||||||||||||||||||
Basic | — | — | — | — | — | — | — | — | 4,795 | (i) | 4,795 | ||||||||||||||||||||||||||||||||||||||
Diluted | — | — | — | — | — | — | — | — | 4,795 | (i) | 4,795 | ||||||||||||||||||||||||||||||||||||||
Net Income Available to Holders of Shares of Class A Common Stock Per Share: | |||||||||||||||||||||||||||||||||||||||||||||||||
Basic | — | — | — | — | — | — | — | — | $ | 0.61 | (i) | $ | 0.43 | (k) | |||||||||||||||||||||||||||||||||||
Diluted | — | — | — | — | — | — | — | — | $ | 0.61 | (i) | $ | 0.43 | (k) |
* | Represents aggregate successor and predecessor results for the period presented. The combined results are non-GAAP financial measures and should not be used in isolation or substitution of predecessor and successor results. See page 3 “Unaudited Condensed Combined/Consolidated Statements of Income.” |
See Notes to Unaudited Condensed Consolidated Pro Forma Statements of Income
Three Months Ended JuneUNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2006
(dollars in thousands, except per share data)
Evercore LP Pro-Forma Adjustments | |||||||||||||||||||||||||||||||||||||||||||||||||
Evercore Historical | Adjustment for Formation | Evercore Post Formation | Protego Historical | Protego Combination Adjustments | Protego as Adjusted | Evercore LP Pro Forma | Adjustments for Offering | Evercore Partners Inc. Pro Forma | Combined Historical* | Adjustments for Formation | Protego Combination Adjustments (c) | Total | Pro-Forma Adjustments for the IPO | Evercore Partners Inc. Pro Forma | |||||||||||||||||||||||||||||||||||
Advisory Revenue | 40,173 | — | 40,173 | 3,546 | — | 3,546 | 43,719 | — | 43,719 | $ | 108,696 | $ | — | $ | 7,048 | $ | 115,744 | $ | — | $ | 115,744 | ||||||||||||||||||||||||||||
Investment Management Revenue | 3,138 | 173 | (a) | 3,311 | 572 | — | 572 | 3,883 | — | 3,883 | 21,012 | (5,005 | )(a) | 1,810 | 17,817 | — | 17,817 | ||||||||||||||||||||||||||||||||
Interest Income and Other Revenue | 179 | — | 179 | 156 | — | 156 | 335 | — | 335 | 4,462 | — | 6,612 | 11,074 | — | 11,074 | ||||||||||||||||||||||||||||||||||
Total Revenues | 43,490 | 173 | 43,663 | 4,274 | — | 4,274 | 47,937 | — | 47,937 | 134,170 | (5,005 | ) | 15,470 | 144,635 | — | 144,635 | |||||||||||||||||||||||||||||||||
Interest Expense | 3,319 | — | 6,287 | 9,606 | — | 9,606 | |||||||||||||||||||||||||||||||||||||||||||
Net Revenues | 130,851 | (5,005 | ) | 9,183 | 135,029 | — | 135,029 | ||||||||||||||||||||||||||||||||||||||||||
Compensation and Benefits | 8,093 | — | 8,093 | 2,262 | — | 2,262 | 10,355 | 13,614 | (f) | 23,969 | 31,567 | — | 4,503 | 36,070 | 28,350 | (g) | 64,420 | ||||||||||||||||||||||||||||||||
Professional Fees | 5,053 | — | 5,053 | — | — | — | 5,053 | — | 5,053 | 14,190 | — | 2,749 | 16,939 | (4,300 | )(h) | 12,639 | |||||||||||||||||||||||||||||||||
Other Operating Expenses | 4,780 | (11 | )(a) | 4,769 | 762 | — | 762 | 5,531 | — | 5,531 | |||||||||||||||||||||||||||||||||||||||
Other Operating Expense | 13,979 | — | 2,012 | 15,991 | — | 15,991 | |||||||||||||||||||||||||||||||||||||||||||
Amortization of Intangibles | — | — | — | — | 1,370 | (c) | 1,370 | 1,370 | — | 1,370 | 778 | — | 2,076 | (d) | 2,854 | — | 2,854 | ||||||||||||||||||||||||||||||||
Total Expenses | 17,926 | (11 | ) | 17,915 | 3,024 | 1,370 | 4,394 | 22,309 | 13,614 | 35,923 | 60,514 | — | 11,340 | 71,854 | 24,050 | 95,904 | |||||||||||||||||||||||||||||||||
Income Before Minority Interest and Income Tax | 25,564 | 184 | 25,748 | 1,250 | (1,370 | ) | (120 | ) | 25,628 | (13,614 | ) | 12,014 | 70,337 | (5,005 | ) | (2,157 | ) | 63,175 | (24,050 | ) | 39,125 | ||||||||||||||||||||||||||||
Minority Interest | 6 | (6 | )(a) | — | (224 | ) | 87 | (d) | (137 | ) | (137 | ) | 8,697 | (g) | 8,560 | 1,423 | (5,005 | ) | (258 | )(e) | (3,840 | ) | 31,839 | (i) | 27,999 | ||||||||||||||||||||||||
Income Before Income Taxes | 25,558 | 190 | 25,748 | 1,474 | (1,457 | ) | 17 | 25,765 | (22,311 | ) | 3,454 | ||||||||||||||||||||||||||||||||||||||
Income Before Taxes | 68,914 | — | (1,899 | ) | 67,015 | (55,889 | ) | 11,126 | |||||||||||||||||||||||||||||||||||||||||
Provision for Income Taxes | 905 | (35 | )(b) | 870 | 534 | — | (e) | 534 | 1,404 | 397 | (h) | 1,801 | 2,665 | (112 | )(b) | 274 | (f) | 2,827 | 2,801 | (j) | 5,628 | ||||||||||||||||||||||||||||
Net Income | 24,653 | 225 | 24,878 | 940 | (1,457 | ) | (517 | ) | 24,361 | (22,708 | ) | 1,653 | $ | 66,249 | $ | 112 | $ | (2,173 | ) | $ | 64,188 | $ | (58,690 | ) | $ | 5,498 | |||||||||||||||||||||||
Weighted Average Shares of Class A Common Stock Outstanding | |||||||||||||||||||||||||||||||||||||||||||||||||
Basic | 4,795 | (i) | 4,795 | ||||||||||||||||||||||||||||||||||||||||||||||
Diluted | 4,795 | (i) | 4,795 | ||||||||||||||||||||||||||||||||||||||||||||||
Net Income Available to Holders of Shares of Class A Common Stock Per Share: | |||||||||||||||||||||||||||||||||||||||||||||||||
Basic | $ | 0.34 | (i) | $ | 1.15 | (k) | |||||||||||||||||||||||||||||||||||||||||||
Diluted | $ | 0.34 | (i) | $ | 1.15 | (k) |
* | Represents aggregate successor and predecessor results for the period presented. The combined results are non-GAAP financial measures and should not be used in isolation or substitution of predecessor and successor results. See page 3 “Unaudited Condensed Combined/Consolidated Statements of Income.” |
See Notes to Unaudited Condensed Consolidated Pro Forma Statements of Income
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF FINANCIAL CONDITION AS OFINCOME
JUNETHREE MONTHS ENDED SEPTEMBER 30, 20062005
(dollars in thousands, except per share data)
Evercore Historical | Adjustments for Formation | Evercore Post Formation | Protego Historical | Protego Combination Adj.(m) | Protego as Adjusted | Evercore LP Pro Forma | Adjustments for Offering | Evercore Partners Inc. Pro Forma | |||||||||||||||||
Cash and Cash Equivalents | 16,357 | (14,838 | )(j)(k) | 1,519 | 4,169 | (4,169 | )(m) | — | 1,519 | 49,606 | (u)(v) | 51,125 | |||||||||||||
Accounts Receivable | 17,519 | (4,545 | )(k) | 12,974 | 2,791 | (400 | )(m) | 2,391 | 15,365 | 15,365 | |||||||||||||||
Investments | 30,096 | (16,757 | )(j) | 13,339 | 1,267 | 1,267 | 14,606 | 14,606 | |||||||||||||||||
Goodwill | — | — | — | 31,470 | (n) | 31,470 | 31,470 | 31,470 | |||||||||||||||||
Intangible Assets | — | 3,770 | (o) | 3,770 | 3,770 | 3,770 | |||||||||||||||||||
Other Assets | 19,930 | (2 | )(j) | 19,928 | 1,924 | (3,112 | )(p) | (1,188 | ) | 18,740 | (5,416 | )(w) | 13,324 | ||||||||||||
Total Assets | 83,902 | (36,142 | ) | 47,760 | 10,151 | 27,559 | 37,710 | 85,470 | 44,190 | 129,660 | |||||||||||||||
Short-Term Borrowings | 30,000 | — | 30,000 | 30,000 | (30,000 | )(v) | — | ||||||||||||||||||
Accrued Compensation and Benefits | 10,607 | — | 10,607 | 512 | 512 | 11,119 | 11,119 | ||||||||||||||||||
Accounts Payable and Accrued Expenses | 12,882 | — | 12,882 | 794 | 794 | 13,676 | 13,676 | ||||||||||||||||||
Notes Payable | — | — | — | 7,000 | (q) | 7,000 | 7,000 | (7,000 | )(v) | — | |||||||||||||||
Other Liabilities | 1,900 | (89 | )(j) | 1,811 | 1,055 | 1,055 | 2,866 | 2,866 | |||||||||||||||||
Total Liabilities | 55,389 | (89 | ) | 55,300 | 2,361 | 7,000 | 9,361 | 64,661 | (37,000 | ) | 27,661 | ||||||||||||||
Minority Interest | 273 | (273 | )(j) | — | 1,371 | (532 | )(r) | 839 | 839 | 19,970 | (x) | 20,809 | |||||||||||||
Members’ Capital | 28,119 | (35,780 | )(j)(k) | (7,661 | )(l) | 27,510 | (s) | 27,510 | 19,849 | (19,849 | )(x) | — | |||||||||||||
Retained Earnings | 6,485 | (6,485 | )(t)(m) | — | — | (4,338 | )(y) | (4,338 | ) | ||||||||||||||||
Accumulated Other Comprehensive Income | 121 | — | 121 | (74 | ) | 74 | (t) | — | 121 | (121 | )(x) | — | |||||||||||||
Class A common Stock, $0.01 par value per share | — | — | — | — | 45 | (u)(v) | 45 | ||||||||||||||||||
Class B Common Stock, $0.01 par value per share | — | — | — | — | — | — | |||||||||||||||||||
Restricted Stock Units | 4,338 | (y) | 4,338 | ||||||||||||||||||||||
Additional Paid-in-Capital | — | — | — | 8 | (8 | )(t) | — | — | 81,145 | (u)(v)(w) | 81,145 | ||||||||||||||
Total Stockholders’ Equity | 28,240 | (35,780 | ) | (7,540 | ) | 6,419 | 21,091 | 27,510 | 19,970 | 61,220 | 81,190 | ||||||||||||||
Total Liabilities and Stockholders’ Equity | 83,902 | (36,142 | ) | 47,760 | 10,151 | 27,559 | 37,710 | 85,470 | 44,190 | 129,660 | |||||||||||||||
Evercore LP Pro-Forma Adjustments | ||||||||||||||||||||||||
Combined Historical* | Adjustments for Formation | Protego Combination Adjustments (c) | Total | Pro-Forma Adjustments for the IPO | Evercore Partners Inc. Pro Forma | |||||||||||||||||||
Advisory Revenue | $ | 39,382 | $ | — | $ | 2,810 | $ | 42,192 | $ | — | $ | 42,192 | ||||||||||||
Investing Revenue | 6,997 | (4,262 | )(a) | 1,000 | 3,735 | — | 3,735 | |||||||||||||||||
Interest Income and Other Revenue | 60 | — | 633 | 693 | — | 693 | ||||||||||||||||||
Total Revenues | 46,439 | (4,262 | ) | 4,443 | 46,620 | — | 46,620 | |||||||||||||||||
Interest Expense | — | — | 535 | 535 | — | 535 | ||||||||||||||||||
Net Revenues | 46,439 | (4,262 | ) | 3,908 | 46,085 | — | 46,085 | |||||||||||||||||
Compensation and Benefits | 6,971 | — | 1,909 | 8,880 | 13,824 | (g) | 22,704 | |||||||||||||||||
Professional Fees | 9,037 | — | 658 | 9,695 | (4,000 | )(h) | 5,695 | |||||||||||||||||
Other Expenses | 2,743 | — | 758 | 3,501 | — | 3,501 | ||||||||||||||||||
Amortization of Intangibles | — | — | 47 | (d) | 47 | — | 47 | |||||||||||||||||
Total Expenses | 18,751 | — | 3,372 | 22,123 | 9,824 | 31,947 | ||||||||||||||||||
Income Before Minority Interest and Income Tax | 27,688 | (4,262 | ) | 536 | 23,962 | (9,824 | ) | 14,138 | ||||||||||||||||
Minority Interest | (7 | ) | 7 | (a) | (114 | )(e) | (114 | ) | 10,231 | (i) | 10,117 | |||||||||||||
Income Before Taxes | 27,695 | (4,269 | ) | 650 | 24,076 | (20,055 | ) | 4,021 | ||||||||||||||||
Income Tax Expense | 776 | 72 | (b) | 448 | (f) | 1,296 | 720 | (j) | 2,016 | |||||||||||||||
Net Income | $ | 26,919 | $ | (4,341 | ) | $ | 202 | $ | 22,780 | $ | (20,775 | ) | $ | 2,005 | ||||||||||
Weighted Average Shares of Class A Common Stock Outstanding: | ||||||||||||||||||||||||
Basic | 4,795 | |||||||||||||||||||||||
Diluted | 4,795 | |||||||||||||||||||||||
Net Income Available to Holders of Shares of Class A Common Stock Per Share: | ||||||||||||||||||||||||
Basic | $ | 0.42 | (k) | |||||||||||||||||||||
Diluted | $ | 0.42 | (k) |
* | Represents aggregate successor and predecessor results for the period presented. The combined results are non-GAAP financial measures and should not be used in isolation or substitution of predecessor and successor results. See page 3 “Unaudited Condensed Combined/Consolidated Statements of Income.” |
See Notes to Unaudited Condensed Consolidated Pro Forma StatementStatements of Financial ConditionIncome
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2005
(dollars in thousands, except per share data)
Evercore LP Pro-Forma Adjustments | |||||||||||||||||||||||
Combined Historical* | Adjustments for Formation | Protego Combination Adjustments (c) | Total | Pro-Forma Adjustments for the IPO | Evercore Partners Inc. Pro Forma | ||||||||||||||||||
Advisory Revenue | $ | 69,895 | $ | — | $ | 13,112 | $ | 83,007 | $ | — | 83,007 | ||||||||||||
Investing Revenue | 13,117 | (1,669 | )(a) | 2,101 | 13,549 | — | 13,549 | ||||||||||||||||
Interest Income and Other Revenue | 135 | — | 1,506 | 1,641 | — | 1,641 | |||||||||||||||||
Total Revenues | 83,147 | (1,669 | ) | 16,719 | 98,197 | — | 98,197 | ||||||||||||||||
Interest Expense | — | — | 1,267 | 1,267 | — | 1,267 | |||||||||||||||||
Net Revenues | 83,147 | (1,669 | ) | 15,452 | 96,930 | — | 96,930 | ||||||||||||||||
Compensation and Benefits | 17,585 | — | 7,305 | 24,890 | 22,688 | (g) | 47,578 | ||||||||||||||||
Professional Fees | 16,271 | — | 1,532 | 17,803 | (4,800 | )(h) | 13,003 | ||||||||||||||||
Other Expenses | 7,495 | — | 2,315 | 9,810 | — | 9,810 | |||||||||||||||||
Amortization of Intangibles | — | — | 2,854 | (d) | 2,854 | — | 2,854 | ||||||||||||||||
Total Expenses | 41,351 | — | 14,006 | 55,357 | 17,888 | 73,245 | |||||||||||||||||
Income Before Minority Interest and Income Tax | 41,796 | (1,669 | ) | 1,446 | 41,573 | (17,888 | ) | 23,685 | |||||||||||||||
Minority Interest | 3 | (3 | )(a) | (550 | )(e) | (550 | ) | 17,499 | (i) | 16,949 | |||||||||||||
Income Before Taxes | 41,793 | (1,666 | ) | 1,996 | 42,123 | (35,387 | ) | 6,736 | |||||||||||||||
Income Tax Expense | 1,823 | (360 | )(b) | 1,922 | (f) | 3,385 | (7 | )(j) | 3,378 | ||||||||||||||
Net Income | $ | 39,970 | (1,306 | ) | $ | 74 | $ | 38,738 | $ | (35,380 | ) | $ | 3,358 | ||||||||||
Weighted Average Shares of Class A Common Stock Outstanding: | |||||||||||||||||||||||
Basic | 4,795 | ||||||||||||||||||||||
Diluted | 4,795 | ||||||||||||||||||||||
Net Income Available to Holders of Shares of Class A Common Stock Per Share: | |||||||||||||||||||||||
Basic | $ | 0.70 | (k) | ||||||||||||||||||||
Diluted | $ | 0.70 | (k) |
* | Represents aggregate successor and predecessor results for the period presented. The combined results are non-GAAP financial measures and should not be used in isolation or substitution of predecessor and successor results. See page 3 “Unaudited Condensed Combined/Consolidated Statements of Income.” |
See Notes to Unaudited Condensed Consolidated Pro Forma Statements of Income
Notes to Unaudited Condensed Consolidated Pro Forma Statements of Income ($(dollars in thousands):
(a) | Adjustment reflects the elimination of the historical results of operations for the general partners of the Evercore Capital Partners I, Evercore Capital Partners II and Evercore Ventures funds and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund, specifically, Evercore Founders LLC and Evercore Founders Cayman Limited, which |
(b) | Adjustment reflects the tax impact on Evercore LP’s New York City general corporation tax and Unincorporated Business Tax, or |
(c) | Balances reflect the historical financial results for Protego for the period from January 1, 2005 through September 30, 2005, for the period from July 1, 2006 through August 9, 2006, and for the period from January 1, 2006 through August 9, 2006. |
(d) | Reflects the amortization of intangible assets acquired in conjunction with the purchase of Protego with an estimated useful life ranging from 0.5 years to |
Reflects an adjustment to eliminate a minority interest of 19% in Protego’s asset management subsidiary that Evercore acquired as part of the Protego Combination. |
For tax purposes, no tax benefit will be realized related to the intangible assets acquired by Evercore LP in conjunction with the Protego Combination. However, a tax benefit |
Historically the entities that form Evercore have been limited liability companies, partnerships or sub-chapter S entities. Accordingly, payments for services rendered by our Senior Managing Directors generally have been accounted for as distributions of members’ capital rather than as compensation expense. Following the |
Three Months Ended June 30, 2006 | Six Months Ended June 30, 2006 | |||||||||||||||||||||||
Evercore | Protego | Total | Evercore | Protego | Total | |||||||||||||||||||
Post Formation Total Revenues | $ | 43,663 | $ | 43,663 | $ | 84,173 | $ | 84,173 | ||||||||||||||||
Historical Total Revenues | $ | 4,274 | 4,274 | $ | 7,515 | 7,515 | ||||||||||||||||||
Compensation Expense Threshold – 50% | 21,832 | 2,137 | 23,969 | 42,087 | 3,758 | 45,844 | ||||||||||||||||||
Historical Compensation and Benefits | (8,093 | ) | (2,262 | ) | (10,355 | ) | (16,852 | ) | (3,841 | ) | (20,693 | ) | ||||||||||||
Total Pro Forma Compensation and Benefits Expense Adjustment | $ | 13,739 | $ | (125 | ) | $ | 13,614 | $ | 25,235 | $ | (83 | ) | $ | 25,151 | ||||||||||
Three Months Ended September 30, 2006 | Nine Months Ended September 30, 2006 | |||||||
Post formation Net Revenues | $ | 43,403 | $ | 135,029 | ||||
Less: Expense Reimbursements | (1,109 | ) | (3,573 | ) | ||||
Less: Carried Interest and Gains and Losses on Investments | (2,616 | ) | (2,616 | ) | ||||
39,678 | 128,840 | |||||||
Compensation Expense Threshold—50% | 19,839 | 64,420 | ||||||
Historical Compensation and Benefits | (15,377 | ) | (36,070 | ) | ||||
Total Pro Forma Compensation and Benefits Expense Adjustment | $ | 4,462 | $ | 28,350 | ||||
Three Months Ended September 30, 2005 | Nine Months Ended September 30, 2005 | |||||||
Post formation Net Revenues | $ | 46,085 | $ | 96,930 | ||||
Less: Expense Reimbursements | (676 | ) | (1,775 | ) | ||||
45,409 | 95,155 | |||||||
Compensation Expense Threshold—50% | 22,704 | 47,578 | ||||||
Historical Compensation and Benefits | (8,880 | ) | (24,890 | ) | ||||
Total Pro Forma Compensation and Benefits Expense Adjustment | $ | 13,824 | $ | 22,688 | ||||
Reflects non-recurring expenses associated with the IPO and reorganization transactions. |
(i) | Reflects an adjustment to record the 74.5% minority interest ownership of our Senior Managing Directors in Evercore LP relating to their vested partnership units, |
consolidates Evercore LP and record minority interest for the economic interest in Evercore LP held directly by the Senior Managing Directors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” |
As a limited liability company, partnership or sub-chapter S entity, we were generally not subject to income taxes except in foreign and local jurisdictions. |
Three Months Ended June 30, 2006 | Six Months Ended June 30, 2006 | Three Months Ended September 30, 2006 | Nine Months Ended September 30, 2006 | |||||||||
Operating Income | $ | 12,014 | $ | 21,217 | $ | 14,601 | $ | 39,125 | ||||
Less Minority Interest | 8,560 | 15,110 | 10,448 | 27,999 | ||||||||
Total Income | $ | 3,454 | $ | 6,107 | ||||||||
Total Income subject to tax | $ | 4,153 | $ | 11,126 | ||||||||
Three Months Ended September 30, 2005 | Nine Months Ended September 30, 2005 | |||||||||||
Operating Income | $ | 14,138 | $ | 23,685 | ||||||||
Less Minority Interest | 10,117 | 16,949 | ||||||||||
Total Income subject to tax | $ | 4,021 | $ | 6,736 | ||||||||
For the purposes of the pro forma net income per share calculation, the weighted average shares outstanding, basic and diluted, are calculated based on: |
Three Months Ended June 30, 2006 | Six Months Ended June 30, 2006 | |||||||
Evercore Partners Inc Pro Forma | Evercore Partners Inc. Pro Forma | |||||||
Basic | Diluted | Basic | Diluted | |||||
Evercore Partners Inc. Shares of Class A Common Stock | 45,238 | 45,238 | 45,238 | 45,238 | ||||
Evercore Partners Inc. Restricted Stock Units – vested | 207,116 | 207,116 | 207,116 | 207,116 | ||||
Evercore LP Partnership Units – vested (1) | — | — | — | — | ||||
New Shares from Offering | 4,542,500 | 4,542,500 | 4,542,500 | 4,542,500 | ||||
Weighted Average Shares of Class A Common Stock Outstanding | 4,794,854 | 4,794,854 | 4,794,854 | 4,794,854 | ||||
Three Months Ended September 30, 2005 | Nine Months Ended September 30, 2005 | |||||||
Evercore Partners Inc. Pro Forma | Evercore Partners Inc. Pro Forma | |||||||
Basic | Diluted | Basic | Diluted | |||||
Evercore Partners Inc. Shares of Class A Common Stock | 45,238 | 45,238 | 45,238 | 45,238 | ||||
Evercore Partners Inc. Restricted Stock Units—vested | 207,116 | 207,116 | 207,116 | 207,116 | ||||
Evercore LP Partnership Units—vested (1) | — | — | — | — | ||||
New Shares from Offering | 4,542,500 | 4,542,500 | 4,542,500 | 4,542,500 | ||||
Weighted Average Shares of Class A Common Stock Outstanding | 4,794,854 | 4,794,854 | 4,794,854 | 4,794,854 | ||||
(1) |
Of the 23,136,82923,141,593 Evercore LP partnership units to be held by parties other than Evercore Partners Inc. immediately following the initial public offering, 13,430,500 will beIPO, 13,433,265 are fully vested and 9,706,329 will be9,708,328 are unvested. We have concluded that at the current time it is not probable that the conditions relating to the vesting of these unvested partnership units will be achieved or satisfied and, accordingly, these unvested partnership units are not reflected as outstanding for purposes of calculating the minority interest for the economic interest in Evercore LP held by the limited partners. Any vesting of these unvested partnership units would significantly increase minority interest and reduce our net income and net income per share. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Operating Expenses—Employee Compensation and Benefits Expense”.Expense.”
Basic and diluted net income per share are calculated as follows:
Three Months Ended June 30, 2006 | Six Months Ended June 30, 2006 | Three Months Ended September 30, 2006 | Nine Months Ended September 30, 2006 | |||||||||
Evercore Partners Inc. Pro Forma | Evercore Partners Inc. Pro Forma | Evercore Partners Inc. Pro Forma | Evercore Partners Inc. Pro Forma | |||||||||
Basic and Diluted Net Income Per Share | ||||||||||||
Net Income Available to Holders of Shares of Class A Common Stock | $ | 1,653 | $ | 2,924 | $ | 2,052 | $ | 5,498 | ||||
Basic and Diluted Weighted Average Shares of Class A Common Stock Outstanding | 4,794,854 | 4,794,854 | 4,795 | 4,795 | ||||||||
Basic and Diluted Net Income Per Share of Class A Common Stock | $ | 0.34 | $ | 0.61 | $ | 0.43 | $ | 1.15 | ||||
Three Months Ended September 30, 2005 | Nine Months Ended September 30, 2005 | |||||||||||
Evercore Partners Inc. Pro Forma | Evercore Partners Inc. Pro Forma | |||||||||||
Basic and Diluted Net Income Per Share | ||||||||||||
Net Income Available to Holders of Shares of Class A Common Stock | $ | 2,005 | $ | 3,358 | ||||||||
Basic and Diluted Weighted Average Shares of Class A Common Stock Outstanding | 4,795 | 4,795 | ||||||||||
Basic and Diluted Net Income Per Share of Class A Common Stock | $ | 0.42 | $ | 0.70 | ||||||||
The vested Evercore LP partnership units that could potentially dilute basic net income per share were not included in the computation of diluted net income per share because to do so would have been antidilutive for the periods presented. The increase in net income available to holders of shares of Class A common stock due to the elimination of the minority interest associated with vested Evercore LP partnership units (offset by the associated tax effect) that is implied in calculating diluted net income per share assuming the exchange of Evercore LP partnership units for shares of Class A common stock is antidilutive notwithstanding the corresponding increase in weighted average shares of Class A common stock outstanding. We do not expect dilution to result from the exchange of Evercore LP partnership units for shares of Class A common stock.
The shares of Class B common stock have no right to receive dividends or a distribution on liquidation or winding up of Evercore Partners Inc. The shares of Class B common stock do not share in the earnings of Evercore Partners Inc. and no earnings are allocable to such class. Accordingly, pro forma basic and diluted net income per share of Class B common stock have not been presented.
Notes to Unaudited Condensed Consolidated Pro Forma Statements of Financial Condition ($ in thousands):
Six months ended June 30, 2006 | ||||
Pre-incorporation Profits | ||||
Evercore Holdings Historical Net Income | $ | 50,601 | ||
Less: Net Income of General Partner Not Distributed | (4,918 | ) | ||
Pre-incorporation Profits to be Distributed | $ | 45,683 | ||
Partner Distribution made in Q2 2006 Pertaining to Pre-incorporation Profits | (26,356 | ) | ||
Net Pre-incorporation profits distribution | $ | 19,327 | ||
Six months ended June 30, 2006 Pre-incorporation Profits Consideration Accounts Receivable Cash Total $ 4,545 14,782 $ 19,327
The estimated fair value of consideration paid and the assets and liabilities acquired in connection with the Protego Combination were determined to establish the appropriate allocation of purchase price to the acquired assets over liabilities. The total consideration includes the non-interest bearing notes of $7.0 million, 1,760,187 vested Evercore LP units and direct costs incurred with the acquisition transaction. With respect to the $7.0 million in notes issued in consideration for the Protego Combination, $6.05 million we paid in cash and $0.95 million we paid in shares of Class A common stock valued at the initial public offering price of $21. We would issue 45,238 shares of Class A common stock upon repayment of such notes at the closing of the initial public offering. The methodology to determine the estimated value of the vested Evercore LP units was to estimate the total value of the combined entity post Formation Transaction, including Protego, as of the date the contribution and sale agreement for the Protego Combination was signed and then multiply that percentage ownership implied by the vested units issued with respect to the Protego Combination to calculate the value of those partnership units. The purchase price was allocated to the acquired assets and liabilities based on fair value with any residual unallocated purchase price assigned to goodwill. The purchase price does not include 351,362 unvested Evercore LP partnership units issued by Evercore LP in connection with the acquisition, for which, among other things, employee service subsequent to the consummation date of the acquisition is required in order for the units to vest. The unvested partnership units of Evercore LP will be treated as expense and not part of the purchase price consideration. Expense will be charged at the time a vesting event occurs or, if earlier, at the time a vesting event becomes probable. The expense will be based on the grant date fair value of the partnership units of Evercore LP, which will be the initial public offering price of the Class A common stock into which these partnership units are exchangeable. 50% of these unvested partnership units will vest if and when Messrs. Altman, Beutner and Aspe, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 90% of the aggregate Evercore LP partnership units owned by them on the date the Reorganization is affected. 100% of the unvested Evercore LP partnership units issued will vest upon the earliest to occur of the following events:
In addition, 100% of the unvested Evercore LP partnership units held by a Senior Managing Director will vest if such Senior Managing Director dies or becomes disabled while in our employ. Evercore’s Equity Committee, which is comprised of Messrs. Altman, Beutner and Aspe, with our concurrence, may also accelerate vesting of unvested Evercore LP partnership units.
A final determination of required purchase accounting adjustments, including the allocation of the purchase price, has not yet been made. Accordingly, the purchase accounting adjustments made in connection with these unaudited condensed consolidated pro forma financial statements are preliminary and have been made solely for the purposes of developing such condensed consolidated pro forma financial statements. At this time, Evercore does not expect that the value of any of the identifiable, definite-lived intangibles will change in a material manner between the time the preliminary valuation was performed and the closing of the transaction when the final valuation will be completed. Additionally, Evercore does not expect any material changes in the value of any of the other assets acquired and liabilities assumed in conjunction with the Protego Combination. Evercore does not expect any uncertainties regarding amortization periods to have a material impact on our financials.
Estimated Purchase Price | ||||
Non-Interest Bearing Evercore LP Notes | $ | 7,000 | ||
Evercore LP Partnership Units (vested) | 27,510 | |||
Acquisition Costs | 3,112 | |||
Estimated Purchase Price | $ | 37,622 | ||
Estimated Purchase Price Allocation | ||||
Cash | $ | 4,169 | ||
Less: Pre-Protego Combination Profits Distribution in Cash | (4,169 | ) | ||
Net Cash | — | |||
Accounts Receivable | 2,791 | |||
Less: Pre Protego Combination Profits Distribution Paid with Interest in Accounts Receivable | (400 | ) | ||
Net Accounts Receivable | 2,391 | |||
Investments | 1,267 | |||
Intangible Assets | 3,770 | |||
Other Assets | 1,924 | |||
Current Liabilities | (2,361 | ) | ||
Minority Interest | (839 | ) | ||
Identifiable Net Assets | 6,152 | |||
Goodwill | $ | 31,470 | ||
Pursuant to the agreement with Protego, the above calculation reflects a pro forma cash distribution of pre-Protego Combination profits to the Protego Directors prior to the initial public offering. The distributions are to be funded with available cash, with the remainder to be funded with notes or an assignment of certain accounts receivable. The table above reflects this pro forma distribution as of June 30, 2006. Under a service agreement with a Director who ceased to be employed by Protego in June 2006, Protego will be required to make a payment of up to $2.6 million. The associated expense will reduce Protego’s pre-Protego Combination profits and accordingly reduce Protego’s pre-Protego Combination profits distribution.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with Evercore Holdings’Partners Inc.’s unaudited condensed combinedcombined/consolidated financial statements and the related notes included elsewhere in this Form 10-Q.
Forward-Looking Statements and Certain Factors that May Affect Our Business
This discussion contains forward-looking statements andwithin the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, our operations and financial performance. YouIn some cases, you can identify these forward-looking statements by the use of words such as “outlook”, “believes”, “expects”, “potential”, “continues”, “may”, “will”, “should”, “seeks”, “approximately”, “predicts”, “intends”, “plans”, “estimates”,“outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. All statements other than statements of historical fact included in this document are forward-looking statements and are based on various underlying assumptions and expectations and are subject to known and unknown risks, uncertainties and assumptions, and may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described under “Risk Factors” discussed in our Registration Statement, which was declared effective August 10, 2006.Statement. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this discussion. In addition, new risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Completion of Reorganization
The Formation Transaction and Protego Combination, as described in “Reorganization,” were completed as of August 10, 2006. Except as otherwise expressly noted, this quarterly report, including this discussion and the historical consolidated financial data of Evercore LP and Evercore Partners Inc., reflect the historical operations and financial position of Evercore LP and Evercore Partners Inc., and includes the financial results of the general partners of the Evercore Capital Partners I, Evercore Capital Partners II and Evercore Ventures funds and certain other entities which were not contributed to Evercore LP prior to the completion of the reorganization on August 10, 2006. In addition to other adjustments, the pro forma financial data included in this Form 10-Q reflect financial data of Evercore LP and Evercore Partners Inc. giving effect to the Reorganization, as well as other adjustments made as a result of the IPO.
Overview
Evercore is an investment banking boutique. Our operations consist of two business segments: Advisory and Investment Management.
Advisory generates revenue from fees for providing advice on matters of strategic importance to our clients, including mergers, acquisitions, restructurings, divestitures, leveraged buy-outs, recapitalizations and other corporate transactions. Our Advisory segment generated $72.6$108.7 million, or 81.4%, of our revenue in the six months ended June 30, 2006, $30.5 million, or 83.1%, of our revenue in the six months ended June 30, 2005 and $40.2 million, or 92.4%, of our revenue in the second quarter of 2006.
83.1%, of our revenue in the nine months ended September 30, 2006, $69.9 million, or 84.1%, of our revenue in the nine months ended September 30, 2005 and $36.1 million, or 86.6%, of our revenue in the third quarter of 2006 and $39.4 million or 84.8% of our revenue in the third quarter of 2005. |
Key Financial Measures
Revenue
Advisory.Our Advisory business earns fees from our clients for providing advice on mergers, acquisitions, restructurings, leveraged buy-outs, recapitalizations and other corporate transactions. The amount and timing of the fees paid vary by the type of engagement. Fees may beIn general, fees are paid at the time we sign an engagement letter, during the course of the engagement or when an engagement is completed. The majority of our Advisory revenue comes from fees that are dependent on the successful completion of a transaction. A transaction can fail to be completed for many reasons, including failure to agree upon final terms with the counterparty, to secure necessary board or shareholder approvals, to secure necessary financing or to achieve necessary regulatory approvals.
Revenue trends in our Advisory business generally are correlated to the volume of merger and acquisition activity and restructurings. However, deviations from this trend can occur in any given year for a number of reasons. For example, changes in our market share or the ability of our clients to close certain large transactions can cause our revenue results to diverge from the level of overall merger and acquisition or restructuring activity.
We operate in a highly competitive environment where there are no long-term contracted sources of revenue and each revenue-generating engagement is separately awarded and negotiated. Our list of clients, including our list of clients with whom there is a currently active revenue-generating engagement, changes continually. We gain new clients through our business development initiatives, through recruiting additional senior investment banking professionals who bring with them client relationships and through referrals from executives, directors, attorneys and other parties with whom we have relationships. We may also lose clients as a result of the sale or merger of a client, a change in a client’s senior management, competition from other investment banks and other causes.
Investment Management.Our Investment Management business has four principalincludes operations related to Private Equity and Asset Management. Private Equity sources of revenue:include the following: (1) management fees; (2) portfolio company fees; (3) carried interest;interest and (4) gains (or losses) on investments of our own capital in the private equity fundsPrivate Equity Funds we manage. Asset management includes the management of outside capital by EAM and PCB and net interest revenue earned by PCB in collateralized financing transactions.
• | Management Fees.Management fees are generally a percentage of committed capital (the total dollar amount of capital pledged to a fund) from certain outside investors in each of the |
• | Portfolio Company Fees.Portfolio company fees include monitoring, director and transaction fees associated with services provided to the |
• | Carried Interest.Carried interest is an incentive fee earned by the general partners of the |
the general partners of the |
• | Gains (or Losses) on Investments.Gains and losses include both realized gains and losses upon the sale of a |
We expect we will be entitled to 100% of any management fees and portfolio company fees earned in relation to any future private equity funds we manage. We also expect to consolidate the general partners of any future private equity funds we manage. Accordingly, we expect to record as revenue 100% of any carried interest and realized or unrealized gains (or losses) on investments earned by these entities. However, we expect to allocate to our Senior Managing Directors and other employees through the direct equity interests these individuals will hold in these entities approximately 60% to 70% of any such carried interest. In addition, these individuals will be entitled to any such gains (or losses) on investment based on the amount of the general partners’ capital they contribute in respect of any such future fund. We intend to make significant capital commitments to any future private equity fund we manage. We believe these commitments will strengthen our ability to attract outside investors because of our demonstrated financial commitment to the funds and the alignment of our interests with those of the limited partners in these funds.
• | Asset Management Fees. Asset management fees are contractually based and are derived from investment management services provided in originating, recommending and consummating investment opportunities to clients of PCB. PCB receives fixed management fees, success fees and earns a spread when transacting certain securities orders on behalf of clients. These fees are recognized over the relevant contract period, generally quarterly or annually. |
• | Net Interest Revenue. Net interest revenue is derived from investing customer funds in financing transactions by PCB. These transactions are primarily repurchases and resales of Mexican government securities. |
In both our Advisory and Investment Management segments we make various transaction-related expenditures, such as travel and professional fees, on behalf of our clients. Pursuant to the engagement letters with our clients or the contracts with the limited partners in the private equity fundsPrivate Equity Funds we manage, these expenditures may be reimbursable. We record expenses as these expenditures are incurred and record revenue when it is determined that clients have an obligation to reimburse us for such transaction-related expenses. Specifically, client expense reimbursements are recorded as revenue on the condensed combined statementsCondensed Combined/Consolidated Statements of incomeIncome on the later of the date an engagement letter is executed or the date we pay or accrue the expense. For the three months ended June 30, 2006 and 2005, we recorded $0.6 million and $0.5 million, respectively, of revenue and $1.4 million and $0.8 million, respectively, of expenses in our Advisory segment and approximately $(0.1) million and $(0.2) million, respectively, of revenue and $0.4 million and $0.2 million, respectively, of expenses in our Investment Management segment in connection with these reimbursements and the underlying expenditures. For the six months ended June 30, 2006 and 2005, we recorded $1.6 million and $1.1 million, respectively, of revenue and $2.2 million and $1.8 million, respectively, of expenses in our Advisory segment, and $0.9 million and $0.0 million, respectively, of revenue and $1.7 million and $0.6 million, respectively, of expenses in our Investment Management segment in connection with these reimbursements and the underlying expenditures.
Operating Expenses
Employee Compensation and Benefits Expense.Prior to the initial public offering,IPO, our employee compensation and benefits expense reflected compensation solely to non-Senior Managing Directors. Historically, payments for services rendered by our Senior Managing Directors, including all salaries and bonuses, have been accounted for as distributions from members’ capital rather than as employee compensation and benefits expense. As a result, our employee compensation and benefits expense and net income had not reflected payments for services rendered by our Senior Managing Directors. Following the initial public offering,IPO, we include all payments for services rendered by our Senior Managing Directors in employee compensation and benefits expense.
Since the initial public offering,IPO, our policy is to set our total employee compensation and benefits expense at a level not to exceed 50% of our totalnet revenue each year (excluding for purposes of this calculation, any revenue or compensation and benefits expense relating to gains (or losses) on investments or carried interest)interest and expense reimbursements), and following the completion of our IPO we initially expect to accrueare accruing compensation and benefits expense equal to 50% of our total revenue following the initial public offering.net revenue. However, we may record compensation and benefits expense in excess of this percentage to the extent that such expense is incurred due to a significant expansion of our business or to any vesting of the partnership units of Evercore LP held by our Senior Managing Directors in the Reorganization or the restricted stock units to be received by our employees at the time of the initial public offering.IPO. Moreover, we retain the ability to change this policy in the future. We intend to achieve this target primarily by reducing payments for services rendered by our Senior Managing Directors, while continuing to maintain overall compensation and benefits packages that we believe are competitive in the marketplace.
Under the terms of the Evercore LP partnership agreement, 66 2/3% 2/3% of the partnership units received by our Senior Managing Directors, other than Mr. Altman and Mr. Beutner, in the Formation Transaction and 66 2/3% 2/3% of the partnership units received by the current Directors of Protego (who became our Senior Managing Directors), other than Mr. Aspe, and certain companies they control and a trust benefiting Directors and employees of Protego in the Protego Combination will, with specified exceptions, be subject to forfeiture and re-allocation to other Senior Managing Directors (or, in the event that there are no eligible Senior Managing Directors, forfeiture and cancellation) if the Senior Managing Director ceases to be employed by us prior to the occurrence of specified vesting events. 4,853,164, or 50%, of these unvested partnership units will vest if and when Messrs. Altman, Beutner and Aspe, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 90% of the aggregate Evercore LP partnership units owned by them on the date the Reorganization was effected, 9,706,329,9,708,328, or 100% of the unvested Evercore LP partnership units issued will vest upon the earliest to occur of the following events:
In addition, 100% of the unvested Evercore LP partnership units held by a Senior Managing Director will vest if such Senior Managing Director dies or becomes disabled while in our employ. Our Equity Committee, which is comprised of Messrs. Altman, Beutner and Aspe, with our concurrence, may also accelerate vesting of unvested partnership units at any time.
We intend toPost Reorganization on August 10, 2006, we account for the unvested Evercore LP partnership units as compensation paid to employees in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 123(R),Share Based Payments, (“SFAS 123(R)”), which we adopted effective January 1, 2006. The unvested Evercore LP partnership units vest based on the achievement of one of the performance and service vesting conditions as described above. In accordance with SFAS 123(R), accruals of compensation costs for awards with a performance or service condition are based on the probable outcome of that service or performance condition. Compensation cost is accrued if it is probable that the performance condition will be achieved and is not accrued if it is not probable that the performance condition will be achieved. We have concluded that at the current time it is not probable that the conditions relating to a decline in the collective beneficial ownership of Messrs. Altman, Beutner and Aspe (and trusts benefiting their families and permitted transferees), a change of control of Evercore or a lack of continued association of Messrs. Altman, Beutner and Aspe with Evercore will be achieved, or that the death or disability condition during the employment period will be satisfied. Accordingly, we are not accruing compensation expense relating to these unvested partnership units. The unvested partnership units will be charged to expense at the time a vesting event occurs or, if earlier, at the time that occurrence of an event related to the beneficial ownership, change of control or continued association conditions becomes probable or there is a change in the estimated forfeiture rate related to the death or disability condition. The expense will beis based on the grant date fair value of the Evercore LP partnership units, which will bewas at the initial public offeringIPO price of the Class A common stock of $21.00 per share into which the partnership units are exchangeable.
If all of the unvested partnership units were deemed to vest at some point in the future, based upon the initial public offeringIPO price of the Class A common stock of $21.00 per share, the total amount of compensation expense that we will record in connection with the vesting of these unvested partnership units would be $203.8 million.
The unvested partnership units will not be reflected as outstanding for purposes of calculating the minority interest for the economic interest in Evercore LP held by the limited partners. Any vesting of these unvested partnership units would significantly increase minority interest and reduce our net income and net income per share. For example, if these unvested units were included in pro forma minority interest, our pro forma net income for the three months and six months ended June 30, 2006 would have been $1.1 million and $2.0 million, respectively.
We granted 2,286,055 restricted stock units to our non-Senior Managing Director employees at the time of the initial public offering.IPO. 207,116 of the restricted stock units are fully vested and, as a result, we recorded compensation expense at the time of the initial public offeringIPO equal to the value of these fully vested restricted stock units. The remaining 2,078,939 of these restricted stock units are unvested and will vest upon the same conditions as the unvested partnership units of Evercore LP issued in connection with the Formation Transaction and the Protego Combination described abovebelow although on a different vesting schedule. At the time of grant, generally 10% of the units granted will vestvested and upon each subsequent vesting, an additional 45% of the units will vest. If and when these restricted stock units vest, we will record compensation expense at the time of vesting equal to the grant date fair value of the Class A common stock of Evercore Partners Inc. deliverable pursuant to such restricted stock units, which would be calculated based on the initial public offeringIPO price of the Class A common stock. As a result, based on the initial public offeringIPO price of $21.00 per share, we will recordrecorded compensation expense at the time of the offering equal to the fair value of the vested restricted stock units granted of $4.3 million and will record additional compensation expense at the time of vesting of the unvested restricted stock units of $43.7 million if all such unvested restricted stock units were to vest. To the extent unvested restricted stock units vest they will be included in weighted average shares outstanding for purposes of calculating basic and diluted net income per share, which would have a dilutive effect on these measures. In addition, each outside director received a one-time award of RSU with a value of $50 upon their initial appointment to the Board. These RSU will vest over two years.
Non-Compensation Expense.The balance of our operating expenses includes costs for occupancy and equipment rental, professional fees, travel and related expenses, communications and information services, depreciation and amortization and other operating expenses. We refer to all of these expenses as non-compensation expense.
As a result of the initial public offeringIPO we will no longer be a private company and our costs for such items as insurance, accounting and legal advice will increase. We will also incur costs which we have not previously incurred for director fees, investor relations expenses, expenses for compliance with the Sarbanes-Oxley Act and new rules implemented by the Securities and Exchange CommissionSEC and the New York Stock Exchange, and various other costs of a public company.
Equity in Income of Affiliate
On October 28, 2005 we began our expansion into the traditional asset management business by forming Evercore Asset Management LLC (“EAM”), in which we own a 41.7% equity interest, with the balance of EAM’s equity held by its senior management team. We account for our investment in EAM under the equity method of accounting whereby we recognize our share of earnings and losses. Accordingly, we do not consolidate EAM and do not record any revenue or incur expenses in connection with EAM. We do, however, recognize an investment on our condensed combined statementsCondensed Combined/Consolidated Statements of financial conditionFinancial Condition at the carrying value of our commitments and allocations of profits and losses from EAM. We would be required to consolidate EAM if we were to gain control of the entity or become the primary beneficiary.
Provision for Income Taxes
We have historically operated as a partnership or, in the case of certain combined subsidiaries, an S corporation, for U.S. federal income tax purposes. As a result, our income has not been subject to U.S. federal and state income taxes. Income taxes shown on Evercore Holdings’ historical combined income statements are attributable to the New York City unincorporated business and corporate income taxes. Evercore Holdings is not subject to income taxes in the states of California and Delaware, but is subject to annual registration and filing fees within those states.
Following the Reorganization, Evercore LP continues to operate in the U.S. as a partnership for U.S. federal income tax purposes and remains subject to these New York City income taxes. In addition, however, Evercore Partners Inc. will be subject to additional entity-level taxes that will be reflected in our future consolidated financial statements. For information on the pro forma effective tax rate of Evercore following the Reorganization, see Note (h) in “Pro Forma Financial Information (Unaudited)”.
Minority Interest
On a historical basis, our minority interest has consisted of unaffiliated third party interests in the general partner of the Evercore Ventures private equity fund. Following the initial public offering,IPO, we will no longer
consolidate the general partner of that fund and, accordingly, minority interest related to Evercore Ventures will no longer be reflected in our financial results. We will,do, however, record significant minority interest relating to the ownership interest of our Senior Managing Directors and their estate planning vehicles in Evercore LP.LP as well as the portion of PCB not owned by Protego. As described above,in Item 1. Financial Statements—Note 1, Evercore Partners Inc. will beis the sole general partner of Evercore LP. Accordingly, although Evercore Partners Inc. will havehas a minority economic interest in Evercore LP, it will havehas a majority voting interest and controlcontrols the management of Evercore LP. As a result, Evercore Partners Inc. will consolidateconsolidates Evercore LP and recordrecords a minority interest for the economic interest in Evercore LP held by the limited partners.
Presentation of Statements of Income
Consistent with the single-step presentation of our statements of income, we do not distinguish between operating and non-operating income and expenses as we consider all the various components of our revenues and expenses as operating items when making management decisions. We maintain accounting records reflecting the collective results of our operations both from a revenue and expense standpoint. We base the analysis of our financial results and the management of our cost structure and overall profitability on such accounting records.
Reorganization
Formation Transaction
Our business has historically been owned by our Senior Managing Directors. On August 10, 2006, pursuant to a contribution and sale agreement, dated as of May 12, 2006, our Senior Managing Directors contributed to Evercore LP each of the various entities included in our historical combinedconsolidated financial statements, with the exception of the general partners of the Evercore Capital Partners I and II and Evercore Ventures funds and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund. More specifically, our Senior Managing Directors contributed to Evercore LP all of the equity interests in:
In exchange for these contributions to Evercore LP, our Senior Managing Directors and certain trusts benefiting certain of their families received 11,670,31311,672,715 vested and 9,354,9679,356,894 unvested partnership units in Evercore LP. Fifty percent of these unvested partnership units will vest if Messrs. Altman, Beutner and Aspe, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 90% of the aggregate Evercore LP partnership units owned by them on the date the Reorganization was effected. All of the unvested Evercore LP partnership units issued will vest upon the earliest to occur of the following events:
In addition, all of the unvested Evercore LP partnership units held by a Senior Managing Director will vest if such Senior Managing Director dies or becomes disabled while in our employ.
The vested units will be reflected in our financial statements at the historical cost basis of the entities contributed. We intend to accrueaccrued for the unvested Evercore LP partnership units as compensation paid to our Senior Managing Directors in accordance with Statement of Financial Accounting Standards No. 123(R)“Share-Based Payments” or SFAS 123(R). The unvested Evercore LP partnership units will be charged to expense at the time a vesting event occurs or, if earlier, at the time that occurrence of an event related to the beneficial ownership, change of control or continued association conditions becomes probable or there is a change in the estimated forfeiture rate related to the death or disability condition. The expense will be based on the grant date fair value of the Evercore LP partnership units, which will be $21.00 per partnership unit, i.e., the initial public offeringIPO price per share of the Class A common stock into which these partnership units are exchangeable. In addition, we distributed to ourthe Senior Managing Directors of Evercore cash so as to distribute to ourthe Senior Managing Directors of Evercore all earnings for the period from January 1, 2006 to the date of the closing of the contribution and sale agreement. We refer to these transactions, collectively, as the “Formation Transaction”.Transaction.”
We will account for the Formation Transaction as an exchange between entities under common control and record the net assets and members’ equity of the contributed entities at historical cost. We will account for the unvested partnership units issued in the Formation Transaction as future compensation expense.
Combination with Protego
Protego’s business has historically been owned by its directors and other stockholders and conducted by Protego Asesores and its subsidiaries and Protego SI. Concurrently with the Formation Transaction, we and Protego will undertakeundertook the following steps pursuant to the contribution and sale agreement, which we refer to collectively as the “Protego Combination”:
Of the $7.0 million in notes issued in consideration for the Protego Combination, $6.05 million was payable in cash and $0.95 million was payable in shares of our Class A common stock valued at the initial public offeringIPO price of $21.00 per share. We issued 45,238 shares of Class A common stock upon repayment of such notes. In addition, Protego distributed to its Directors cash and, to the extent cash was not available, notes or interest in certain accounts receivable, so as to distribute to its Directors all earnings for the period from January 1, 2005 to the date of the closing of the contribution and sale agreement.
For U.S. GAAP and financial purposes, we will account for the vested partnership units of Evercore LP issued in the The distribution payable to Protego Combination as a component of the estimated purchase price pursuant to Statement of Financial Accounting Standards No. 141Business Combinations. The estimated value of the vested Evercore LP partnership units was determined by management. The estimated value of the vested Evercore LP partnership units was determined by estimating the total value of the combined entity, post Formation Transaction, including Protego, as of the date of the contribution and sale agreement. The total value of these entities was then multiplied by the percentage ownership implied by the vested Evercore LP partnership units issued in connection with the Protego combination.
For U.S. GAAP and financial purposes, we will account for the unvested partnership units to be issued in the Protego Combination (which are subject to the same vesting provisions described above in respect of the unvested partnership units to be received by the Evercore Senior Managing Directors in the Formation Transaction) as future compensation expense and not as part of the purchase consideration. In accordance with Statement of Financial Accounting Standards No. 123R,Share-Based Payments, the unvested partnership units of Evercore LP will be charged to expenseis $1.9 million at the time a vesting event occurs or, if earlier, at the time a vesting event becomes probable. The expense will be based on the grant date fair value of the partnership units of Evercore LP, which will be the initial public offering price of the Class A common stock into which these partnership units are exchangeable.September 30, 2006.
Initial Public OfferingIPO
On August 16, 2006, Evercore Partners Inc. completed the initial public offeringIPO of its Class A common stock by issuing 4,542,500 shares of its Class A common stock, including shares issued to its underwriters pursuant to their election to exercise in full their overallotment option, for cash consideration of $19.53 per share (net of underwriting discounts) to a syndicate of underwriters. Evercore Partners Inc. contributed all of the proceeds from the initial public offeringIPO to Evercore LP, and Evercore LP issued to Evercore Partners Inc. a number of partnership units equal to the number of shares of Class A common stock that Evercore Partners Inc. issued in connection with the Protego Combination and in the initial public offering.IPO. Evercore Partners Inc. also became the sole general partner of Evercore LP.
As a result of the Formation Transaction, the Protego Combination and the other transactions described above, which we collectively refer to as the “Reorganization” and is presented in Item 1A—Pro Forma Financial Information (Unaudited), immediately following the initial public offering:IPO:
Under the terms of the Evercore LP partnership agreement, all of the partnership units received by our Senior Managing Directors in the Formation Transaction and subscribed for by the Directors of Protego in the Protego Combination are subject to restrictions on transfer and exchange, and 66 2/3% of the partnership units received by our Senior Managing Directors other than Mr. Altman, Mr. Beutner and Mr. Aspe are, with specified exceptions, be subject to forfeiture and re-allocation to other Senior Managing Directors (or, in the event that there are no eligible Senior Managing Directors, to forfeiture and cancellation) if the Senior Managing Director ceases to be employed by us prior to the occurrence of specified vesting events. All of the partnership units received in the Formation Transaction and the Protego Combination by Mr. Altman, Mr. Beutner and Mr. Aspe, and 33 1/3% of the partnership units received by our other Senior Managing Directors, are fully vested as of the date of issuance.
Acquisition of Braveheart Financial Services Limited
On July 31, 2006, we entered into a sale and purchase agreement to acquire Braveheart Financial Services Limited, an English company which provides corporate finance and private equity advisory services in Europe and with whom we already have a Cooperation Agreement. In exchange for 100% of the outstanding share capital of Braveheart, we would pay, subject to the terms and conditions of the sale and purchase agreement, initial consideration, deferred consideration and earn-out consideration, each of which is subject to reduction in the event that the value of Braveheart on the date of the sale and purchase agreement declines prior to the date on which such consideration is payable.
We anticipate that the incremental revenue that we will generate as a result of the Braveheart acquisition will consist primarily of advisory fees that will be recorded in our Advisory segment. We do not expect that the
acquisition of Braveheart will result in a significant change in the composition of the expenses of our Advisory segment. We expect that Braveheart’s revenue and expenses will be denominated primarily in British pounds sterling and Euro, which may expose us to fluctuations in the value of the dollar relative to these foreign currencies. We have not made any determination as to whether we will hedge our exposure to these foreign exchange fluctuations through the use of derivative instruments or otherwise.
It is a primary strategy of ours to expand into new geographic markets, and our acquisition of Braveheart is a key step in furtherance of that strategy. The employee-shareholders of Braveheart have extensive contacts and established relationships within the European business community that they are using in active pursuit of revenue-generating activities, although Braveheart has not generated material revenues to date, and we expect that the future success of Braveheart will depend in large measure upon these key employee-shareholders. The nature and terms of
the consideration payable in connection with the Braveheart acquisition were determined through arm’s-length negotiations between Evercore and the Braveheart employee-shareholder.employee-shareholders.
CombinedConsolidated Results of Operations
Following is a discussion of our combinedconsolidated results of operations for the three and sixnine months ended JuneSeptember 30, 2005 and 2006. For a more detailed discussion of the factors that affected our revenue and operating expenses of our Advisory and Investment Management business segments in these periods, please see the discussion in “—Business Segments” below.
Historical results of operations are reported as a historical partnership until the IPO on August 16, 2006 and do not include payments for services rendered by our Senior Managing Directors as compensation expense. Such payments are reflected in subsequent periods. Therefore, historical results for periods prior to the IPO and subsequent thereto are not comparable. Additionally, other adjustments are necessary to develop comparable results period over period. This discussion includes certain pro forma financial data to present operating results on a more comparable basis. See Item 1A for pro forma financial data.
Evercore Partners Inc.
Condensed Combined/Consolidated Statements of Income
(Unaudited)
Three Months Ended September 30, 2005 and 2006 | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
GAAP | Pro Forma | |||||||||||||||||||||||
Combined | Combined | Consolidated | For the Three | For the Three | For the Three | |||||||||||||||||||
PREDECESSOR | PREDECESSOR | SUCCESSOR | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Advisory | $ | 39,382 | $ | 23,552 | $ | 12,574 | $ | 36,126 | $ | 42,192 | $ | 37,339 | ||||||||||||
Investment Management | 6,997 | 614 | 4,152 | 4,766 | 3,735 | 5,215 | ||||||||||||||||||
Interest and Other Income | 60 | 343 | 3,819 | 4,162 | 693 | 6,424 | ||||||||||||||||||
Total Revenues | 46,439 | 24,509 | 20,545 | 45,054 | 46,620 | 48,978 | ||||||||||||||||||
Interest Expense | — | — | 3,319 | 3,319 | 535 | 5,575 | ||||||||||||||||||
Net Revenues | 46,439 | 24,509 | 17,226 | 41,735 | 46,085 | 43,403 | ||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Compensation and Benefits | 6,971 | 3,746 | 10,969 | 14,715 | 22,704 | 19,839 | ||||||||||||||||||
Non-compensation Expense | 11,780 | 4,922 | 4,245 | 9,167 | 9,243 | 8,963 | ||||||||||||||||||
Total Operating Expenses | 18,751 | 8,668 | 15,214 | 23,882 | 31,947 | 28,802 | ||||||||||||||||||
Operating Income | 27,688 | 15,841 | 2,012 | 17,853 | 14,138 | 14,601 | ||||||||||||||||||
Minority Interest | (7 | ) | (1 | ) | 1,417 | 1,416 | 10,117 | 10,448 | ||||||||||||||||
Provision for Income Taxes | 776 | 484 | 297 | 781 | 2,016 | 2,101 | ||||||||||||||||||
Net Income | $ | 26,919 | $ | 15,358 | $ | 298 | $ | 15,656 | $ | 2,005 | $ | 2,052 | ||||||||||||
Net Income Per Share | N/A | N/A | $ | 0.06 | N/A | $ | 0.42 | $ | 0.43 | |||||||||||||||
% of Revenue: | ||||||||||||||||||||||||
Advisory | 84.8 | % | 96.1 | % | 73.0 | % | 86.6 | % | 91.6 | % | 86.0 | % | ||||||||||||
Investment Management | 15.1 | % | 2.5 | % | 24.1 | % | 11.4 | % | 8.1 | % | 12.0 | % | ||||||||||||
Compensation and Benefits | 15.0 | % | 15.3 | % | 63.7 | % | 35.3 | % | 49.3 | % | 45.7 | % | ||||||||||||
Non-compensation Expense | 25.4 | % | 20.1 | % | 24.6 | % | 22.0 | % | 20.1 | % | 20.7 | % | ||||||||||||
Operating Margin | 59.6 | % | 64.6 | % | 11.7 | % | 42.8 | % | 30.7 | % | 33.6 | % |
* | Represents aggregate successor and predecessor results for the period presented. The combined results are non-GAAP financial measures and should not be used in isolation or substitution of predecessor and successor results. See page 3 “Unaudited Condensed Combined/Consolidated Statements of Income.” |
The following table sets forth information regarding our combinedconsolidated revenue for the three and sixnine months ended JuneSeptember 30, 2005 and 2006.
Evercore Partners Inc.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
2005 | 2006 | 2005 | 2006 | ||||||||||
($ in thousands) | |||||||||||||
Revenue: | |||||||||||||
Advisory | $ | 12,243 | $ | 40,173 | $ | 30,513 | $ | 72,570 | |||||
Investment Management | 2,000 | 3,138 | 6,120 | 16,246 | |||||||||
Interest & Other Income | 31 | 179 | 75 | 300 | |||||||||
Revenue | 14,274 | 43,490 | 36,708 | 89,116 | |||||||||
Operating Expenses: | |||||||||||||
Compensation and benefits | 5,204 | 8,093 | 10,614 | 16,852 | |||||||||
Non-compensation expense | 6,810 | 9,833 | 11,986 | 19,780 | |||||||||
Total operating expenses | 12,014 | 17,926 | 22,600 | 36,632 | |||||||||
Operating Income | 2,260 | 25,564 | 14,108 | 52,484 | |||||||||
Minority interest | 8 | 6 | 10 | (1 | ) | ||||||||
Provision for income taxes | 377 | 905 | 1,047 | 1,884 | |||||||||
Net Income | 1,875 | 24,653 | 13,051 | 50,601 | |||||||||
Selected ratios and headcount information for the three month and six month periods ended June 30, 2006 and 2005 are set forth below:Condensed Combined/Consolidated Statements of Income
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2005 | 2006 | 2005 | 2006 | |||||||||
As a % of Revenue: | ||||||||||||
Advisory | 85.8 | % | 92.4 | % | 83.1 | % | 81.4 | % | ||||
Investment Management | 14.0 | 7.2 | 16.7 | 18.3 | ||||||||
Interest & Other Income | 0.2 | 0.4 | 0.2 | 0.3 | ||||||||
Revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||
Nine Months Ended September 30, 2005 and 2006 | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
GAAP | Pro Forma | |||||||||||||||||||||||
Combined 2005 | Combined | Consolidated | For the Nine | For the Nine | For the Nine | |||||||||||||||||||
PREDECESSOR | PREDECESSOR | SUCCESSOR | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Advisory | $ | 69,895 | $ | 96,122 | $ | 12,574 | $ | 108,696 | $ | 83,007 | $ | 115,744 | ||||||||||||
Investment Management | 13,117 | 16,860 | 4,152 | 21,012 | 13,549 | 17,817 | ||||||||||||||||||
Interest and Other Income | 135 | 643 | 3,819 | 4,462 | 1,641 | 11,074 | ||||||||||||||||||
Total Revenues | 83,147 | 113,625 | 20,545 | 134,170 | 98,197 | 144,635 | ||||||||||||||||||
Interest Expense | — | — | 3,319 | 3,319 | 1,267 | 9,606 | ||||||||||||||||||
Net Revenues | 83,147 | 113,625 | 17,226 | 130,851 | 96,930 | 135,029 | ||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Compensation and Benefits | 17,585 | 20,598 | 10,969 | 31,567 | 47,578 | 64,420 | ||||||||||||||||||
Non-compensation Expense | 23,766 | 24,702 | 4,245 | 28,947 | 25,667 | 31,484 | ||||||||||||||||||
Total Operating Expenses | 41,351 | 45,300 | 15,214 | 60,514 | 73,245 | 95,904 | ||||||||||||||||||
Operating Income | 41,796 | 68,325 | 2,012 | 70,337 | 23,685 | 39,125 | ||||||||||||||||||
Minority Interest | 3 | 6 | 1,417 | 1,423 | 16,949 | 27,999 | ||||||||||||||||||
Provision for Income Taxes | 1,823 | 2,368 | 297 | 2,665 | 3,378 | 5,628 | ||||||||||||||||||
Net Income | $ | 39,970 | $ | 65,951 | $ | 298 | $ | 66,249 | $ | 3,358 | $ | 5,498 | ||||||||||||
Net Income per Share | N/A | N/A | $ | 0.06 | N/A | $ | 0.70 | $ | 1.15 | |||||||||||||||
% of Revenue: | ||||||||||||||||||||||||
Advisory | 84.1 | % | 84.6 | % | 73.0 | % | 83.1 | % | 85.6 | % | 85.7 | % | ||||||||||||
Investment Management | 15.8 | % | 14.8 | % | 24.1 | % | 16.1 | % | 14.0 | % | 13.2 | % | ||||||||||||
Compensation and Benefits | 21.1 | % | 18.1 | % | 63.7 | % | 24.1 | % | 49.1 | % | 47.7 | % | ||||||||||||
Non-compensation Expense | 28.6 | % | 21.7 | % | 24.6 | % | 22.1 | % | 26.5 | % | 23.3 | % | ||||||||||||
Operating Margin | 50.3 | % | 60.1 | % | 11.7 | % | 53.8 | % | 24.4 | % | 29.0 | % |
* | Represents aggregate successor and predecessor results for the period presented. The combined results are non-GAAP financial measures and should not be used in isolation or substitution of predecessor and successor results. See page 3 “Unaudited Condensed Combined/Consolidated Statements of Income.” |
As of June 30, | As of September 30, | |||||||||||
2005 | 2006 | 2005 | 2006 U.S. | 2006 Protego | 2006 Consolidated | |||||||
Headcount: | ||||||||||||
Senior Managing Directors: | ||||||||||||
Advisory | 8 | 13 | 11 | 13 | 6 | 19 | ||||||
Investment Management | 7 | 7 | 6 | 7 | 1 | 8 | ||||||
Corporate | 1 | 2 | 1 | 3 | 0 | 3 | ||||||
Other Employees: | ||||||||||||
Other Professionals and all Other Support Staff | 78 | 108 | ||||||||||
Other Professionals and Support Staff | 84 | 126 | 82 | 208 | ||||||||
Total | 94 | 130 | 102 | 149 | 89 | 238 | ||||||
Three Months Ended JuneSeptember 30, 2006 versus JuneSeptember 30, 2005
Actual Net Revenue was $43.5$41.7 million for the three month period ended JuneSeptember 30, 2006, up $29.2down $4.7 million, or 204.7%10.1%, versus revenueNet Revenue of $14.3$46.4 million in the corresponding period in 2005. During the 2006 period, Advisory revenue was $40.2$36.1 million, an increasea decrease of $27.9$3.3 million or 228.1%8.3% versus revenue of $12.2$39.4 million in the corresponding period in 2005. Investment Management revenue was $3.1$4.8 million, an increasea decrease of $1.1$2.2 million, or 56.9%31.9%, versus revenue of approximately $2.0$7.0 million in the corresponding period in 2005. Client
On a pro-forma basis, total Net Revenue was $43.4 million for the three month period ended September 30, 2006, a decrease of $2.7 million, or 5.8%, versus Net Revenue of $46.1 million in the corresponding period in 2005. On a pro-forma basis, Advisory revenue was $37.3 million for the three month period ended September 30, 2006, a decrease of $4.9 million, or 11.5%, versus revenue of $42.2 million in the corresponding period in 2005. On a pro-forma basis, Investment Management revenue was $5.2 million for the three month period ended September 30, 2006, an increase of $1.5 million, or 39.6%, versus revenue of $3.7 million in the corresponding period in 2005.
Actual client expense reimbursements for transaction-related expenses recorded as revenue in the three months ended JuneSeptember 30, 2006 were $0.5$1.0 million, or $0.2$0.3 million greater than the same period in 2005.
CompensationActual compensation and benefits expense was $8.1$14.7 million for the three month period ended JuneSeptember 30, 2006, an increase of $2.9$7.7 million, or 55.5%111.1%, versus expense of $5.2$7.0 million in the corresponding period in 2005. The increase was primarily due to the impact of increased headcount, increase inhigher base salaries andfor existing employees, higher anticipated performance-based bonus awards. Compensationawards, and compensation for Protego since the period of acquisition and the inclusion of senior managing directors compensatory payment in compensation for the period after IPO. Because we operated as a limited liability company prior to our IPO, payments for services rendered by Evercore’s senior managing directors were accounted for as distributions of members’ capital, rather than compensation expenses. As a result, the Firm’s pre-IPO compensation and benefits expenses do not reflect a large portion of payments for services rendered by the Company’s senior managing directors and does not fairly reflect the operating costs the Company is incurring as a public company. As a corporation, Evercore includes all payments for services rendered by its senior managing directors in compensation and benefit expenses. Additionally, Evercore recorded $4.3 million in additional compensation expense recognized post-IPO associated with the estimated fair market value of restricted stock units granted in connection with the IPO.
Actual compensation and benefits expense was 18.6%35.3% and 36.5%15.0% of revenue for the three months ended JuneSeptember 30, 2006 and 2005, respectively. Evercore’s compensation and benefit expenses for the period following the completion of its IPO resulted in a 50% ratio of compensation to revenues, excluding reimbursable expenses and carried interest and the impact of vested restricted stock units granted in connection with the IPO.
Non-compensationOn a pro-forma basis, compensation and benefits expense was $9.8$19.8 million for the three month period ended September 30, 2006 or 45.7% of revenue, a decrease of $2.9 million, or 12.6%, versus expense of $22.7 million or 49.3% of revenue in the corresponding period in 2005. Pro forma results reflect a 50% ratio of compensation and benefits to revenue, excluding reimbursable expenses and carried interest, and compensation expense associated with the restricted stock units granted in connection with the IPO.
Actual Non-compensation expenses were $9.2 million for the three months ended September 30, 2006 a decrease of 22.2% over Non-compensation expenses of $11.8 million for the comparable three month period ended September 30, 2005. Professional fees had declined on a net basis for the three month period ended September 30, 2006 as compared to the three month period ended September 30, 2005, by $5.6 million. The decrease was due to lower costs associated with temporary resources hired to support Evercore’s accounting and finance staff in preparation for the IPO which were not needed to the same extent in the comparable period of 2006, and a net decrease in spend associated with business development initiatives. This decline in professional fees was offset by the financing fees associated with the firm’s line of credit of $0.5 million and $0.8 million in amortization of intangible assets associated with the acquisition of Protego both of which were incurred during the three months ended September 30, 2006 but not incurred during the comparable period in 2005. Additionally, travel and related expenses had increased by $0.7 million for the three months ended September 30, 2006 compared with $6.8 million into the same period 2005. A substantial portion of this increase is due to transaction and deal related expenses that are generally billable to clients. The increase in all other expenses is primarily due to increase in costs commensurate with our expanded headcount, principally leased office space and technology related expenses.
Actual transaction-related expenses incurred for the three months ended September 30, 2006 were $1.7 million as compared to $1.4 million for the same period in 2005. We may be reimbursed for such transaction-related expenses, and such clients expense reimbursements are recorded as revenue on the Condensed Combined/Consolidated Statements of Income on the later of the date of an executed engagement letter or the date the expense is incurred.
Pro forma non-compensation expense was $9.0 million for the three months ended September 30, 2006 a decrease of 3.0% compared to $9.2 million for three months ended September 30, 2005.
For the three month period ended JuneSeptember 30, 2006, non-compensationthe actual provision for income taxes was $0.8 million, remaining flat compared to the corresponding period in 2005. For the three month period ended September 30, 2006, an effective tax rate of approximately 45% was used to compute the tax provision on the portion of the company’s income subject to taxes as a C corporation.
Nine Months Ended September 30, 2006 versus September 30, 2005
Actual Net Revenue was $130.9 million for the nine month period ended September 30, 2006, an increase of $47.7 million, or 57.4%, versus Net Revenue of $83.1 million in the corresponding period in 2005. During the 2006 period, Advisory revenue was $108.7 million, an increase of $38.8 million or 55.5% versus revenue of $69.9 million in the corresponding period in 2005. Investment Management revenue was $21.0 million, an increase of approximately $7.9 million, or 60.2%, versus revenue of approximately $13.1 million in the corresponding period in 2005.
On a pro-forma basis, total Net Revenue was $135.0 million for the nine month period ended September 30, 2006, an increase of $38.1 million, or 39.3%, versus Net Revenue of $96.9 million in the corresponding period in 2005. On a pro-forma basis, Advisory revenue was $115.7 million for the nine month period ended September 30, 2006, an increase of $32.7 million, or 39.4%, versus revenue of $83.0 million in the corresponding period in 2005. On a pro-forma basis, Investment Management revenue was $17.8 million for the nine month period ended September 30, 2006, an increase of $4.3 million, or 31.5%, versus revenue of $13.5 million in the corresponding period in 2005.
Actual client expense reimbursements for transaction-related expenses increasedrecorded as revenue in the nine months ended September 30, 2006 were $3.4 million, or $1.7 million greater than the same period in 2005.
Actual compensation and benefits expense was $31.6 million for the nine month period ended September 30, 2006, an increase of $14.0 million, or 79.5%, versus expense of $17.6 million in the corresponding period in 2005. The increase was primarily due to increasesthe impact of increased headcount, higher base salaries for existing employees, higher anticipated performance-based bonus awards, compensation for Protego since the period of acquisition and the inclusion of Senior Managing Directors compensatory payment in compensation for the period after the IPO. Additionally, Evercore recorded $4.3 million in additional compensation expense recognized post-IPO associated with the estimated fair market value of restricted stock units granted in connection with the IPO.
Actual compensation and benefits expense was 24.1% and 21.1% of revenue for the nine months ended September 30, 2006 and 2005, respectively. Evercore’s compensation and benefit expenses for the period following the completion of its IPO resulted in a 50% ratio of compensation to revenues, excluding reimbursable expenses and carried interest and the impact of vested restricted stock units granted in connection with the IPO.
On a pro-forma basis, compensation and benefits expense was $64.4 million for the nine month period ended September 30, 2006 or 47.7% of revenue, an increase of $16.8 million, or 35.4%, versus expense of $47.6 million or 49.1% of revenue in the corresponding period in 2005. Pro forma results reflect a 50% ratio of compensation and benefits to revenue, excluding reimbursable expenses and carried interest, and compensation expense associated with the restricted stock units granted in connection with the IPO.
Actual Non-compensation expenses of $28.9 million for the nine months ended September 30, 2006 an increase of 21.8% over Non-compensation expenses of $23.8 million for the comparable nine month period ended September 30, 2005. Professional fees declined on a net basis for the nine month period ended September 30, 2006 as compared to the nine month ended September 30, 2005, by $2.0 million. The decrease was due to lower costs associated with temporary resources hired to support Evercore’s accounting and finance staff in preparation for the IPO which were not needed to the same extent in the comparable of 2006, partially offset by a net increase in spend associated with business development initiatives and transaction and deal related expenses that are generally billable to clients. This overall decline in professional fees was offset by the financing fees associated with the firm’s line of credit of $1.7 million and $0.8 million in amortization of intangible assets associated with the acquisition of Protego both of which were incurred during the nine months ended September 30, 2006 but not incurred during the comparable period 2005. Additionally travel and related expenses financing costs and other operating expenses. Thehad increased by $2.0 million for the nine months ended September 30, 2006 compared to the same period 2005. A substantial portion of this increase of $0.4 million in professional fees, versus the 2005 period, was principallyis due to consulting fees related to the day to day operations,transaction and legal fees. The increase of $0.8 million in travel anddeal related expenses versus the 2005 period, can be primarily attributedthat are generally billable to transaction related expenses.clients. The increase of $0.6 million in financing costs, versus the 2005 period, is principally due to debt and other financing fees associated with our line of credit. The increase of $0.5 million in other operating expenses, versus the 2005 period, is principally due to state incorporation related filing fees. Increases in all other expenses were driven by increasedis primarily due to increase in costs commensurate with our expanded headcount, principally leased office space and transactiontechnology related activity.expenses.
Transaction-relatedActual transaction-related expenses incurred for the threenine months ended JuneSeptember 30, 2006 were $1.8$5.6 million as compared to $1.0$3.7 million for the same period in 2005. We may be reimbursed for such transaction-related expenses, and such clients expense reimbursements are recorded as revenue on the condensed combinedconsolidated statements of income on the later of the date of an executed engagement letter or the date the expense is incurred.
Pro forma non-compensation expense was $31.5 million for the nine months ended September 30, 2006 an increase of 22.6% compared to $25.7 million for nine months ended September 30, 2005.
For the threenine month period ended JuneSeptember 30, 2006, the actual provision for income taxes was $0.9$2.7 million, an increase of $0.5$0.9 million versus $0.4 million for the corresponding period in 2005. This increase was principally due to increased operating income overall.
Six Months Ended June 30, 2006 versus June 30, 2005
Revenue was $89.1 million for the six month period ended June 30, 2006, up $52.4 million, or 142.8%, versus revenue of $36.7 million in the corresponding period in 2005. During the 2006 period, Advisory revenue was $72.6 million, an increase of $42.1 million or 137.8% versus revenue of $30.5 million in the corresponding period in 2005. Investment Management revenue was $16.2 million, an increase of approximately $10.1 million or 165.5%, versus revenue of approximately $6.1 million in the corresponding period in 2005. Client expenses reimbursements for
transaction-related expenses recorded as revenue in the six months ended June 30, 2006 were $2.5 million, or $1.4 million greater than the same period in 2005.
Compensation and benefits expense was $16.9 million for the six month period ended June 30, 2006, an increase of $6.2 million, or 58.8%, versus expense of $10.6 million in the corresponding period in 2005. The increase was primarily due to increases in headcount, increased base salaries, and higher anticipated performance-based bonus awards and an increase in sign-on bonus awards. As of June 30, 2006, overall headcount was 130, up 36 versus headcount as of June 30, 2005, representing additions principally in Advisory and support personnel. Compensation and benefits expense was 18.9% and 28.9% of revenue for the six months ended June 30, 2006 and 2005, respectively.
Non-compensation expense was $19.8 million in the six month period ended June 30, 2006, compared with $12.0$1.8 million for the corresponding period in 2005. For the sixthree month period ended JuneSeptember 30, 2006, non-compensation expenses increased versusan effective tax rate of approximately 45% was used to compute the comparable period in 2005 primarily due to increases in professional fees, travel and related expenses, financing costs and other operating expenses. The increase of $3.5 million in professional fees was due to consulting fees and legal fees. The increase in consulting can be attributed to temporary services used for day to day operations, and costs incurred in connection with the preparation of historical financial statements and upgrades to our reporting and accounting systems plus an increase in transaction related expenses. The increase of $1.3 million in travel and related expenses, versus the corresponding period in 2005, is largely associated with transaction related expense. The increase of $1.2 million in financing costs, versus the period in 2005, is principally due to debt and other financing costs incurred with connection to our line of credit. The increase of $0.6 million in other operating expenses, versus the 2005 period, is principally due to filing fees. Increases in all other expenses were driven by increased headcount and transaction related activity.
Transaction-related expenses incurred for the six months ended June 30, 2006 were $3.9 million as compared to $2.4 million for the same period of 2005. We may be reimbursed for such transaction-related expenses, and such clients expense reimbursements are recorded as revenuetax provision on the condensed combined statement of income on the laterportion of the date of an executed engagement letter or the date the expense is incurred.
For the six month period ended June 30, 2006, the provision forcompany’s income subject to taxes was $1.9 million, an increase of $0.8 million versus $1.0 million for the corresponding period in 2005. This increase was principally due to increased operating income overall.as a C corporation.
Business Segments
The following data discusses revenue and operating income by business segment. Each segment’s operating expenses include (1) compensation and benefits expense incurred directly in support of the businesses of the segment (2) non-compensation expenses, which include directly incurred expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment, and (3) indirect support costs (including compensation and other operating expenses related thereto) for administrative services. These administrative services include certain accounting, tax, legal, facilities management and senior management activities. Such support costs are allocated to the relevant segments based on various statistics such as headcount, square footage and transactional volume. Other corporate expenses such as costs related to our line of credit, and audit fees and other costs related to being a public company, are not allocated to the business segments and are reflected in a Corporate segment in the notes to Evercore’s financials statements.
Advisory
The following table summarizes the operating results of the Advisory segment.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2006 | 2005 | 2006 | |||||||||||||
($ in thousands) | ||||||||||||||||
Advisory Revenues: | ||||||||||||||||
Advisory Revenue | 12,243 | 40,173 | 30,513 | 72,570 | ||||||||||||
Interest Income and Other | 23 | 163 | 57 | 264 | ||||||||||||
Total Advisory Revenue | 12,266 | 40,336 | 30,570 | 72,834 | ||||||||||||
Advisory Expenses: | ||||||||||||||||
Compensation and Benefits | 4,201 | 6,896 | 8,532 | 13,707 | ||||||||||||
Non-Compensation Expenses | 4,236 | 5,007 | 7,371 | 9,411 | ||||||||||||
Total Advisory Operating Expenses | 8,437 | 11,903 | 15,903 | 23,118 | ||||||||||||
Advisory Operating Income | $ | 3,829 | $ | 28,433 | $ | 14,667 | $ | 49,716 | ||||||||
Advisory Operating Income as a Percentage of Total Advisory Revenue | 31.2 | % | 70.5 | % | 48.0 | % | 68.3 | % | ||||||||
As of June 30, | ||||||||||||||||
2005 | 2006 | |||||||||||||||
Headcount: | ||||||||||||||||
Senior Managing Directors | 8 | 13 | ||||||||||||||
Other Advisory Professionals and Support Staff | 48 | 60 | ||||||||||||||
Total | 56 | 73 | ||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2006 | 2005 | 2006 | |||||||||||||
Number of Advisory Clients | ||||||||||||||||
Total | 23 | 21 | 33 | 34 | ||||||||||||
With Fees Greater than $1 million | 4 | 9 | 13 | 17 | ||||||||||||
Percentage of Total Fees from Top 5 Clients | 71.9 | % | 65.6 | % | 50.3 | % | 47.3 | % |
Condensed Combined/Consolidated Statements of Income-Advisory
(Unaudited)
(dollars in thousands)
Combined | Consolidated | Combined | Consolidated | |||||||||||||||||||||||||||||
Combined For the Three Months Ended September 30, 2005 | For the Period | Combined For the Nine Months Ended September 30, 2005 | For the Period | |||||||||||||||||||||||||||||
July 1, 2006 through August 9, 2006 | August 10, 2006 through September 30, 2006 | For the Three Months Ended September 30, 2006* | January 1, 2006 through August 9, 2006 | August 10, 2006 through 2006 | For the Nine Months Ended September 30, 2006* | |||||||||||||||||||||||||||
PREDECESSOR | PREDECESSOR | SUCCESSOR | PREDECESSOR | PREDECESSOR | SUCCESSOR | |||||||||||||||||||||||||||
Advisory Revenue: | ||||||||||||||||||||||||||||||||
Advisory Revenue | $ | 39,382 | $ | 23,552 | $ | 12,574 | $ | 36,126 | $ | 69,895 | $ | 96,122 | $ | 12,574 | $ | 108,696 | ||||||||||||||||
Interest Income and Other | 50 | 196 | 287 | 483 | 107 | 460 | 287 | 747 | ||||||||||||||||||||||||
Total Advisory Revenue | 39,432 | 23,748 | 12,861 | 36,609 | 70,002 | 96,582 | 12,861 | 109,443 | ||||||||||||||||||||||||
Advisory Expenses: | ||||||||||||||||||||||||||||||||
Compensation and Benefits | 5,546 | 3,267 | 9,599 | 12,866 | 14,078 | 16,974 | 9,599 | 26,573 | ||||||||||||||||||||||||
Non-Compensation Expenses | 8,009 | 3,427 | 4,191 | 7,618 | 15,380 | 12,838 | 4,191 | 17,029 | ||||||||||||||||||||||||
Total Advisory Operating Expenses | 13,555 | 6,694 | 13,790 | 20,484 | 29,458 | 29,812 | 13,790 | 43,602 | ||||||||||||||||||||||||
Advisory Operating Income | $ | 25,877 | $ | 17,054 | $ | (929 | ) | $ | 16,125 | $ | 40,544 | $ | 66,770 | $ | (929 | ) | $ | 65,841 | ||||||||||||||
Advisory Operating Income as a Percentage of Total Advisory Revenue | 65.6 | % | 71.8 | % | (7.2 | )% | 44.0 | % | 57.9 | % | 69.1 | % | (7.2 | )% | 60.2 | % | ||||||||||||||||
* | Represents aggregate successor and predecessor results for the period presented. The combined results are non-GAAP financial measures and should not be used in isolation or substitution of predecessor and successor results. |
2006 U.S. Headcount: Senior Managing Directors Other Advisory Professionals Direct Support Staff Total Number of Advisory Clients* Total With Fees Greater than $1 million Percentage of Total Fees from Top 5 Clients As of September 30, 2005 2006
Protego 2006
Consolidated 11 13 6 19 38 56 23 79 15 19 9 28 64 88 38 126 Three Months Ended
September 30, Nine Months Ended
September 30, 2005 2006 2005 2006 28 23 43 49 9 7 20 25 76.1 % 80.9 % 54.5 % 45.8 %
* | excludes Advisory clients of Protego. |
For the sixthree month periodand nine month periods ended JuneSeptember 30, 2006, activity in the North American M&A industry continued to be strong as evidenced by the following industry statistics regarding the volume of transactions:
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | |||||||||||||
Industry Statistics ($in billions) | ||||||||||||||||||||
Industry Statistics ($ in billions) | ||||||||||||||||||||
Value of North American M&A Deals Announced | 314 | 451 | 601 | 796 | $ | 248 | $ | 325 | $ | 849 | $ | 1,121 | ||||||||
Value of North American M&A Deals Completed | 186 | 276 | 357 | 624 | 311 | 245 | 668 | 869 |
Source: Thomson Financial
We expect that our Advisory business should continue to benefit from any sustained increase in M&A volume.
Advisory Results of Operations
Three Months Ended JuneSeptember 30, 2006 versus JuneSeptember 30, 2005
In the three months ended September 30, 2006, period, Advisory revenue was $40.3$36.6 million, an increasea decrease of $28.1$2.8 million, or 228.8%7.2%, versus revenue of $12.3$39.4 million in the corresponding period in 2005. Included in total Advisory a revenue for the three months ended September 30, 2006 was Protego Advisory revenue of $1.3 million. Advisory client expense reimbursements billed as revenue were $0.6$0.8 million and $0.5 million for the three months ended JuneSeptember 30, 2006 and 2005, respectively.
The increaseWhile M&A performance continued to be strong, the decrease in M&A revenue is a result of both strongthe unevenness of quarterly M&A performance, consistent with increased industry-wide completed M&A activity, and by greater productivity from our Senior Managing Directors. Evercore’s Advisory group advised on a number of the second quarter of 2006’s significant transactions.revenue generation. We earned Advisory revenue from 2123 different clients, excluding Protego, during the three months ended JuneSeptember 30, 2006, compared to 2328 different clients during the same period in 2005. We earned in excess of $1 million from 97 of those clients in the three months ended JuneSeptember 30, 2006, compared to 49 in the same period in 2005. Five clients accounted for more than 65.6%80.9% of Advisory revenue for the three months ended JuneSeptember 30, 2006, as compared to 71.9%76.1% of Advisory revenue during the same period in 2005.
Operating expenses were $11.9$20.5 million in the 2006 period, an increase of approximately $3.5$6.9 million, or 41.1%51.1%, versus operating expenses of $8.4$13.6 million in the corresponding period in 2005. Compensation and benefits expense increased by $2.7$7.3 million, or 64.2%132.0%, as compared to the corresponding period in 2005, reflecting inclusion of Senior Managing Directors compensatory payment in compensation, impact of increased headcount for new
hires, increased base salaries andfor existing employees, higher anticipated performance-based bonus awards.awards, inclusion of Protego in the consolidated results, and the issuance of stock based awards at the date of the IPO. Non-compensation expenses increaseddecreased by $0.8$0.4 million, or 18.2% principally due to expenses driven by increased headcount and transaction related activity, principally travel and related expenses4.9%, over the same period last year.
Included in Advisory non-compensation expenses for the three months ended JuneSeptember 30, 2006 of $5.0$7.6 million are transaction-related expenses of $1.4$1.5 million principally for travel and related expenses incurred in the conduct of financial advisory activity. Advisory transaction-related expenses incurred for the three months ended JuneSeptember 30, 2005 were $0.8$1.2 million.
Advisory operating income was $28.4$16.1 million for the 2006 period, an increasea decrease of $24.6$9.8 million, or 642.6%37.7%, versus the same period in 2005. Operating income as a percentage of segment revenue was 70.5%44.0% for 2006 versus 31.2%65.6% in the corresponding period in 2005, with operating leverage resulting from higher revenues being partially offset by the increase in recorded compensation expense in the 2006 period.2005.
SixNine Months Ended JuneSeptember 30, 2006 versus JuneSeptember 30, 2005
In the nine months ended September 30, 2006, period, Advisory revenue was $72.8$109.4 million, an increase of $42.3$39.4 million or 138.3%56.3% versus revenue of $30.6$70.0 million in the corresponding period in 2005, driven by the continued strength of the mergers and acquisitions environment and by improved productivity of our senior managing directors.Senior Managing Directors. Included in total Advisory revenue for the three months ended September 30, 2006 was Protego Advisory revenue of $1.3 million. Advisory client expense reimbursements billed as revenue were $1.6$2.4 million and $1.1$1.6 million for the sixnine months ended JuneSeptember 30, 2006, and 2005, respectively.
We earned Advisory revenue from 3449 different clients, excluding Protego, during the sixnine months ended JuneSeptember 30, 2006, compared to 3343 different clients during the same period in 2005. We earned in excess of $1 million from 1725 of those clients in the sixnine months ended JuneSeptember 30, 2006, compared to 1320 in the same period in 2005. Five clients accounted for more than 47.3%45.8% of Advisory revenue for the sixnine months ended JuneSeptember 30, 2006, as compared to 50.3%54.5% of Advisory revenue during the same period in 2005.
Operating expenses were $23.1$43.6 million in the 2006 period, an increase of $7.2$14.1 million, or 45.4%48.0%, versus operating expenses of $15.9$29.5 million in the corresponding period in 2005. Compensation and benefits expense increased by $5.2$12.5 million or 60.7%88.8%, as compared to the corresponding period in 2005, reflecting inclusion of senior managing directors compensatory payment in compensation impact of, increased headcount for new hires, increased base salaries andfor existing employees, higher anticipated performance-based bonus awards.awards, inclusion of Protego in the consolidated results, and the issuance of stock based awards at the date of the IPO.
Non-compensation expenses increased by $2.0$1.7 million or 27.7% principally due to expenses driven by increased headcount and transaction related activity, principally travel and related expenses.10.7% over the same period last year.
Included in Advisory non-compensation expenses for the sixnine months ended JuneSeptember 30, 2006 of $9.4$17.0 million are transaction-related expenses of $2.2$3.7 million for travel, meals and professional fees incurred in the conduct of financial advisory activity. Advisory transaction-related expenses incurred for the sixnine months ended JuneSeptember 30, 2005 were $1.8$3.0 million.
Advisory operating income was $49.7$65.8 million for the nine months ended September 30, 2006, period, an increase of $35.0$25.3 million, or 239.0%62.4%, versus operating income in the corresponding period in 2005. Operating income as a percentage of segment revenue was 68.3%60.2% for the first nine months of 2006 versus 48.0%57.9% in the corresponding period in 2005, with the operating leverage resulting from higher revenues being partially offset by the increase in recorded compensation expense in the 2006 period.2005.
Investment Management
The selected historical financial data is not indicative of the expected future operating results of Evercore following the Formation Transaction. For example, following this offeringthe IPO our results willdo not include the financial results of the general partners of the three private equity fundsPrivate Equity Funds that we currently manage and willdo include the financial results of Protego. See “Unaudited Condensed Consolidated Pro Forma Financial Information”.Information.”
The following table summarizes the operating results of the Investment Management segment.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2005 | 2006 | 2005 | 2006 | ||||||||||||
($ in thousands) | |||||||||||||||
Revenue: | |||||||||||||||
Management Fees | $ | 3,751 | $ | 3,324 | $ | 7,537 | $ | 6,670 | |||||||
Placement Fees | (621 | ) | — | (1,243 | ) | — | |||||||||
Net Management Fees | 3,130 | 3,324 | 6,294 | 6,670 | |||||||||||
Portfolio Company Fees | 276 | 356 | 2,374 | 5,002 | |||||||||||
Total Management & Portfolio Company Fees | 3,406 | 3,680 | 8,668 | 11,672 | |||||||||||
Carried Interest & Gains/(Loss) on Investments | (1,406 | ) | (542 | ) | (2,548 | ) | 4,574 | ||||||||
Investment Management Revenue | 2,000 | 3,138 | 6,120 | 16,246 | |||||||||||
Interest Income & other Revenue | 8 | 16 | 18 | 36 | |||||||||||
Total Investment Management Revenue | 2,008 | 3,154 | 6,138 | 16,282 | |||||||||||
Expenses: | |||||||||||||||
Employee Compensation & Benefits Expense | 1,003 | 1,197 | 2,082 | 3,145 | |||||||||||
Non-Compensation Expense | 1,053 | 2,375 | 3,094 | 6,068 | |||||||||||
Total Investment Management Operating Expenses | 2,056 | 3,572 | 5,176 | 9,213 | |||||||||||
Investment Management Operating Income | $ | (48 | ) | $ | (418 | ) | $ | 962 | $ | 7,069 | |||||
As of June 30, | |||||||||||||||
2005 | 2006 | ||||||||||||||
Headcount: | |||||||||||||||
Senior Managing Directors | 7 | 7 | |||||||||||||
Other Investment Management Professionals and Support Staff | 17 | 16 | |||||||||||||
Total | 24 | 23 | |||||||||||||
Condensed Combined/Consolidated Statements of Income-Investment Management
(Unaudited)
(dollars in thousands)
Combined For the Three Months Ended September 30, | Combined | Consolidated | For the Three Months Ended September 30, 2006* | Combined For the Nine Months Ended September 30, 2005 | Combined | Consolidated | For the Nine Months Ended September 30, 2006* | ||||||||||||||||||||
For the Period | For the Period | ||||||||||||||||||||||||||
July 1, 2006 through August 9, 2006 | August 10, 2006 through September 30, 2006 | January 1, 2006 through August 9, 2006 | August 10, 2006 through September 30, 2006 | ||||||||||||||||||||||||
PREDECESSOR | PREDECESSOR | SUCCESSOR | PREDECESSOR | PREDECESSOR | SUCCESSOR | ||||||||||||||||||||||
Investment Management Revenue: | |||||||||||||||||||||||||||
Management Fees | $ | 2,779 | $ | 557 | $ | 1,230 | $ | 1,787 | $ | 10,316 | $ | 7,227 | $ | 1,230 | $ | 8,457 | |||||||||||
Placement Fees | (622 | ) | — | — | — | (1,865 | ) | — | — | — | |||||||||||||||||
Net Management Fees | 2,157 | 557 | 1,230 | 1,787 | 8,451 | 7,227 | 1,230 | 8,457 | |||||||||||||||||||
Portfolio Company Fees | 523 | 57 | 382 | 439 | 2,897 | 5,059 | 382 | 5,441 | |||||||||||||||||||
Total Management & Portfolio Company Fees | 2,680 | 614 | 1,612 | 2,226 | 11,348 | 12,286 | 1,612 | 13,898 | |||||||||||||||||||
Carried Interest & Gains on Investments | 4,317 | 0 | 2,540 | 2,540 | 1,769 | 4,574 | 2,540 | 7,114 | |||||||||||||||||||
Investment Management Revenue | 6,997 | 614 | 4,152 | 4,766 | 13,117 | 16,860 | 4,152 | 21,012 | |||||||||||||||||||
Interest Income & Other Revenue | 10 | 147 | 3,532 | 3,679 | 28 | 183 | 3,532 | 3,715 | |||||||||||||||||||
Investment Management Revenue | 7,007 | 761 | 7,684 | 8,445 | 13,145 | 17,043 | 7,684 | 24,727 | |||||||||||||||||||
Interest Expense | — | — | 3,319 | 3,319 | — | — | 3,319 | 3,319 | |||||||||||||||||||
Net Investment Management Revenue | 7,007 | 761 | 4,365 | 5,126 | 13,145 | 17,043 | 4,365 | 21,408 | |||||||||||||||||||
Expenses: | |||||||||||||||||||||||||||
Compensation and Benefits Expense | 1,425 | 478 | 894 | 1,372 | 3,507 | 3,623 | 894 | 4,517 | |||||||||||||||||||
Non-Compensation Expense | 1,824 | 1,119 | 41 | 1,160 | 4,918 | 7,187 | 41 | 7,228 | |||||||||||||||||||
Total Investment Management Operating Expenses | 3,249 | 1,597 | 935 | 2,532 | 8,425 | 10,810 | 935 | 11,745 | |||||||||||||||||||
Investment Management Operating Income | $ | 3,758 | $ | (836 | ) | $ | 3,430 | $ | 2,594 | $ | 4,720 | $ | 6,233 | $ | 3,430 | $ | 9,663 | ||||||||||
* | Represents aggregate successor and predecessor results for the period presented. The combined results are non-GAAP financial measures and should not be used in isolation or substitution of predecessor and successor results. |
Headcount: Senior Managing Directors Other Investment Management Professionals Direct Support Staff Total As of September 30, 2005 2006
U.S. 2006
Protego 2006
Consolidated 6 7 1 8 12 11 28 39 6 7 3 10 24 25 32 57
Investment Management Results of Operations
Three Months Ended JuneSeptember 30, 2006 versus JuneSeptember 30, 2005
Net Investment Management revenueRevenue was $3.1$5.1 million for the three months ended September 30, 2006, period, an increasea decrease of $1.1$1.9 million, or 57.1%26.8%, versus revenueNet Investment Management Revenue of approximately $2.0$7.0 million for the corresponding period in 2005. Net management fees for the three months ended September 30, 2006 period were $3.3$1.8 million, down $0.4 million, or 11.4%,17.2 %, for the corresponding period in 2005. There were no placement fees for2005, principally due to larger offsets in the 2006 period as there will no longer be anyassociated with portfolio company fees earned in previous periods. No placement fees were paid related to ECP II,for the three months ended September 30, 2006, while approximately $0.6 million was recorded for the corresponding period in 2005. In addition, during the three month period ended JuneSeptember 30, 2006, there were net unrealized and realized gains, and losses, including carried interest, and pro rata share of the loss on EAM, of approximately ($0.5)$2.5 million from Portfolio Company Investments as compared to net unrealized and realized gains and losses of ($1.4)$4.3 million in the same period in 2005. Investment Management client expense reimbursements billed as revenue were $(0.1)$0.2 million and $(0.2)$0.1 million for the three months ended JuneSeptember 30, 2006, and 2005, respectively.
Operating expenses were $3.6$2.5 million for the three months ended September 30, 2006, period, an increasea decrease of $1.5$0.7 million, or 73.7%22.1%, versus operating expenses of $2.1$3.2 million for the corresponding period in 2005 principally due to increasesdecreases in non-compensation expenses. Due to new initiatives and travel, non-compensation expenses increased to $2.4 million for the 2006 period, an increase of $1.3 million or 125.3%, versus non-compensation operating expenses of $1.1 million for the corresponding period in 2005.
Included in Investment Management non-compensation expenses for the three months ended JuneSeptember 30, 2006 of $2.4$1.2 million are transaction-related expenses of $0.4$0.2 million for travel, meals and professional fees incurred in the conduct of Investment Management activity. Investment Management transaction-related expenses incurred for the three months ended JuneSeptember 30, 2005 were $0.2$0.1 million.
Investment Management operating income was flat$2.6 million in three months ended September 30, 2006, a decrease of $1.2 million, or 31.0%, as compared to income of $3.8 million in the correspondingsame period inof 2005. Operating lossincome as a percentage of segment revenue was (13.3)%50.6% for the three months ended September 30, 2006 period versus (2.4)%53.6% for the corresponding period in 2005 as a result of the items discussed above.2005.
SixNine Months Ended JuneSeptember 30, 2006 versus JuneSeptember 30, 2005
Net Investment Management revenueRevenue was $16.3$21.4 million for the nine months ended September 30, 2006, period, an increase of $10.1$8.3 million, or 165.3%62.9%, versus revenueNet Investment Management Revenue of approximately $6.1$13.1 million for the corresponding period in 2005. Net management fees for the nine months ended September 30, 2006 period were $6.7$8.5 million, down $0.9 million, or 11.5%, versus management fees of $7.5 million, forand remained flat as compared to the corresponding period in 2005. There were noNo placement fees were recorded for the nine months ended September 30, 2006 period as there willand no longer be anyadditional placement fees will be paid related to ECP II, while $1.2$1.9 million was recorded for the corresponding period in 2005. In addition, during the six month period ended June 30, 2006, net unrealized and realized gains and losses, including carried interest and pro rata share of the loss on EAM, were $4.6 million, as compared to net unrealized and realized gains and losses of ($2.5) million for the same period in 2005. Portfolio company fees for the 2006 period were $5.0$5.4 million, an increase of $2.6$2.5 million, or 110.7%87.8%, versus portfolio company fees of $2.4$2.9 million for the corresponding period in 2005. In addition, during the nine month period ended September 30, 2006, net unrealized and realized gains, including carried interest, were $7.1 million, as compared to net unrealized and realized gains, including carried interest, of $1.8 million for the same period in 2005. Investment Management client expense reimbursement billed as revenue were $0.9$1.1 million and $0.0$0.1 million for the sixnine months ended JuneSeptember 30, 2006 and 2005, respectively.
Operating expenses were $9.2$11.7 million for the nine months ended September 30, 2006, period, an increase of $4.0$3.3 million, or 78.0%39.4%, versus operating expenses of $5.2$8.4 million for the corresponding period in 2005. Compensation and benefits expenses increased by 51.1%28.8% in the nine months ended September 30, 2006 versus the same period in 2005, principally due to increased base salaries and higher anticipated performance-based bonus awards attributable to allocated new hires. Non-compensation expenses increased by $3.0$2.3 million in the nine months ended September 30, 2006, or 96.1%47.0%, versus the corresponding period in 2005, principally due to higher professional fees, relating to new business initiatives, transaction related expenses and travel related expenses.2005.
Included in Investment Management non-compensation expenses for the sixnine months ended JuneSeptember 30, 2006 of $6.1$7.2 million are transaction-related expenses of $1.7$1.9 million for travel, meals and professional fees incurred in the conduct of Investment Management activity. Investment Management transaction-related expenses incurred for the sixnine months ended JuneSeptember 30, 2005 were $0.6$0.7 million.
Investment Management operating income was $7.1$9.7 million for the nine months ended September 30, 2006, period, an increase of $6.1$4.9 million, or 634.8%, versus operating income of $1.0 million for the corresponding period in 2005.104.7%. Operating income as a percentage of segment revenue was 43.4%45.1% for the nine months ended September 30, 2006 period versus 15.7%35.9% for the corresponding period in 2005.
Cash Flows
Our historical cash flows are primarily related to the timing of receipt of Advisory and Investment Management fees and the timing of distributions to our Senior Managing Directors and payment of bonuses to employees. In general, we collect our accounts receivable within 60 days.
Cash and cash equivalents were $14.8$16.4 million at June 30,August 9, 2006, a decrease of approximately $23.0$21.5 million versus cash and cash equivalents of $37.9 million at December 31, 2005. During the six month221 day period ended June 30,August 9, 2006, cash of $30.9$63.3 million was provided by operating activities, comprised mainly of net income, allocableoffset by net gains of investments and changes in operating assets and liabilities. Cash of $6.2 million was used in investing activities, principally for the purchase of investments, offset by cash provided by proceeds from investments, and cash received in the acquisition of Protego. Financing activities during the period used cash of $78.6 million, primarily for distributions to members, whichoffset by short-term borrowings.
Cash and cash equivalents were $58.9 million at September 30, 2006, an increase of approximately $42.6 million versus cash and cash equivalents of $16.4 million at August 9, 2006. During the 52 day period ended September 30, 2006, cash of $8.7 million was offset primarily by increasesused in deferred offering and acquisition costs and accounts receivable, non-cash charges, principally consistingoperating activities, comprised of net gains on investments and net changesdecreases in otheroperating assets, offset by stock compensation, depreciation and amortization, minority interest and increases/decreases in operating assets and operating liabilities. Cash of $10.0$1.4 million was used for investing activities, principally for net purchases of investments which were offset by proceeds on existing investments.and furniture, equipment and leasehold improvements. Financing activities during the period usedprovided cash of $43.9$52.6 million, primarily for distributions to members, which werethe net proceeds from the IPO, offset by short term borrowings.payments for short-term borrowings, notes payable associated with the purchase of Protego.
Liquidity and Capital Resources
Our current assets typically have consisted primarily of cash and accounts receivable in relation to earned Advisory fees. Cash distributions to our Senior Managing Directors are generally made shortly after the end of each calendar quarter. We traditionally makehave made payments for employee bonuses primarily in the first month of the year with respect to the prior year’s results. Therefore, levels of cash on hand decrease significantly after the quarterly distribution of cash to Senior Managing Directors, and gradually increase until quarter end. We expect this pattern of cash flow to continue. Our liabilities have typically consisted of accounts payable and accrued compensation.
On December 30, 2005, we entered into a $30.0 million credit agreement with affiliates of Lehman Brothers, JPMorgan Chase and Goldman, Sachs & Co. that matured on the earlier of the consummation of the initial public offeringIPO and December 31, 2006. The agreement iswas a 364-day revolving line of credit. Borrowings under the agreement bearbore interest at a rate of LIBOR plus 200 basis points for any amount drawn and a commitment fee of 1/2 of 1% per annum for any unused portion. On January 12, 2006, we borrowed $25.0 million on the line of credit at an interest rate of 6.6%. On June 22, 2006, we drew down an additional $5.0 million at aan effective
interest rate of 7.48%. We recognized $0.4$0.6 million of debt issuance cost expense and $0.8$1.1 million of interest expense for the sixnine months ended JuneSeptember 30, 2006. The proceeds of this borrowing have been used for working capital purposes including funding of our ongoing investment management activities. We used a portion of the proceeds from the initial public offeringIPO to repay all outstanding borrowings under this line of credit, which has been terminatedterminated.
We regularly monitor our liquidity position, including cash, other significant working capital assets and liabilities, debt, principal investment commitments and other matters relating to liquidity and compliance with regulatory net capital requirements.
As of JuneSeptember 30, 2006, we had $14.8$58.9 million in cash on hand. We distributed $33.4 million of cash on August 9, 2006 to ourthe Senior Managing Directors of Evercore LP, representing a distribution of undistributed earnings for the period from January 1, 2006 to August 9, 2006.
Under the Evercore LP limited partnership agreement, we intend to cause Evercore LP to make distributions to its partners in an amount sufficient to cover all applicable taxes payable and dividends, if any, declared by us.
We had total commitments (not reflected on our condensed combined statementsCondensed Consolidated Statements of financial condition)Financial Condition) relating to future principal investments of $6.6$3.9 million as of JuneSeptember 30, 2006. We expect to fund $1.7 million of these commitments with cash flows from operations, with the balance to be funded by other members of the general partners of the private equity fundsPrivate Equity Funds we manage. We may be required to fund these commitments at any time through December 2011, depending on the timing and level of investments by the Evercore Capital Partners private equity funds,Private Equity Funds, although we do not expect these commitments to be drawn in full.
Subject to legally available funds, we intend to pay a quarterly cash dividend initially equal to $0.07 per share of Class A common stock, commencing with the fourth quarter of 2006. The Class B common stock will not be entitled to dividend rights. The declaration of this and any other dividends and, if declared, the amount of any such dividend, will be subject to the ability of our subsidiaries to provide cash to us. The declaration and payment of any future dividends will be at the sole discretion of our board of directors. Our board of directors will take into account general economic and business conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including Evercore LP) to us, and such other factors as our board of directors may deem relevant. If we pay such dividends, our Senior Managing Directors will be entitled to receive equivalent distributions pro rata based on their partnership interests in Evercore LP, although these individuals will not be entitled to receive any such dividend-related distributions in respect of unvested partnership units.
PCB, the Mexican asset management subsidiary of Protego, which we acquired in August 2006, enters into repurchase agreements with clients whereby PCB transfers to the clients securities (typically, Mexican government securities) in exchange for cash and concurrently agrees to repurchase the securities at a future date for an amount equal to the cash exchanged plus a stipulated premium or interest factor. PCB deploys the cash received from, and acquires the securities deliverable to, clients under these repurchase arrangements by purchasing securities in the open market or by entering into reverse repurchase agreements with unrelated third parties. We account for these repurchase and reverse repurchase agreements as collateralized financing transactions. We record a liability on our Condensed Consolidated Statement of Financial Condition in relation to repurchase transactions executed with clients as securities sold under agreements to repurchase. We record as assets on our Condensed Consolidated Statement of Financial Condition, financial instruments owned and pledged as collateral at fair value (where we have acquired the securities deliverable to clients under these repurchase arrangements by purchasing securities in the open market) and securities purchased under agreements to resell (where we have acquired the securities deliverable to clients under these resell agreements by entering into reverse repurchase agreements with unrelated third parties). As of September 30, 2006, PCB had approximately $350 million of repurchase transactions executed with clients, of which approximately $276 million related to securities PCB purchased on the open market and approximately $74 million of reverse repurchase transactions with third parties. Investment Management net revenue includes interest income earned and interest expense incurred under these agreements.
Prior to the acquisition, Protego Asesores, S.A. de C.V., its subsidiaries and Protego SI, S.C. (“Protego Historical”) accounted for these arrangements on a “net” basis instead of recording separate assets and liabilities or separately recording revenue for the interest earned and the associated interest expense as an offset to total revenue. Due to this error in accounting, on November 18, 2006, we determined that the Combined and Consolidated Financial Statements of Protego Historical as of and for the year ended December 31, 2005 and the related Independent Auditors’ Report and as of and for the three months ended March 31, 2006 and 2005, which were included in our Registration Statement, and as of and for the three and six months ended June 30, 2006 and 2005, which were included in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, should no longer be relied upon. Our management has discussed this matter with PricewaterhouseCoopers S.C., the independent auditors of Protego Asesores prior to the August 9, 2006 Protego acquisition, and our Audit Committee has discussed this matter with Deloitte & Touche LLP, our independent registered public accounting firm.
As of September 30, 2006, our share of PCB’s equity was recorded as $2.2 million.
Contractual Obligations
The following table sets forth information relating to our contractual obligations as of JuneSeptember 30, 2006:
Payment Due by Period | Payment Due by Period | |||||||||||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||||||||
($ in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||
Capital Lease Obligations | $ | 326 | $ | 176 | $ | 150 | $ | — | $ | — | $ | 279 | $ | 160 | $ | 119 | $ | — | $ | — | ||||||||||
Operating Lease Obligations | 14,878 | 3,181 | 4,192 | 4,352 | 3,153 | 182,782 | 10,275 | 23,594 | 23,545 | 125,368 | ||||||||||||||||||||
Investment Management Commitments | 6,617 | 3,949 | — | 235 | 2,433 | 3,945 | — | — | — | 3,945 | ||||||||||||||||||||
Total | $ | 21,821 | $ | 7,306 | $ | 4,342 | $ | 4,587 | $ | 5,586 | $ | 187,006 | $ | 10,435 | $ | 23,713 | $ | 23,545 | $ | 129,313 | ||||||||||
We expect to sublease an additional 124,000 square feet of office space at our principal executive offices at 55 East 52nd Street, New York, New York. Our rental payment obligations under the sublease are as follows: $9.5 million per year for years one through five of the sublease term; $10.2 million per year for years six through ten of the sublease term; $10.8 million per year for years 11 through 15 of the sublease term; and $11.4 million per year for year 16 through the expiration of the sublease term. We intend to sublease a portion of this additional space. Our current annual lease expense is $3.2 million. In connection with the execution of the sublease, we expect to deliverdelivered a security deposit in the form of aan unsecured letter of credit in the amount of $4.8 million. If we do not meet certain covenants of the unsecured letter of credit agreement, we may be required to secure the letter of credit. We intend to take possession of this additional space between February 1, 2007 and April 30, 2007. The term of the sublease expires on April 29, 2023.
Braveheart entered into an agreement to sub-lease office space, which, subject to the reasonable consent of the property owner, will allow Braveheart to sub-lease approximately 5,100 square feet of office space for its principal executive office at 10 Hill Street in London, U.K.United Kingdom The sub-lease will expire on September 26, 2011. Annual rental payments under the sub-lease are £321,619 per annum, exclusive of taxes, payable quarterly in advance. Braveheart is also responsible for 79.89% of the costs of maintaining and repairing the property, utilities and insurance costs, the aggregate of which is capped at an annual amount of £62,634, with subsequent year increases in such cap limited by changes in the U.K.United Kingdom retail price index. Evercore LP is acting as a guarantor of Braveheart’s obligations under the sub-lease, and at any time prior to the closing of the Braveheart acquisition, we may cause Braveheart to assign or sublease the property to an affiliate of Evercore, subject to the landlord’s reasonable consent.
Off-Balance Sheet Arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any leasing activities that expose us to any liability that is not reflected in our condensed combined financial statements.Condensed Combined/Consolidated Financial Statements.
Market Risk
Except for the items noted below in this section, due to the nature of our business and the manner in which we conduct our operations, in particular our limitation of investments to short termshort-term cash investments and government securities, other than principal investments in our Funds and Evercore Asset Management, we believe we do not face any material interest rate risk, foreign currency exchange rate risk, equity price risk or other market risk.
Investment Risk
Through our principal investments in our funds and our ability to recognize carried interest from these funds, which depends on the profits generated within our funds, we face exposure to changes in the estimated fair value of the companies in which these funds invest, which historically has been volatile. However, we do not believe normal changes in public equity markets will have a material effect on revenues derived from such investments. In contrast, we have made investments in portfolios to be managed by Evercore Asset Management, which include investments in publicly traded equity securities.
Exchange Rate Risk
On August 10, 2006, we acquired Protego, Asesores, a leading investment banking boutique in Mexico. A significant portion of Protego’s revenues have been and will continue to be derived from contracts denominated in Mexican pesos. In addition, Protego’s contracts with employees and most of its suppliers are denominated in Mexican pesos. As a result, variations in the exchange rate between the Mexican peso and the U.S. dollar may affect Protego’s revenue and expenses in U.S. dollars. A peso appreciation increases Protego’s costs in U.S. dollar terms but has a proportionately smaller effect on revenue, reducing Protego’s net income in U.S. dollar terms. Historically, the value of the peso has fluctuated considerably relative to the U.S. dollar.
In addition, On July 31, 2006, we entered into a sale and purchase agreement to acquire Braveheart, an English company which provides corporate finance and private equity advisory services in Europe. We expect that Braveheart’s revenue and expenses will be denominated primarily in British Pounds Sterling and Euro, which may expose us to fluctuations in the value of the dollar relative to these foreign currencies.
We have not entered into any transactions to hedge our exposure to these foreign exchange fluctuations through the use of derivative instruments or otherwise.
Critical Accounting Policies and Estimates
The condensed combined financial statementsCondensed Combined/Consolidated Financial Statements included in this report are prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions regarding future events that affect the amounts reported in our financial statements and their notes, including reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base these estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the presentation of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
Investments
The Company’s investments consist primarily of investments in the Private Equity Funds and assets managed by Evercore Asset Management, L.L.C. that are carried at fair value on the Condensed CombinedCombined/Consolidated Statements of Financial Condition, with realized and unrealized gains and losses included in Investment Management Revenue on the Condensed CombinedCombined/Consolidated Statements of Income.
The Private Equity Funds consist primarily of investments in marketable and non-marketable securities of the Portfolio Companies. The underlying investments held by the Private Equity Funds are valued based on quoted market prices or estimated fair value if there is no public market. The fair value of the Private Equity Funds’ investments in non-marketable securities are ultimately determined by the Companygeneral partner in its capacity as general partner. The Company determines fair value of non-marketable securities by giving consideration to a range of factors, including but not limited to market conditions, operating performance (current and projected) and subsequent financing transactions. Due to the inherent uncertainty in the valuation of these non-marketable securities, estimated values may materially differ from the values that would have been used had a ready market existed for these investments.
Financial Instruments Owned and Pledged as Collateral are used by PCB in repurchase agreements with clients. These securities are included with Condensed/Combined Statement of Financial Condition at fair value. Securities Purchased Under Agreement to Resell and Securities Sold Under Agreement to Repurchase are recorded at their contract value.
Investments in publicly traded securities are valued using quoted market prices.
Available-For-Sale Securities and Trading Securities are valued using quoted market prices for publicly traded securities or estimated fair value if there is no public market.
Financial Instruments Owned and Pledged as Collateral—We pledge financial instruments owned, which consist principally of foreign government obligations, to collateralize certain financing agreements and permit the counterparty to pledge the securities. We record these securities on a trade date basis and are stated at quoted market values. Related gains and losses are reflected in Interest Income and Other Revenue on the Condensed Combined/Consolidated Statement of Income. These securities are recorded as “Financial Instruments Owned and Pledged as Collateral at Fair Value” in the Condensed Consolidated Statement of Financial Condition.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase— Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as collateralized financing transactions. The agreements provide that the transferor will receive substantially the same securities in return at the maturity of the agreement and the transferor will obtain from the transferee sufficient cash or collateral to purchase such securities during the term of the agreement. These transactions are carried at the amounts at which the related securities will be subsequently resold or repurchased, plus accrued interest payables or receivable. As these transactions are short-term in nature, their carrying amounts are a reasonable estimate of fair value.
Revenue Recognition
We recognize Advisory revenue when the services related to the underlying transactions such as mergers, acquisitions, restructurings and divestitures are completed in accordance with the terms of the respective engagement agreement. Fees paid in advance of services rendered are initially recorded as deferred revenue and recognized as Advisory revenue ratably over the period in which the related service is rendered.
Investment Management revenue consists of management fees, portfolio company fees, carried interest and realized and unrealized gains (or losses) on investments in the private equityPrivate Equity Funds. Also, Asset Management Fees and Net Interest Revenue are included in Investment Management revenue and are derived from the management of outside funds.
Management fees are contractually based and are derived from investment management services provided to the private equity fundsPrivate Equity Funds in originating, recommending and consummating investment opportunities. Management fees are payable semi-annually in advance on committed capital during the private equity funds’Private Equity Funds’ investment period, and on invested capital, thereafter. Management fees are initially recorded as deferred revenue and revenue is recognized ratably over the period for which services are provided.
The private equity funds’Private Equity Funds’ partnership agreements provide for a reduction of management fees for certain portfolio company fees earned by us. Portfolio company fees are recorded as revenue when earned and are offset, in whole or in part, against future management fees.
Carried interest is computed in accordance with the underlying private equity funds’Private Equity Funds’ partnership agreements and is based on investment performance over the life of each investment partnership. Future investment underperformance may require amounts previously distributed to be returned to the respective investment partnerships. As required by the private equity funds’Private Equity Funds’ partnership agreements, the general partners of each private equity fund maintain a defined amount in escrow in the event that distributions received by such general partner must be returned due to investment underperformance. These escrow funds arePrior to the IPO, these escrowed amounts were not included in ourthe Company’s accounts. Subsequent to the IPO, the Company will reflect its pro rata share of ECP II carried interest held in escrow on its balance sheet.
Net interest revenue is derived from investing customer funds in financing transactions by PCB. The membersnet interest total reflects gross interest revenue less interest expense on repurchases and resales of the general partners of the private equity funds have guaranteed the general partners’ obligations to repay or refund to outside investors in the private equity funds interim amounts distributed to us, which may arise due to future investment underperformance.Mexican government securities.
Income Taxes
The Company accountsWe account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of tax benefits or expenses on the temporary differences between the financial reporting and tax bases of assets and liabilities. The Company’sOur operations, areprior to the IPO and reorganization transactions, were organized as a series of partnerships, limited liability companies and sub-chapter S corporations. Accordingly, the Company’sour income iswas not subject to U.S. federal income taxes. Taxes related to income earned by these entities representrepresented obligations of the individual members, partners or shareholders and havewere not been reflected in the accompanying historical Condensed CombinedCombined/Consolidated Financial Statements. Income taxes shown on the Company’sour historical Condensed CombinedCombined/Consolidated Statements of Income are attributable to the New York City Unincorporated Business Tax and the New York City general corporate tax. Upon the consummation of the IPO and becoming a C corporation, we are subject to federal, state, local and foreign income taxes.
Goodwill
In accordance with Statement of Financial Accounting Standards No. 142,““Goodwill and Other Intangible Assets,” goodwill is tested for impairment annually or more frequently if circumstances indicate impairment may have occurred. In this process, we make estimates and assumptions in order to determine the fair value of our assets and liabilities and to project future earnings using valuation techniques, including a discounted cash flow model. We use our best judgment and information available to us at the time to perform this review. Because our assumptions and estimates are used in projecting future earnings as part of the valuation, actual results could differ. At June 30, 2006 we had no outstanding goodwill. On a pro forma basis afterAfter giving effect to the Reorganization, including our combination with Protego, our goodwill as of JuneSeptember 30, 2006 was $31.5$31.0 million.
Recently Issued Accounting StandardsEquity Compensation
SFAS 123(R)Share-Based Payment – —On December 16, 2004, the Financial Accounting Standards Board, (“FASB”), issued SFAS No. 123 (revised 2004), “Share-Based Payment,” or SFAS(SFAS 123(R)), which is a revision of SFAS No. 123 “Accounting for Stock Based Compensation.” SFAS 123(R) supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the Condensed CombinedConsolidated Statements of Income based on their fair values. Pro forma disclosure is no longer an alternative. The Company has operated as a series of partnerships, limited liability companies and sub-chapter S corporations and has not historically issued stock-based compensation awards. The Company adopted SFAS 123(R) on January 1, 2006 and there was no material impact on2006. We recorded $4.3 million of expense related to the Company’s condensed combined financial condition or resultsvesting of operations.RSU grants made at the date of our IPO.
Recently Issued Accounting Standards
FIN 47—In March 2005, the FASB issued Financial Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 clarifies guidance provided in SFAS No. 143, “Accounting forAsset Retirement Obligations.” The term asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Entities are required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 was effective for fiscal years ending after December 15, 2005. The adoption of FIN 47 did not have a material effect on the Company’s condensed combinedcombined/consolidated financial condition or results of operations.operating results.
SFAS 154—In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections,”,” which replaces APB Opinion No. 20 and SFAS No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date SFAS 154 was issued. The adoption of SFAS 154 did not have a material effect on our condensed combinedcombined/consolidated financial condition or operating results.
Emerging Issues Task Force Issue No. 04-5—In June 2005 the Emerging Issues Task Force reached a consensus on Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” Under Issue 04-5, the general partners in a limited partnership or similar entity are presumed to control that limited partnership regardless of the extent of the general partners’ ownership interest in the limited partnership. A general partner should assess the limited partners’ rights and their impact on the presumption of control. If the limited partners have either a) the substantive ability to dissolve the limited partnership or otherwise remove the general partners without cause or b) substantive participating rights, the general partners do not control the limited partnership. For general partners of all new limited partnerships formed and for existing limited partnerships for which the partnership agreement is modified, Issue 04-5 is effective after June 29, 2005. For general partners in all other limited partnerships, Issue 04-5 is effective for the first reporting period in fiscal years beginning after December 15, 2005, and allows either of two transition methods. As of December 31, 2005 the private equity funds’ partnership agreements provide for the right to remove the general partners by a simple majority. As a result, we have determined that consolidation of the private equity funds will not be required pursuant to Issue 04-5.
SFAS 155—In February 2006, the FASB issued SFAS No. 155 “Accounting for Certain Hybrid Financial Instruments – Instruments—an amendment of FASB Statements No. 133 and 140”(“SFAS 155”).SFAS 155 permits an entity to measure at fair value any financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. We are currently assessing the impact of adopting SFAS 155, but do not expect the standard to have a material impact on our financial condition, operating results, and cash flows of the Company.
SFAS 156—In March 2006, the FASB issued SFAS No. 156156““Accounting for Servicing of Financial Assets – Assets—an amendment of FASB Statement No. 140”140”(“SFAS 156”), which requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and for subsequent measurements, permits an entity to choose either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. SFAS 156 also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS 156 is effective in fiscal years beginning after September 15, 2006. We are currently assessing the impact of adopting SFAS 156, but do not expect the standard to have a material impact on the financial condition, operating results, and cash flows of the Company.
FIN 48—In July 2006, the FASB issued FIN No. 4848““Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”109”(“FIN 48”), which clarifies the criteria that must be met prior to recognition of the financial statement benefit of a position taken in a tax return. FIN 48 provides a benefit recognition model with a two-step approach consisting of a “more-likely-than-not” recognition criteria, and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the financial statements. FIN 48 is effective as of the beginning of the first annual period beginning after December 15, 2006. We are currently assessing the impact of adopting FIN 48 on our financial condition, operating results, and cash flows.
SFAS 157—In September 2006, the FASB issued SFAS No. 157 “Fair“Fair Value Measurements”Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective in fiscal
years beginning after November 15, 2007. The Company is currently assessing the impact of adopting SFAS 157 on the financial condition, operating results, and cash flows of operations,the Company.
SFAS 158—In September 2006, the FASB issued SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”), which requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 is effective in fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of adopting SFAS 158 on the financial condition, operating results, and cash flows of the Company.
SAB 108—In September 2006, the SEC released Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 permits the Company to adjust for the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings in the year of adoption. SAB 108 also requires the adjustment of any prior quarterly financial statements within the fiscal year of adoption for the effects of such errors on the quarters when the information is next presented. Such adjustments do not require previously filed reports with the SEC to be amended. The Company is currently assessing the impact of adopting SAB 108 on the financial condition, operating results, and cash flows of the Company.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Risk Management
Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management.” We do not believe we face any material interest rate risk, foreign currency exchange risk, equity price risk or other market risk except as disclosed in Item 2 — “Market—“Market Risk” above.
Our management, including our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of ourProcedures
We maintain disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective, in all material respects,designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, including our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were not effective as of September 30, 2006.
In addition,connection with this evaluation, management determined that deficiencies in our internal control over financial reporting related to accounting for repurchase agreements entered into by PCB, the Mexican asset management subsidiary of Protego, which we acquired in August 2006, that affected the combined and consolidated financial statements of Protego Historical, for the year ended December 31, 2005, the three and six months ended March 31, 2006 and 2005 and the three and six months ended June 30, 2006 and 2005, constituted a material weakness (within the meaning of the Auditing Standard No. 2,An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements of the Public Company Accounting Oversight Board) in our internal control over financial reporting and that such weakness had not been fully remediated as of September 30, 2006.
Other than as described above, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The statements contained in Exhibits 31.1, 31.2 and 31.3 to this Quarterly Report on Form 10-Q should be considered in light of, and read together with, the information set forth in this Item 4.
Item 1. | Legal Proceedings |
In re High Voltage Engineering Corp. (“High Voltage”) in the U.S. Bankruptcy Court for the District of Massachusetts and Stephen S. Gray, Trustee (“Trustee”) of The High Voltage Engineering Liquidating Trust. v. Evercore Restructuring L.P. Evercore Restructuring L.L.C (collectively, “Evercore Restructuring”) et. al., in the United States District Court of Massachusetts.
In 2003 High Voltage, engaged Evercore Restructuring to assist in its restructuring efforts. During the engagement, Evercore Restructuring assisted High Voltage negotiate a restructuring plan and related financing. During the period of engagement, which ended in August 2004, High Voltage filed for Chapter 11 bankruptcy protection and later emerged from bankruptcy with new financing. However, in February 2005, High Voltage again filed for Chapter 11 bankruptcy protection. In July 2006, as part of the second bankruptcy proceeding, High Voltage’s businesses were sold and its creditors were repaid in full out of the proceeds of the sale. In addition, the Trustee conducted an informal investigation into the causes of the second bankruptcy and the knowledge of professionals who assisted High Voltage in its first bankruptcy.
On August 15, 2006, the Trustee filed a motion in the bankruptcy court seeking to undo an order entered in November 2004 approving $2.34 million in fees and expenses for Evercore Restructuring’s services, alleging, among other matters, that Evercore Restructuring should have known that the projections prepared by High Voltage in connection with the first bankruptcy proceedings were inaccurate. On September 8, 2006, Evercore Restructuring responded in the bankruptcy court denying the factual allegations and asserting a variety of legal bases to deny the request. The bankruptcy court has not set a date for ruling on the dispute.
In addition, on August 15, 2006, the Trustee also filed a complaint against Evercore Restructuring and Jefferies & Company, Inc., financial advisor to certain of High Voltage’s creditors in the first bankruptcy, asserting claims against Evercore Restructuring for gross negligence and breach of fiduciary duty, based on the same underlying allegations included in the bankruptcy court motion. On September 15, 2006, High Voltage filed an amended complaint adding Fried, Frank, Harris, Shriver and Jacobson LLP, High Voltage’s counsel in the first bankruptcy, as an additional defendant. We intend to movemoved for judgment on the pleadings or summary judgment on a variety of affirmative defenses and other grounds, including failure to allege facts constituting gross negligence or breach of fiduciary duty, releases of Evercore Restructuring approved in the order confirming High Voltage’s plan of reorganization, and acknowledgements by High Voltage in Evercore Restructuring’s engagement letter, which was disclosed to the bankruptcy court prior to its approval of the retention of Evercore Restructuring, that Evercore Restructuring was not a fiduciary and would rely on management’s representations when rendering its advisory services. Briefing of theThe motion will be concluded before the end of the year and no date has been set for a ruling on the motion.hearing in January 2007. Evercore believes the litigations against it are meritless and its defenses are substantial.
General
In addition to the proceedings set forth above, from time to time we may be involved in judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses, and U.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in the United States and Mexican Financial Authorities, conduct periodic examinations and initiate administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees. When those circumstances arise, management will make what it believes are adequate provisions in the financial statements for any expected liabilities which may result from disposition of pending lawsuits.result. Nevertheless, litigation issuch proceedings are subject to inherent uncertainties and unfavorable events could occur. Were such unfavorable events to occur, there exists the possibility of a material adverse impact to our operating results, financial position or liquidity as of and for the period in which such events occur.
Item 1A. | Risk Factors |
There have not been any material changes from the risk factors previously disclosed in our Registration Statement on Form S-1 that was effective August 10, 2006.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) On May 12, 2006, Evercore Partners Inc. issued 100 shares of its Class B common stock, par value $0.01 per share, to Evercore LP for $1.00. On August 16, 2006, Evercore LP distributed 51 of such shares of Class B common stock to its limited partners as part of the Reorganization as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reorganization”. The issuance and the subsequent distribution of such shares of Class B common stock were not registered under the Securities Act of 1933 because the shares were offered and sold in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933.
On August 16, 2006, Evercore Partners Inc. issued 45,238 shares of its Class A common stock, par value $0.01 per share, to Banco Inbursa, S.A., Institucion de Banca Multiple, Grupo Financiero Inbursa, as Trustee of Inbursa Trust F/1338, a trust benefiting certain Directors and employees of Protego upon repayment of a $0.95 million note issued as consideration for the Protego Combination as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reorganization”. The issuance of such shares of Class A common stock was not registered under the Securities Act of 1933 because the shares were offered and sold in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933.
(b) The effective date of Evercore Partners Inc.’s first registration statement filed on Form S-1 under the Securities Act of 1933 (File No. 333-134087) (“Form S-1”) relating to Evercore Partners Inc.’s initial public offering of shares of Class A common stock was August 10, 2006. A total of 4,542,500 shares of Evercore Partners Inc.’s shares of Class A common stock were sold. Lehman Brothers Inc. acted as representative of the underwriters and sole book-running manager of the offering.
The offering commenced on August 10, 2006 and has been completed. The aggregate offering price was $95,393. The underwriting discount was $6,677, none of which was paid to affiliates of Evercore. Evercore incurred approximately $6.9 million of other expenses in connection with the offering. The net proceeds to Evercore totaled approximately $81.8 million. Evercore used $30 million of these proceeds to repay all of its outstanding borrowings under its credit agreement, $6.05 million to repay the non-interest bearing notes issued as a portion of the consideration for the combination with Protego pursuant to the contribution and sale agreement among Evercore Partners Inc., Evercore LP, Roger C. Altman, Austin M. Beutner and Pedro Aspe and the other parties thereto (the “Contribution and Sale Agreement”), and intends to use the remaining proceeds to expand and diversify its advisory and investment management businesses and for general corporate purposes.
(c) Not applicable.None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Submission of Matters to a Vote of Security Holders |
On August 9, 2006, the sole stockholder of Evercore Partners Inc., by unanimous written consent (1) approved and adopted the amended and restated certificate of incorporation of Evercore Partners Inc.; (2)(a) elected Pedro Aspe as a director of Evercore Partners Inc. effective immediately prior to the time that the Form S-1 became effective under the Securities Act, (b) elected Gail Block Harris, Curt Hessler, Francois de Saint Phalle and Anthony N. Pritzker as directors of Evercore Partners Inc. effective upon the filing of the amended and restated certificate of incorporation of Evercore Partners Inc. with the Delaware Secretary of State, and (c) re-appointed Roger C. Altman and Austin M. Beutner as directors of Evercore Partners Inc.; (3) approved and adopted the Evercore Partners Inc. 2006 Stock Incentive Plan (“Stock Incentive Plan”) and the Evercore Partners Inc. Annual Incentive Plan; and (4) approved, for the express purpose of exempting such transactions under Rule 16b-3 promulgated under the Exchange Act certain specified acquisitions and dispositions by certain directors and officers of Evercore Partners Inc. of shares of its Class A common stock, Class B common stock and restricted stock units and of partnership units in Evercore LP.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
10.1 | ||
31.1 | Certification of the co-Chief Executive Officer pursuant to Rule 13a-14(a). | |
31.2 | Certification of the co-Chief Executive Officer pursuant to Rule 13a-14(a). | |
31.3 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a). | |
32.1 | Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). | |
32.2 | Certification of the co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). | |
32.3 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: September 25,November 20, 2006
Evercore Partners Inc. | ||||
By: | /s/ | |||
Name: | Roger C. Altman | |||
Title: | Chairman and Co-Chief Executive Officer | |||
By: | /s/ | |||
Name: | Austin M. Beutner | |||
Title: | Co-Chief Executive Officer and President | |||
By: | /s/ | |||
Name: | David E. Wezdenko | |||
Title: | Chief Financial Officer |
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