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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)    
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended June 30, 2004
    OR
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from      to

Commission file number 001-32147

Greenhill & Co., Inc.
(Exact name of registrant as specified in its charter)

Delaware  51-0500737 
(State of Incorporation)  (I.R.S. Employer 
  Identification No.) 
 
300 Park Avenue, 23rd Floor  10022 
New York, New York  (Zip Code) 
(Address of principal executive offices)   

Registrant’s telephone number (212) 389-1500

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes__   No X 

As of August 10, 2004, there were 30,750,000 shares of the registrant’s common stock outstanding.

 

TABLE OF CONTENTS
 
ITEM NO.   PAGE
Part I. Financial Information     
1    Condensed Consolidated Financial Statements (Unaudited)    
    Condensed Consolidated Statements of Financial Condition as of December 31, 2003    
    and June 30, 2004   4
    Condensed Consolidated Statements of Income for the three and six months ended    
    June 30, 2003 and 2004   5
    Condensed Consolidated Statement of Changes in Members’ Equity and    
    Stockholders’ Equity for the six months ended June 30, 2004   6
    Condensed Consolidated Statements of Cash Flows for the six months ended    
    June 30, 2003 and 2004   7
    Notes to Condensed Consolidated Financial Statements   8
 
2   Management’s Discussion and Analysis of Financial Condition and    
  Results of Operations   19
3   Quantitative and Qualitative Disclosures About Market Risk   26
4   Controls and Procedures   26
     
Part II. Other Information     
1   Legal Proceedings   26
2   Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities   26
3   Defaults Upon Senior Securities   27
4   Submission of Matters to a Vote of Security Holders   27
5   Other Information   27
6   Exhibits and Reports on Form 8-K   27
         

Signatures

2

AVAILABLE INFORMATION

     Greenhill & Co., Inc. (“Company”) files current, annual and quarterly reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission (“SEC”). You may read and copy any document the Company files at the SEC’s public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The Company’s SEC filings are also available to the public from the SEC’s internet site at http://www.sec.gov. Copies of these reports, proxy statements and other information can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, U.S.A.

     The Company’s public internet site is http://www.greenhill-co.com. The Company will make available free of charge through its internet site, via a link to the SEC’s internet site at http://www.sec.gov, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.

     In addition, the Company will make available through http://www.greenhill-co.com its most recent annual report on Form 10-K, its quarterly reports on Form 10-Q for the current fiscal year and its most recent proxy statement, although in some cases these documents are not available on that site as soon as they are available on the SEC’s internet site. Also posted on the Company’s website, and available in print upon request of any stockholder to the Investor Relations Department, are charters for the Company’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Copies of the Corporate Governance Guidelines and the Code of Business Conduct and Ethics governing our directors, officers and employees are also posted on the Company’s website within the "Corporate Governance" section. You will need to have Adobe Acrobat Reader software installed on your computer to view these documents, which are in the PDF format.

3

Part I. Financial Information

Item 1. Financial Statements

Greenhill & Co., Inc. and Subsidiaries
(formerly Greenhill & Co. Holdings, LLC and Subsidiaries)
Condensed Consolidated Statements of Financial Condition (unaudited)

    As of      As of 
    December 31,      June 30, 
    2003      2004 
 
Assets           
Cash and cash equivalents $ 26,598,643   $ 85,603,402
Financial advisory fees receivable   16,397,989     18,824,226
Other receivables   559,673     1,340,482
Taxes receivable   438,483     3,133
Property and equipment (net of accumulated depreciation          
   and amortization of $21,854,686 at December 31, 2003          
   and $23,358,854 at June 30, 2004)   8,243,141     10,677,602
Investments   6,542,925     14,492,489
Due from affiliates   325,771     3,512
Other assets   1,531,373     937,520
   Total assets $ 60,637,998   $ 131,882,366
 
Liabilities and Members’ Equity           
Compensation payable $ 11,898,637   $ 9,757,268
Accounts payable and accrued expenses   3,169,294     3,193,149
Taxes payable   1,640,368     8,037,978
Due to affiliates   –     1,445,044
Revolving bank loan   1,500,000     –
   Total liabilities   18,208,299     22,433,439
 
Minority interest in net assets of subsidiary   10,172,447     –
 
Members’ equity   32,257,252     –
 
Common stock, par value $0.01 per share, 100,000,000 shares          
    authorized, 0 and 30,750,000 shares issued and outstanding as          
   of December 31, 2003 and June 30, 2004, respectively   –     307,500
Restricted stock units   –     770,433
Additional paid-in capital   –     107,054,678
Retained earnings   –     776,302
Accumulated other comprehensive income   –     540,014
Stockholders’ equity   –     109,448,927
    Total liabilities, minority interest, members’ equity and          
         stockholders’ equity $ 60,637,998   $ 131,882,366

See accompanying notes to condensed consolidated financial statements.

4

Greenhill & Co., Inc. and Subsidiaries
(formerly Greenhill & Co. Holdings, LLC and Subsidiaries)
Condensed Consolidated Statements of Income (Unaudited)

  For the Three Months Ended    For the Six Months Ended 
  June 30,    June 30, 
  2003       2004       2003       2004 
   
 
Revenues                       
Financial advisory fees $ 36,391,860   $ 27,801,947   $ 51,962,502   $ 53,339,242
Merchant banking revenue   1,218,929     6,878,759     2,410,788     10,886,486
Interest income   224,837     172,438     251,357     192,941
   Total Revenues   37,835,626     34,853,144     54,624,647     64,418,669
 
Expenses                       
Employee compensation and benefits   6,310,369     13,519,168     10,987,616     22,755,368
Occupancy and equipment rental   1,017,778     1,477,520     2,081,576     2,831,872
Depreciation and amortization   817,010     759,488     1,627,773     1,531,550
Information services   689,769     664,738     1,302,927     1,425,301
Professional fees   480,074     563,271     684,352     847,779
Travel related expenses   810,259     802,969     1,531,736     1,696,168
Other operating expenses   765,507     1,538,349     1,518,915     2,443,918
   Total Expenses   10,890,766     19,325,503     19,734,895     33,531,956
 
    Income before Tax and Minority Interest   26,944,860     15,527,641     34,889,752     30,886,713
 
Minority interest in net income of subsidiary   8,514,231     2,092,353     10,645,603     6,487,050
 
   Income before Tax   18,430,629     13,435,288     24,244,149     24,399,663
 
Provision for taxes   1,054,552     5,626,649     1,270,401     6,110,951
 
   Net Income $ 17,376,077   $ 7,808,639   $ 22,973,748   $ 18,288,712
 
 
Average common shares outstanding:                      
   Basic   n/a     28,494,540     n/a     26,758,276
   Diluted   n/a     28,537,025     n/a     26,800,762
Earnings per share                      
   Basic   n/a   $ 0.27     n/a   $ 0.68
   Diluted   n/a   $ 0.27     n/a   $ 0.68
 
Pro forma average shares outstanding (see                      
   Note 11):                      
   Basic   25,000,000     28,494,540     25,000,000     26,758,276
   Diluted   25,000,000     28,537,025     25,000,000     26,800,762
Pro forma earnings per share (see Note 11):                      
   Basic $ 0.38   $ 0.27   $ 0.49   $ 0.53
   Diluted $ 0.38   $ 0.27   $ 0.49   $ 0.53

See accompanying notes to condensed consolidated financial statements.

5

Greenhill & Co., Inc. and Subsidiaries
(formerly Greenhill & Co. Holdings, LLC and Subsidiaries)
Condensed Consolidated Statements of Changes in
Members’ Equity and Stockholders’ Equity (Unaudited)

      For the Six  
      Months Ended  
      June 30,  
      2004  
Members’ equity, January 1, 2004      $ 32,257,252  
   Contributed capital     27,500  
   Comprehensive income:      
   Net income prior to the Reorganization $ 13,430,671    
   Other comprehensive income:        
         Foreign currency translation adjustment   (225,490 )    
   
   Comprehensive income     13,205,181  
   Distributions     (31,223,511 )
   Exchange of members’ interests for shares of common stock     (17,784,148 )
   Transfer to other comprehensive income     (564,013 )
   Transfer to retained earnings     4,081,739  
Members’ equity, June 30, 2004     -  
           
Common stock, par value $0.01       
   Common stock, January 1, 2004     -  
   Exchange of partnership interests for shares of common stock     250,000  
   Common stock issued in initial public offering     57,500  
Common stock, June 30, 2004     307,500  
           
Restricted stock units       
   Restricted stock units, January 1, 2004     -  
   Restricted stock units recognized     770,433  
Restricted stock units, June 30, 2004     770,433  
           
Additional paid-in capital       
   Additional paid-in capital, January 1, 2004     -  
   Exchange of partnership interests for shares of common stock     17,534,148  
   Initial public offering of common stock     89,520,530  
Additional paid-in capital, June 30, 2004     107,054,678  
           
Retained earnings       
   Retained earnings, January 1, 2004     -  
   Transfer from members’ equity     (4,081,739 )
   Net income subsequent to the Reorganization     4,858,041  
Retained earnings, June 30, 2004     776,302  
           
Other comprehensive income       
   Other comprehensive income, January 1, 2004     -  
   Transfer from members’ equity     564,013  
   Currency translation adjustment     (23,999 )
Other comprehensive income, June 30, 2004     540,014  
Total members’ equity and stockholders’ equity      $ 109,448,927  

See accompanying notes to condensed consolidated financial statements.

6

Greenhill & Co., Inc. and Subsidiaries
(formerly Greenhill & Co. Holdings, LLC and Subsidiaries)
Condensed Consolidated Statements Cash Flows (Unaudited)

  For the Six Months Ended
June 30, 		 
    2003       2004  
Operating activities:           
Net income $ 22,973,748     $ 18,288,712  
Adjustments to reconcile net income to net cash          
   provided by operating activities:          
Non-cash items included in net income:          
   Depreciation and amortization   1,627,773       1,531,550  
   Unrealized (gains) losses on investments   –       (8,631,346 )
   Restricted stock units recognized         770,433  
Changes in operating assets and liabilities:          
   Financial advisory fees receivable   18,012,806       (2,426,237 )
   Due from affiliates   (223,199 )     322,259  
   Taxes receivable   1,949,276       435,350  
   Other receivables   1,191,234       (780,809 )
   Other assets   2,291       567,187  
   Compensation payable   (4,389,225 )     (2,141,369 )
   Accounts payable and accrued expenses   (1,264,135 )     23,855  
   Minority interest in net assets of subsidiary   (6,575,078 )     (10,172,447 )
   Due to affiliates   –       1,445,044  
   Taxes payable   (994,151 )     6,397,610  
         Net cash provided by operating activities   32,311,340       5,629,792  
 
Investing activities:           
Purchase of investment   (31,772 )     (2,253,127 )
Distribution from investments   –       2,934,909  
Purchases of property and equipment   (620,764 )     (3,938,630 )
         Net cash used in investing activities   (652,536 )     (3,256,848 )
 
Financing activities:           
Proceeds of revolving bank debt   –       14,500,000  
Repayment of revolving bank debt   –       (16,000,000 )
Capital contributions from members   –       27,500  
Distributions to members   (42,309,209 )     (31,223,511 )
Proceeds from the issuance of common stock   –       89,578,030  
         Cash provided by (used in) financing activities   (42,309,209 )     56,882,019  
 
Effect of exchange rate changes on cash and cash equivalents   407,793       (250,204 )
 
Net increase (decrease) in cash and cash equivalents   (10,242,612 )     59,004,759  
Cash and cash equivalents, beginning of period   17,939,073       26,598,643  
Cash and cash equivalents, end of period $ 7,696,461     $ 85,603,402  
 
Supplemental disclosure of cash flow information:           
Cash paid for interest $ –     $ 172,422  
Cash paid (received) for taxes, net of refunds $ 177,942     $ 2,066  

See accompanying notes to condensed consolidated financial statements.

7

Greenhill & Co., Inc. and Subsidiaries
(formerly Greenhill & Co. Holdings, LLC and Subsidiaries)
Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 - Organization

     Effective May 11, 2004 (the “Reorganization Date”), Greenhill & Co. Holdings, LLC (“Holdings”), a New York limited liability company, merged with Greenhill & Co., Inc., a Delaware corporation (the merger and the other related transactions effected by Holdings and its affiliates in anticipation of the initial public offering are referred to collectively as the "Reorganization”). The surviving corporation in the merger, Greenhill & Co., Inc., completed its initial public offering on the same day. In the offering, Greenhill & Co., Inc, issued 5,750,000 shares of common stock and received estimated net proceeds of approximately $90 million. The Reorganization is described in greater detail in the Company’s Registration Statement on Form S-1 (Commission file number 333-113526) filed with the Securities and Exchange Commission. Greenhill & Co., Inc. (formerly Holdings), together with its subsidiaries (collectively, the “Company”), is an independent investment banking firm. The Company has clients located throughout the world, with offices located in New York, London and Frankfurt.

     The Company’s activities as an investment banking firm constitute a single business segment, with two principal sources of revenue:

     The Company’s U.S. and international wholly-owned subsidiaries include Greenhill & Co., LLC (“G&Co”), Greenhill Capital Partners, LLC (“GCP, LLC”) (formerly Greenhill Fund Management Co., LLC), Greenhill Aviation Co., LLC (“GAC”) and Greenhill & Co. Europe Limited (“GCE”).

     G&Co is a registered broker-dealer under the Securities Exchange Act of 1934, as amended, and is registered with the National Association of Securities Dealers, Inc. G&Co is engaged in the investment banking business principally in North America.

     GCE is a U.K. based holding company. GCE controls Greenhill & Co. International LLP (“GCI”), through its controlling membership interest. GCI is engaged in investment banking activities, principally in Europe, and is subject to regulation by the U.K. Financial Services Authority (“FSA”). In addition, GCE has a wholly-owned subsidiary, Greenhill & Co. GmbH (“GmbH”), which operates in Germany and provides corporate advisory services to both G&Co and GCI.

     GCP, LLC is a registered investment adviser under the Investment Advisers Act of 1940. GCP, LLC provides investment advisory services to GCP, a private equity fund that invests in a diversified portfolio of private equity and equity related investments. The majority of the investors in GCP are third parties. However, Managing Directors and employees of the Company have also made investments in GCP.

     GAC owns and operates an aircraft, which is used for the exclusive benefit of the Company’s employees and their immediate family members.

Note 2 - Summary of Significant Accounting Policies

Basis of Financial Information

     These condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions regarding investment valuations, compensation accruals and other matters that affect the consolidated financial statements and related footnote disclosures. Management believes that the estimates used in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ materially from those estimates.

8

Greenhill & Co., Inc. and Subsidiaries
(formerly Greenhill & Co. Holdings, LLC and Subsidiaries)
Notes to Condensed Consolidated Financial Statements (Unaudited)

     The condensed consolidated financial statements of the Company include all consolidated accounts of Greenhill & Co., Inc. (formerly Holdings) and all other entities in which the Company has a controlling interest, including GCI, after eliminations of all significant inter-company accounts and transactions. The Company adopted the revised Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (“FIN 46-R”), Consolidation of Variable Interest Entities, in the first quarter of 2004. FIN 46-R defines variable interests and specifies the circumstances under which the consolidation of entities will be required. The adoption of FIN 46-R did not have a material impact on the Company financial position or results of operations. The adoption requires the Company to consolidate GCP Managing Partner, L.P., the managing general partner of GCP. GCP Managing Partner, L.P. is responsible for managing GCP’s investments, subject to the approval of GCP, L.P., the other general partner of GCP, with respect to the sale or other disposition of GCP investments made prior to December 31, 2003. The Company does not consolidate GCP since the Company, through its general partner and limited partner interests, does not have a majority of the economic interest in GCP. Also, GCP Managing Partner, L.P. is subject to removal by a simple majority of unaffiliated third-party investors of GCP.

     These condensed consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2003 included in the Registration Statement on Form S-1 (Commission file number 333-113526) filed with the Securities and Exchange Commission. The condensed consolidated financial information as of December 31, 2003 has been derived from audited consolidated financial statements not included herein. Certain reclassifications have been made to previously reported amounts to conform to the current presentation. The results of operations for interim periods are not necessarily indicative of results for the entire year.

Minority Interest

     The interests in GCI held directly by the U.K. Managing Directors, prior to the Reorganization, were represented as minority interests in the accompanying consolidated financial statements.

Revenue Recognition

Financial Advisory Fees

     The Company recognizes advisory fee revenue when the services related to the underlying transactions are completed in accordance with the terms of its engagement letters. Retainer fees are recognized as advisory fee income over the period in which the related service is rendered.

     The Company’s clients reimburse certain expenses incurred by the Company in the conduct of financial advisory engagements. Expenses are reported net of such client reimbursements. Client reimbursements totaled $0.6 million and $0.9 million for the three months ended June 30, 2003 and 2004, respectively, and $1.1 million and $1.4 million for the six months ended June 30, 2003 and 2004, respectively.

Merchant Banking Revenues

     Merchant banking revenue consists of (i) management fees on the Company’s merchant banking activities, (ii) gains (or losses) on investments in the Company’s investment in merchant banking funds and other principal investment activities, and (iii) merchant banking profit overrides.

     Management fees earned from the Company’s merchant banking activities are recognized over the period of related service.

     The Company recognizes revenue on investments in its merchant banking funds based on its allocable share of realized and unrealized gains (or losses) reported by such investment.

     The Company recognizes merchant banking overrides when certain financial returns are achieved over the life of the fund. Overrides are calculated as a percentage of the profits earned by each fund. Future

9

Greenhill & Co., Inc. and Subsidiaries
(formerly Greenhill & Co. Holdings, LLC and Subsidiaries)
Notes to Condensed Consolidated Financial Statements (Unaudited)

losses (if any) in the value of the fund’s investments may require amounts previously recognized as overrides to be adjusted downwards. Accordingly, merchant banking overrides are recognized as revenue only after material contingencies have been resolved. See Note 3 – Investments for further discussion of the GCP revenues recognized.

Investments

     The Company’s investments in merchant banking funds are recorded at estimated fair value based upon the Company’s proportionate share of the changes in the fair value of the underlying merchant banking fund’s net assets. Investments primarily include investments in GCP.

Members’ and Stockholders’ Equity

     The Senior Executive Profit Sharing Agreement (“SEPA”) dated as of January 1, 2002, as amended as of January 1, 2004, specified the manner of allocation of global operating income and provided for distributions to the Members (including LLP interests owned by the U.K. Managing Directors represented as minority interests). The governance of the Company was set forth in the Operating Agreement of Greenhill & Co. Holdings, LLC