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Table of Contents

 

 

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 June 30, 2011

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 52 nd Street

38th 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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨   Accelerated filer   x
Non-accelerated filer   ¨   Smaller reporting company   ¨
    (Do not check if a smaller reporting company)

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’s Class A common stock, par value $0.01 per share, outstanding as of August 1, 2011 was 26,483,471. The number of shares of the registrant’s Class B common stock, par value $0.01 per share, outstanding as of August 1, 2011 was 48 (excluding 52 shares of Class B common stock held by a subsidiary of the registrant).

 

 

 


Table of Contents

Table of Contents

In this report, references to “Evercore”, the “Company”, “we”, “us”, “our” refer, to Evercore Partners Inc., a Delaware corporation, and its consolidated subsidiaries. Unless the context otherwise requires, references to (1) “Evercore Partners Inc.” refer solely to Evercore Partners Inc., and not to any of its consolidated subsidiaries and (2) “Evercore LP” refer solely to Evercore LP, a Delaware limited partnership, and not to any of its consolidated subsidiaries. References to the “IPO” refer to our initial public offering on August 10, 2006 of 4,542,500 shares of our Class A common stock, including shares issued to the underwriters of the IPO pursuant to their election to exercise in full their overallotment option.

 

          Page  
Part I. Financial Information   

Item 1.

   Condensed Consolidated Financial Statements (Unaudited)      3   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      22   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      37   

Item 4.

   Controls and Procedures      37   
Part II. Other Information   

Item 1.

   Legal Proceedings      37   

Item 1A.

   Risk Factors      37   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      37   

Item 3.

   Defaults Upon Senior Securities      38   

Item 4.

   Removed and Reserved      38   

Item 5.

   Other Information      38   

Item 6.

   Exhibits      38   
Signatures         39   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Financial Statements (Unaudited)

 

     Page  

Condensed Consolidated Statements of Financial Condition as of June 30, 2011 and December  31, 2010

     4   

Condensed Consolidated Statements of Operations for the three and six months ended June  30, 2011 and 2010

     5   

Condensed Consolidated Statements of Changes in Equity for the six months ended June  30, 2011 and 2010

     6   

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010

     7   

Notes to Unaudited Condensed Consolidated Financial Statements

     8   

 

3


Table of Contents

EVERCORE PARTNERS INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

(dollars in thousands, except per share data)

 

     June 30,
2011
    December 31,
2010
 

Assets

    

Current Assets

    

Cash and Cash Equivalents

   $ 204,449      $ 141,337   

Marketable Securities

     73,456        92,830   

Financial Instruments Owned and Pledged as Collateral at Fair Value

     83,311        52,217   

Securities Purchased Under Agreements to Resell

     100,598        126,401   

Accounts Receivable (net of allowances of $1,308 and $768 at June 30, 2011 and December 31, 2010, respectively)

     83,088        49,625   

Receivable from Employees and Related Parties

     6,151        3,465   

Deferred Tax Assets - Current

     5,092        5,092   

Other Current Assets

     16,540        9,982   
                

Total Current Assets

     572,685        480,949   

Investments

     67,024        60,617   

Deferred Tax Assets - Non-Current

     182,550        134,161   

Furniture, Equipment and Leasehold Improvements (net of accumulated depreciation and amortization of $12,581 and $11,302 at June 30, 2011 and December 31, 2010, respectively)

     14,605        14,923   

Goodwill

     140,777        139,031   

Intangible Assets (net of accumulated amortization of $18,113 and $13,337 at June 30, 2011 and December 31, 2010, respectively)

     44,785        49,232   

Assets Segregated for Bank Regulatory Requirements

     10,200        10,200   

Other Assets

     9,172        8,972   
                

Total Assets

   $ 1,041,798      $ 898,085   
                

Liabilities and Equity

    

Current Liabilities

    

Accrued Compensation and Benefits

   $ 63,129      $ 82,943   

Accounts Payable and Accrued Expenses

     14,887        12,558   

Securities Sold Under Agreements to Repurchase

     184,062        178,683   

Payable to Employees and Related Parties

     4,031        4,181   

Taxes Payable

     1,566        404   

Other Current Liabilities

     16,698        8,204   
                

Total Current Liabilities

     284,373        286,973   

Notes Payable

     98,858        98,082   

Amounts Due Pursuant to Tax Receivable Agreements

     142,422        97,427   

Other Long-term Liabilities

     16,455        22,956   
                

Total Liabilities

     542,108        505,438   
                

Commitments and Contingencies (Note 16)

    

Redeemable Noncontrolling Interest

     25,448        25,406   

Equity

    

Evercore Partners Inc. Stockholders’ Equity

    

Common Stock

    

Class A, par value $0.01 per share (1,000,000,000 shares authorized, 28,386,422 and 21,497,691 issued at June 30, 2011 and December 31, 2010, respectively, and 26,383,798 and 19,983,646 outstanding at June 30, 2011 and December 31, 2010, respectively)

     284        215   

Class B, par value $0.01 per share (1,000,000 shares authorized, 48 issued and outstanding at June 30, 2011 and December 31, 2010)

     —          —     

Additional Paid-In-Capital

     530,106        400,719   

Accumulated Other Comprehensive Income (Loss)

     (2,626     (4,193

Retained Earnings (Deficit)

     (64,907     (61,504

Treasury Stock at Cost (2,002,624 and 1,514,045 shares at June 30, 2011 and December 31, 2010, respectively)

     (51,288     (34,538
                

Total Evercore Partners Inc. Stockholders’ Equity

     411,569        300,699   

Noncontrolling Interest

     62,673        66,542   
                

Total Equity

     474,242        367,241   
                

Total Liabilities and Equity

   $ 1,041,798      $ 898,085   
                

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

4


Table of Contents

EVERCORE PARTNERS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(dollars and share amounts in thousands, except per share data)

 

     For the Three Months Ended June 30,     For the Six Months Ended June 30,  
     2011      2010     2011      2010  

Revenues

          

Investment Banking Revenue

   $ 114,696       $ 47,505      $ 197,748       $ 123,427   

Investment Management Revenue

     28,771         16,425        54,960         27,656   

Other Revenue, Including Interest

     4,273         6,973        7,971         13,445   
                                  

Total Revenues

     147,740         70,903        260,679         164,528   

Interest Expense

     5,749         5,933        10,843         11,537   
                                  

Net Revenues

     141,991         64,970        249,836         152,991   
                                  

Expenses

          

Employee Compensation and Benefits

     100,978         45,762        171,024         101,483   

Occupancy and Equipment Rental

     5,736         4,631        10,917         7,958   

Professional Fees

     8,129         6,351        16,219         14,716   

Travel and Related Expenses

     5,434         3,979        10,013         7,349   

Communications and Information Services

     2,034         1,762        4,182         2,791   

Depreciation and Amortization

     3,071         1,948        6,062         3,298   

Acquisition and Transition Costs

     601         1,280        1,134         2,736   

Other Operating Expenses

     4,841         2,378        7,943         4,973   
                                  

Total Expenses

     130,824         68,091        227,494         145,304   
                                  

Income (Loss) Before Income (Loss) from Equity Method
Investments and Income Taxes

     11,167         (3,121     22,342         7,687   

Income (Loss) from Equity Method Investments

     69         (130     469         (310
                                  

Income (Loss) Before Income Taxes

     11,236         (3,251     22,811         7,377   

Provision (Benefit) for Income Taxes

     5,977         (1,698     10,235         2,961   
                                  

Net Income (Loss)

     5,259         (1,553     12,576         4,416   

Net Income (Loss) Attributable to Noncontrolling Interest

     2,998         (1,670     6,727         2,279   
                                  

Net Income Attributable to Evercore Partners Inc.

   $ 2,261       $ 117      $ 5,849       $ 2,137   
                                  

Net Income Attributable to Evercore Partners Inc. Common Shareholders

   $ 2,240       $ 96      $ 5,807       $ 2,105   

Weighted Average Shares of Class A Common Stock Outstanding

          

Basic

     23,724         19,016        23,204         18,846   

Diluted

     27,364         22,363        26,956         22,392   

Net Income Per Share Attributable to Evercore Partners Inc. Common Shareholders

          

Basic

   $ 0.09       $ 0.01      $ 0.25       $ 0.11   

Diluted

   $ 0.08       $ 0.00      $ 0.22       $ 0.09   

Dividends Declared per Share of Class A Common Stock

   $ 0.18       $ 0.15      $ 0.36       $ 0.30   

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

5


Table of Contents

EVERCORE PARTNERS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(dollars in thousands, except share data)

 

    For the Six Months Ended June 30, 2011  
    Class A Common Stock    

Additional

Paid-In

   

Accumulated

Other

Comprehensive

   

Retained

Earnings

    Treasury Stock     Noncontrolling     Total  
             
             
    Shares     Dollars     Capital     Income (Loss)     (Deficit)     Shares     Dollars     Interest     Equity  

Balance at December 31, 2010

    21,497,691      $ 215      $ 400,719      $ (4,193   $ (61,504     (1,514,045   $ (34,538   $ 66,542      $ 367,241   

Net Income

    —          —          —          —          5,849        —          —          6,727        12,576   

Other Comprehensive Income, net:

                 

Unrealized Gain on Marketable Securities, net

    —          —          —          258        —          —          —          405        663   

Foreign Currency Translation Adjustment

    —          —          —          1,309        —          —          —          1,083        2,392   
                                                                       

Total Comprehensive Income

    —          —          —          1,567        5,849        —          —          8,215        15,631   

Treasury Stock Purchases

    —          —          —          —          —          (488,579     (16,750     —          (16,750

Equity Offering, Net of Direct Expenses

    5,364,991        54        167,597        —          —          —          —          —          167,651   

Evercore LP Units Purchased or Converted into

                 

Class A Common Stock

    298,892        3        (75,379     —          —          —          —          (11,774     (87,150

Stock-based Compensation Awards

    1,224,848        12        36,190        —          —          —          —          10,975        47,177   

Dividends and Equivalents

    —          —          1,021        —          (9,252     —          —          —          (8,231

Noncontrolling Interest (Note 13)

    —          —          (42     —          —          —          —          (11,285     (11,327
                                                                       

Balance at June 30, 2011

    28,386,422      $ 284      $ 530,106      $ (2,626   $ (64,907     (2,002,624   $ (51,288   $ 62,673      $ 474,242   
                                                                       
    For the Six Months Ended June 30, 2010  
    Class A Common Stock    

Additional

Paid-In

   

Accumulated

Other

Comprehensive

   

Retained

Earnings

    Treasury Stock    

Noncontrolling

   

Total

 
               
               
    Shares     Dollars     Capital     Income (Loss)     (Deficit)     Shares     Dollars     Interest     Equity  

Balance at December 31, 2009

    17,155,883      $ 172      $ 339,495      $ (3,760   $ (56,756     (809,299   $ (12,756   $ 29,361      $ 295,756   

Net Income

    —          —          —          —          2,137        —          —          2,279        4,416   

Other Comprehensive Income, net:

                 

Unrealized Gain (Loss) on Marketable Securities, net

    —          —          —          (1,041     —          —          —          (1,584     (2,625

Foreign Currency Translation Adjustment

    —          —          —          (873     —          —          —          (1,219     (2,092
                                                                       

Total Comprehensive Income (Loss)

    —          —          —          (1,914     2,137        —          —          (524     (301

Treasury Stock Purchases

    —          —          —          —          —          (823,049     (23,566     —          (23,566

Evercore LP Units Purchased or Converted into Class A Common Stock

    43,460        —          395        —          —          —          —          (2,410     (2,015

Stock-based Compensation Awards

    1,186,672        12        19,693        —          —          —          —          9,961        29,666   

Dividends and Equivalents

    —          —          661        —          (6,326     —          —          —          (5,665

Noncontrolling Interest (Note 13)

    —          —          (32     —          —          —          —          26,437        26,405   
                                                                       

Balance at June 30, 2010

    18,386,015      $ 184      $ 360,212      $ (5,674   $ (60,945     (1,632,348   $ (36,322   $ 62,825      $ 320,280   
                                                                       

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

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Table of Contents

EVERCORE PARTNERS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(dollars in thousands)

 

     For the Six Months Ended June 30,  
     2011     2010  

Cash Flows From Operating Activities

    

Net Income

   $ 12,576      $ 4,416   

Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:

    

Net Realized and Unrealized Gains on Investments, Marketable Securities and Contingent Consideration

     (5,642     (4,486

Equity-Based and Other Deferred Compensation

     48,621        28,408   

Depreciation, Amortization and Accretion

     6,838        4,016   

Bad Debt Expense

     500        514   

Deferred Taxes

     2,905        2,542   

Decrease (Increase) in Operating Assets:

    

Marketable Securities

     404        176   

Financial Instruments Owned and Pledged as Collateral at Fair Value

     (28,106     49,073   

Securities Purchased Under Agreements to Resell

     31,982        (6,667

Accounts Receivable

     (31,780     (622

Receivable from Employees and Related Parties

     (2,686     (672

Other Assets

     (3,002     (5,526

(Decrease) Increase in Operating Liabilities:

    

Accrued Compensation and Benefits

     (21,317     (68,480

Accounts Payable and Accrued Expenses

     2,353        3,520   

Securities Sold Under Agreements to Repurchase

     (3,792     (42,539

Payables to Employees and Related Parties

     (404     (134

Taxes Payable

     (2,409     —     

Deferred Revenue

     213        19,266   

Other Liabilities

     480        1,895   
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Operating Activities

     7,734        (15,300
  

 

 

   

 

 

 

Cash Flows From Investing Activities

    

Investments Purchased

     (336     (1,826

Distributions of Private Equity Investments

     1,430        —     

Marketable Securities:

    

Proceeds from Sales and Maturities

     56,460        154,353   

Purchases

     (36,291     (89,031

Cash Paid for Acquisitions, net of cash acquired

     (50     (68,581

Change in Restricted Cash

     —          (904

Purchase of Furniture, Equipment and Leasehold Improvements

     (1,586     (673
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Investing Activities

     19,627        (6,662
  

 

 

   

 

 

 

Cash Flows From Financing Activities

    

Payments for Capital Lease Obligations

     (19     (23

Issuance of Noncontrolling Interests

     729        3,503   

Distributions to Noncontrolling Interests—Evercore LP Limited Partners

     (12,014     (10,205

Cash Paid for Contingent Consideration

     (2,884     —     

Proceeds from Equity Offering, Net of Direct Expenses

     166,530        —     

Purchase of Evercore LP Units and Treasury Stock

     (111,887     (25,891

Dividends—Class A Stockholders

     (8,231     (5,665

Other

     3,564        —     
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Financing Activities

     35,788        (38,281
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash

     (37     (1,614
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     63,112        (61,857

Cash and Cash Equivalents-Beginning of Period

     141,337        206,682   
  

 

 

   

 

 

 

Cash and Cash Equivalents-End of Period

   $ 204,449      $ 144,825   
  

 

 

   

 

 

 

SUPPLEMENTAL CASH FLOW DISCLOSURE

    

Payments for Interest

   $ 10,117      $ 10,887   
  

 

 

   

 

 

 

Payments for Income Taxes

   $ 8,266      $ 5,733   
  

 

 

   

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

7


Table of Contents

EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

Note 1 – Organization

Evercore Partners Inc. and subsidiaries (the “Company”) is an investment banking and investment management firm, incorporated in Delaware on July 21, 2005 and headquartered in New York, New York. The Company is a holding company which owns a controlling interest in Evercore LP, a Delaware limited partnership (“Evercore LP”). Subsequent to the Company’s initial public offering (“IPO”), the Company became the sole general partner of Evercore LP. The Company operates from its offices in New York, San Francisco, Boston, Washington D.C., Los Angeles, Houston, London, Mexico City and Monterrey, Mexico, Hong Kong and, through its affiliate G5 Holdings S.A. (“G5”), in Rio de Janeiro and São Paulo, Brazil.

The Investment Banking business includes the advisory business through which the Company provides advice to clients on significant mergers, acquisitions, divestitures and other strategic corporate transactions, with a particular focus on advising prominent multinational corporations and substantial private equity firms on large, complex transactions. The Company also provides restructuring advice to companies in financial transition, as well as to creditors, shareholders and potential acquirers. In addition, the Company provides its clients with capital markets advice, underwrites securities offerings and raises funds for financial sponsors. The Investment Banking business also includes the Institutional Equities business through which the Company offers equity research and agency-based equity securities trading for institutional investors.

The Investment Management business includes the institutional asset management business through which the Company manages financial assets for sophisticated institutional investors and provides independent fiduciary services to corporate employee benefit plans, the wealth management business through which the Company provides wealth management services for high net-worth individuals and the private equity business through which the Company, directly and through affiliates, manages private equity funds.

Note 2 – Significant Accounting Policies

For a complete discussion of the Company’s accounting policies, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Basis of Presentation – The accompanying unaudited condensed 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 United States Securities and Exchange Commission, the unaudited condensed consolidated financial statements contain certain condensed financial information and exclude certain footnote disclosures normally included in audited consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated financial statements are unaudited and are prepared in accordance with U.S. GAAP. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including normal recurring accruals, necessary to fairly present the accompanying unaudited condensed consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2010. The December 31, 2010 Unaudited Condensed Consolidated Statement of Financial Condition data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011.

The unaudited condensed consolidated financial statements of the Company are comprised of the consolidation of Evercore LP and Evercore LP’s wholly-owned and majority-owned direct and indirect subsidiaries, including Evercore Group L.L.C. (“EGL”), a registered broker-dealer in the U.S. The Company’s policy is to consolidate all subsidiaries in which it has a controlling financial interest, as well as any variable interest entities (“VIEs”) where the Company is deemed to be the primary beneficiary, when it has the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb significant losses or the right to receive significant benefits. All intercompany balances and transactions with the Company’s subsidiaries have been eliminated upon consolidation.

The Company has evaluated all subsequent events through the date this Form 10-Q was available to be issued, on August 5, 2011.

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

Note 3 – Recent Accounting Pronouncements

ASU 2011-03 – In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-03, “Reconsideration of Effective Control for Repurchase Agreements” (“ASU 2011-03”). ASU 2011-03 provides amendments to Accounting Standards Codification (“ASC”) No. 860 “Transfers and Servicing”, which remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this update are effective prospectively for transactions or modifications of existing transactions that occur on or after the beginning of the first interim or annual reporting period beginning on or after December 15, 2011, with early adoption not permitted. The Company is currently assessing the impact of the adoption of this update on the Company’s financial condition, results of operations and cash flows.

ASU 2011-04 – In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”). ASU 2011-04 provides amendments to ASC No. 820 “Fair Value Measurement”, which results in a consistent definition of fair value and common requirements for measurement of and disclosure of fair value between U.S. GAAP and IFRS. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements, while others change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this update are effective prospectively during interim and annual periods beginning after December 15, 2011, with early adoption not permitted. The Company is currently assessing the impact of the adoption of this update on the Company’s financial condition, results of operations and cash flows.

ASU 2011-05 – In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 provides amendments to ASC No. 220 “Comprehensive Income”, which require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this update are effective retrospectively for fiscal years and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company is currently assessing the impact of the adoption of this update on the Company’s financial condition, results of operations and cash flows.

Note 4 – Business Changes and Developments

Lexicon Partnership LLP – On June 7, 2011, the Company entered into a definitive sale and purchase agreement to acquire all of the outstanding partnership interests in The Lexicon Partnership LLP, a U.K. incorporated limited liability partnership (“Lexicon”), for total consideration of approximately £86,000. In the aggregate, the sellers will receive £46,619 in cash and 1,911 shares of the Company’s Class A common stock. Of the total consideration, £32,000 in cash will be paid to and 28 Class A Shares will be delivered to the sellers at closing and £5,619 in cash will be paid to the sellers on December 31, 2011. Payment of the remaining £9,000 in cash and 1,883 Class A shares will be deferred and will vest in installments over a four-year period beginning on June 30, 2012. Accordingly, these amounts will be expensed over the vesting period. This deferred consideration, whether in the form of Class A shares or cash, upon vesting, will be delivered to the sellers on the earlier of (i) the first anniversary of the relevant vesting date and (ii) the date of the first secondary offering by the Company following the relevant vesting date. Vesting of the Class A shares and cash consideration will accelerate in certain circumstances, including, but not limited to, a seller’s termination without cause, a qualifying retirement or upon a change of control. In addition, the Company will fund the repayment of £5,000 of outstanding Lexicon capital notes at closing. This transaction is expected to close during the third quarter of 2011.

Note 5 – Acquisition and Transition Costs

The Company has recognized as an expense $601 and $1,134 for the three and six months ended June 30, 2011, respectively, and $1,280 and $2,736 for the three and six months ended June 30, 2010, respectively, as Acquisition and Transition Costs incurred in connection with acquisitions and other ongoing business development initiatives. These costs are primarily comprised of professional fees for legal and other services.

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

Note 6 – Related Parties

Investment Management Revenue includes income from related parties earned from the Company’s private equity funds for portfolio company fees, management fees, expense reimbursements and realized and unrealized gains and losses of private equity fund investments. Total Investment Management revenues from related parties amounted to $1,269 and $2,376 for the three and six months ended June 30, 2011, respectively, and $2,109 and $3,199 for the three and six months ended June 30, 2010, respectively.

Note 7 Marketable Securities

The amortized cost and estimated fair value of the Company’s Marketable Securities as of June 30, 2011 and December 31, 2010 were as follows:

 

     June 30, 2011      December 31, 2010  
     Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value      Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

Available-for-Sale

                       

Debt Securities:

                       

Corporate Bonds

   $ —         $ —         $ —         $ —         $ 7,126       $ 45       $ —         $ 7,171   

Municipal Bonds

     7,236         11         —           7,247         16,910         107         15         17,002   

Other Debt Securities

     —           —           —           —           1,000         —           —           1,000   

Seed Capital Investments

     15,227         2,401         72         17,556         14,112         2,250         25         16,337   
                                                                       

Total Available-for-Sale

     22,463         2,412         72         24,803         39,148         2,402         40         41,510   

Debt Securities Carried by EGL

     39,012         482         —           39,494         50,837         501         18         51,320   

Mutual Funds

     9,010         177         28         9,159         —           —           —           —     
                                                                       

Total

   $ 70,485       $ 3,071       $ 100       $ 73,456       $ 89,985       $ 2,903       $ 58       $ 92,830   
                                                                       

Scheduled maturities of the Company’s available-for-sale debt securities as of June 30, 2011 and December 31, 2010 were as follows:

 

     June 30, 2011      December 31, 2010  
     Amortized
Cost
     Fair Value      Amortized
Cost
     Fair Value  

Due within one year

   $ 5,966       $ 5,972       $ 17,183       $ 17,265   

Due after one year through five years

     1,270         1,275         7,853         7,908   
                                   

Total

   $ 7,236       $ 7,247       $ 25,036       $ 25,173   
                                   

Since the Company has the ability and intent to hold its available-for-sale securities until a recovery of fair value is equal to an amount approximating its amortized cost, which may be at maturity, and has not incurred credit losses on its securities, it does not consider such unrealized loss positions to be other-than-temporarily impaired at June 30, 2011.

Debt Securities

The Company invests in corporate and municipal bonds and other debt securities, which are classified as available-for-sale securities within Marketable Securities on the Unaudited Condensed Consolidated Statements of Financial Condition. The Company had realized gains of $0 and $75 for the three and six months ended June 30, 2011, respectively, and $2,251 and $3,424 for the three and six months ended June 30, 2010, respectively.

Seed Capital Investments

The Company earned realized gains of $35 and $460 for the three and six months ended June 30, 2011, respectively, and $581 and $1,058 for the three and six months ended June 30, 2010, respectively. These securities are stated at quoted market value with unrealized gains and losses included in Accumulated Other Comprehensive Income and realized gains and losses included in earnings. Seed Capital Investments include equity securities and their equivalents.

Debt Securities Carried by EGL

During the first quarter of 2010, EGL began to invest in a fixed income portfolio consisting primarily of municipal bonds. These securities are carried at fair value, with changes in fair value recorded in Other Revenues on the Unaudited Condensed Consolidated

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

Statement of Operations, as required for broker-dealers in securities. The Company had net realized and unrealized gains (losses) of ($242) and ($404) for the three and six months ended June 30, 2011, respectively, and $122 and $176 for the three and six months ended June 30, 2010, respectively.

Mutual Funds

During the first quarter of 2011, the Company began to invest in a portfolio of mutual funds as an economic hedge against the Company’s deferred compensation program. See Note 15 for further information. These securities are carried at fair value, with changes in fair value recorded in Other Revenues on the Unaudited Condensed Consolidated Statements of Operations. The Company had net unrealized gains of $72 and $150 for the three and six months ended June 30, 2011, respectively.

Note 8 Financial Instruments Owned and Pledged as Collateral at Fair Value, Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

The Company, through Protego Casa de Bolsa, S.A. de C.V. (“PCB”), enters into repurchase agreements with clients seeking overnight money market returns whereby PCB transfers to the clients 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, which the Company reflects as Financial Instruments Owned and Pledged as Collateral at Fair Value on the Unaudited Condensed Consolidated Statements of Financial Condition, or by entering into reverse repurchase agreements with unrelated third parties. The Company accounts for these repurchase and reverse repurchase agreements as collateralized financing transactions, which are carried at their contract amounts, which approximate fair value given that the contracts generally mature the following business day. The Company records a liability on its Unaudited Condensed Consolidated Statements of Financial Condition in relation to repurchase transactions executed with clients as Securities Sold Under Agreements to Repurchase. The Company records as assets on its Unaudited Condensed Consolidated Statements of Financial Condition, Financial Instruments Owned and Pledged as Collateral at Fair Value (where the Company has 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 the Company has acquired the securities deliverable to clients under these repurchase agreements by entering into reverse repurchase agreements with unrelated third parties). These Mexican government securities have an estimated average time to maturity of approximately 2.7 years, as of June 30, 2011, and are pledged as collateral against repurchase agreements. Generally, collateral is posted equal to the contract value at inception and is subject to market changes. These repurchase agreements are primarily with institutional customer accounts managed by PCB which permit the counterparty to pledge the securities.

As of June 30, 2011 and December 31, 2010, a summary of the Company’s assets, liabilities and collateral received or pledged related to these transactions was as follows:

 

     June 30, 2011     December 31, 2010  
     Asset
(Liability)
Balance
    Market Value of
Collateral Received
or (Pledged)
    Asset
(Liability)
Balance
    Market Value of
Collateral Received
or (Pledged)
 

Assets

        

Financial Instruments Owned and Pledged as Collateral at Fair Value

   $ 83,311        $ 52,217     

Securities Purchased Under Agreements to Resell

     100,598      $ 100,605        126,401      $ 126,386   
                    

Total Assets

   $ 183,909        $ 178,618     
                    

Liabilities

        

Securities Sold Under Agreements to Repurchase

   $ (184,062   $ (184,202   $ (178,683   $ (178,603
                    

Note 9 – Investments

The Company’s investments reported on the Unaudited Condensed Consolidated Statements of Financial Condition consist of investments in private equity partnerships and other investments in unconsolidated affiliated companies. The Company’s investments are relatively high-risk and illiquid assets. Realized and unrealized gains and losses on our private equity investments are included within Investment Management Revenue. The Company’s share of earnings (losses) on our investments in Evercore Pan-Asset Capital

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

Management (“Pan”) and G5 are included within Income (Loss) from Equity Method Investments on the Unaudited Condensed Consolidated Statements of Operations.

Investments in Private Equity

The Company’s investments in private equity partnerships include investments in Evercore Capital Partners II L.P. and its affiliated entities (“ECP II”), Discovery Americas I, L.P. (the “Discovery Fund”), Evercore Mexico Capital Partners II (“EMCP II”), CSI Capital, L.P. (“CSI Capital”) and Trilantic Capital Partners Associates IV L.P. (“Trilantic IV”). Portfolio holdings of the private equity funds are carried at fair value. Accordingly, the Company reflects its pro rata share of the unrealized gains and losses occurring from changes in fair value. Additionally, the Company reflects its pro rata share of realized gains, losses and carried interest associated with any investment realizations.

A summary of the Company’s investment in the private equity funds as of June 30, 2011 and December 31, 2010 was as follows:

 

     June 30, 2011      December 31, 2010  

ECP II

   $ 4,286       $ 4,856   

Discovery Fund

     3,304         2,734   

EMCP II

     7,378         7,580   

CSI Capital

     2,955         3,361   

Trilantic IV

     5,631         559   
  

 

 

    

 

 

 

Total Private Equity Funds

   $ 23,554       $ 19,090   
  

 

 

    

 

 

 

Net realized and unrealized gains (losses) on private equity fund investments, including performance fees, were $3,878 and $4,820 for the three and six months ended June 30, 2011, respectively, and $481 and ($105) for the three and six months ended June 30, 2010, respectively. In the event the fund performs poorly, the Company may be obligated to repay certain carried interest previously distributed. As of June 30, 2011, the Company had $2,701 of previously received carried interest that may be subject to repayment.

Trilantic Capital Partners

During the first quarter of 2010, the Company made an equity method investment in Trilantic Capital Partners (“Trilantic”). See Note 13 for further information. This investment had a balance of $15,816 and $15,840 as of June 30, 2011 and December 31, 2010, respectively.

Equity Method Investments

A summary of the Company’s other equity investments as of June 30, 2011 and December 31, 2010 was as follows:

 

     June 30, 2011      December 31, 2010  

Pan

   $ 2,745       $ 2,939   

G5

     23,659         21,498   
  

 

 

    

 

 

 

Total Other Equity Investments

   $ 26,404       $ 24,437   
  

 

 

    

 

 

 

Pan

In 2008, the Company made an equity method investment of $4,158 in Pan and maintains a 50% interest at June 30, 2011. This investment resulted in losses of $219 and $285 for the three and six months ended June 30, 2011, respectively, and $130 and $310 for the three and six months ended June 30, 2010, respectively.

G5

During the fourth quarter of 2010, the Company made an equity method investment in G5. This investment resulted in a gain of $288 and $754 for the three and six months ended June 30, 2011, respectively.

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

Cost Basis Investments

In 2009, the Company invested $1,250 in CITIC Securities International (“CSIP”) in exchange for a 5% noncontrolling interest in the entity. CSIP and the Company focus on providing merger and acquisition (“M&A”) advisory and investment management service, focused on transactions between China and other international markets. This investment is accounted for on the cost basis.

Note 10 – Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures” (“ASC 820”), among other matters, requires enhanced disclosures about investments that are measured and reported at fair value. ASC 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily-available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level I – Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I include listed equities and listed derivatives. As required by ASC 820, the Company does not adjust the quoted price for these investments, even in situations where Evercore holds a large position and a sale could reasonably impact the quoted price.

Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. The estimated fair values of these securities are based on quoted market prices provided by external pricing services.

Level III – Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation.

The following table presents the categorization of investments and certain other assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010:

 

    June 30, 2011  
    Level I     Level II     Level III     Total  

Corporate Bonds, Municipal Bonds and Other Debt Securities (1)

  $ —        $ 55,860      $ —        $ 55,860   

Seed Capital Investments

    16,047        1,509        —          17,556   

Mutual Funds

    9,159        —          —          9,159   

Financial Instruments Owned and Pledged as Collateral at Fair Value

    83,311        —          —          83,311   
                               

Total Assets Measured At Fair Value

  $ 108,517      $ 57,369      $ —        $ 165,886   
                               
    December 31, 2010  
    Level I     Level II     Level III     Total  

Corporate Bonds, Municipal Bonds and Other Debt Securities (1)

  $ —        $ 89,931      $ —        $ 89,931   

Seed Capital Investments

    15,588        749        —          16,337   

Financial Instruments Owned and Pledged as Collateral at Fair Value

    52,217        —          —          52,217   
                               

Total Assets Measured At Fair Value

  $ 67,805      $ 90,680      $ —        $ 158,485   
                               

 

(1) Includes $9,119 and $13,438 of municipal bonds classified within Cash and Cash Equivalents on the Unaudited Condensed Consolidated Statement of Financial Condition as of June 30, 2011 and December 31, 2010, respectively.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The Company had no transfers between fair value levels during the three and six months ended June 30, 2011.

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

Note 11 – Issuance of Notes Payable and Warrants

On August 21, 2008, the Company entered into a Purchase Agreement with Mizuho Corporate Bank, Ltd. (“Mizuho”) pursuant to which Mizuho purchased from the Company $120,000 principal amount of senior notes due 2020 with a 5.20% coupon (“the Senior Notes”) and warrants to purchase 5,455 shares of Evercore Class A common stock at $22.00 per share (the “Warrants”) expiring in 2020. Based on their relative fair value at issuance, plus accretion, the Senior Notes and Warrants were reflected in Notes Payable and Additional Paid-In-Capital on the Unaudited Condensed Consolidated Statement of Financial Condition. The Senior Notes have an effective yield of 7.94%. At June 30, 2011, the fair value of the Company’s Senior Notes exceeded their aggregate carrying value by approximately $20,000. The fair value of the Company’s Senior Notes was estimated based on a present value analysis utilizing aggregate market yields for similar financial instruments.

The holder of the Senior Notes may require the Company to purchase, for cash, all or any portion of the holder’s Senior Notes upon a change of control of the Company for a price equal to the aggregate accreted amount of such Senior Notes, (the “Accreted Amount”), plus accrued and unpaid interest. Senior Notes held by Mizuho will be redeemable at the Accreted Amount at the option of the Company at any time within 90 days following the date on which Mizuho notifies the Company that it is terminating their strategic alliance agreement (“Strategic Alliance Agreement”). Senior Notes held by any other holder than Mizuho will be redeemable at the Accreted Amount (plus accrued and unpaid interest) at the option of the Company at any time beginning on the third anniversary of the closing of the Senior Notes and Warrants. In the event of a default under the indenture, the trustee or holders of 33 1/3% of the Senior Notes may declare that the Accreted Amount is immediately due and payable.

Pursuant to the agreement, Mizuho may not transfer the Senior Notes or Warrants until August 16, 2012 or, if the Strategic Alliance Agreement is terminated, the later of one year following such termination and the third anniversary of the closing of the purchase of the Senior Notes and Warrants. The Company has a right of first offer on any proposed transfer by Mizuho of the Warrants, Common Stock purchased in the open market or acquired by exercise of the Warrants and associated Common Stock issued as dividends.

The exercise price for the Warrants is payable, at the option of the holder of the Warrants, either in cash or by tender of Senior Notes at the Accreted Amount, at any point in time.

Note 12 – Evercore Partners Inc. Stockholders’ Equity

Offerings – During the second quarter of 2011, the Company had an offering of 5,365 shares of Class A common stock. A portion of the proceeds were used to purchase from certain holders, including members of the Company’s senior management, a number of outstanding Evercore LP partnership units (“LP Units”). The Company intends to use a portion of the remainder of the proceeds to fund the initial cash payments associated with the Company’s pending acquisition of Lexicon. See Note 4.

The offering resulted in an increase to Common Stock and Additional Paid-In-Capital of $54 and $167,597, respectively, on the Company’s Unaudited Condensed Consolidated Statement of Financial Condition as of June 30, 2011. The purchase of outstanding LP Units resulted in a decrease to Additional Paid-In-Capital of $84,195 on the Company’s Unaudited Condensed Consolidated Statements of Financial Condition as of June 30, 2011. See Note 13 for the impact of this transaction on Noncontrolling Interest. Additionally, the above transaction resulted in an increase in the tax basis of the tangible and intangible assets of Evercore LP, which triggered an additional liability under the tax receivable agreement that was entered into in 2006 between the Company and the LP Unit holders. The agreement provides for a payment to the LP Unit holders of 85% of the cash tax savings (if any), resulting from the increased tax benefits from the exchange and for the Company to retain 15% of such benefits. Accordingly, Deferred Tax Assets – Non-Current, Amounts Due Pursuant to Tax Receivable Agreements and Additional Paid-In-Capital increased $47,481, $40,360 and $7,122, respectively, on the Company’s Unaudited Condensed Consolidated Statement of Financial Condition as of June 30, 2011.

Dividends – During the three and six months ended June 30, 2011, the Company declared and paid dividends of $0.18 and $0.36 per share, totaling $4,116 and $8,231, respectively. The Company’s Board of Directors declared on July 26, 2011, a quarterly cash dividend of $0.18 per share, to the holders of Class A common stock as of August 26, 2011, which will be paid on September 9, 2011.

Treasury Stock – During the six months ended June 30, 2011, the Company purchased 489 Class A common shares from employees at market values ranging from $32.08 to $36.41 per share for the net settlement of stock-based compensation awards. The

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

result of these purchases was an increase in Treasury Stock of $16,750 on the Company’s Unaudited Condensed Consolidated Statement of Financial Condition as of June 30, 2011.

LP Units – During the six months ended June 30, 2011, 299 LP Units were gifted by employees to various charities and exchanged for Class A common shares, resulting in an increase to Common Stock and Additional Paid-In-Capital of $3 and $1,694, respectively, on the Company’s Unaudited Condensed Consolidated Statement of Financial Condition as of June 30, 2011. See “Offerings” above for additional LP Unit transactions.

Note 13 – Noncontrolling Interest

Noncontrolling Interest recorded in the unaudited condensed consolidated financial statements of the Company relates to a 20% interest in Evercore LP, a 28% interest in PCB, a 49% interest in Evercore Wealth Management (“EWM”), a 49% interest in Evercore Asset Management L.L.C. (“EAM”), a 34% equity interest in Atalanta Sosnoff Capital L.L.C. (“Atalanta Sosnoff”), a 34% interest in Institutional Equities and a 14% interest in Evercore Trust Company, N.A. (“ETC”), not owned by the Company at June 30, 2011. The Atalanta Sosnoff interest excludes the Series C Profits Interest, which has been reflected in Employee Compensation and Benefits Expense on the Unaudited Condensed Consolidated Statements of Operations. The Noncontrolling Interest for Evercore LP, EWM, Atalanta Sosnoff, Institutional Equities and ETC have rights, in certain circumstances, to convert into Class A common shares.

Changes in Noncontrolling Interest for the six months ended June 30, 2011 and 2010 were as follows:

 

     For the Six Months Ended June 30,  
     2011     2010  

Beginning balance

   $ 66,542      $ 29,361   

Comprehensive income

    

Operating income

     6,727        2,279   

Other comprehensive income (loss)

     1,488        (2,803
  

 

 

   

 

 

 

Total comprehensive income

     8,215        (524

Other items

    

Evercore LP Units Purchased or Converted into Class A Common Stock

     (11,774     (2,410

Amortization and Vesting of LP Units

     10,975        9,961   

Distributions to Noncontrolling Interests

     (12,014     (10,205

Fair value of noncontrolling interest in Atalanta Sosnoff

     —          33,139   

Issuance of noncontrolling interest in Institutional Equities

     729        3,503   
  

 

 

   

 

 

 

Total other items

     (12,084     33,988   
  

 

 

   

 

 

 

Ending balance

   $ 62,673      $ 62,825   
  

 

 

   

 

 

 

In February 2010, the Company issued 500 LP Units in exchange for a minority economic interest in Trilantic. At December 31, 2014, at the option of the holder, these LP Units are exchangeable on a one-for-one basis for Class A common stock of the Company or may be redeemed for cash of $16,500. This transaction resulted in Redeemable Noncontrolling Interest on the Unaudited Condensed Consolidated Statements of Financial Condition of $16,090, representing the fair value of the LP Units exchanged at the date of issuance. This value is being accreted to the minimum redemption value of $16,500 over the five-year period ended December 31, 2014. Accretion was $21 and $42 for the three and six months ended June 30, 2011, respectively, and $21 and $32 for the three and six months ended June 30, 2010, respectively.

In conjunction with the Company’s purchase agreement with Atalanta Sosnoff, the Company issued a management member of Atalanta Sosnoff certain capital interests in Atalanta Sosnoff, which are redeemable for cash, at their fair value. Accordingly, these capital interests have been reflected at their fair value of $9,242 within Redeemable Noncontrolling Interest on the Unaudited Condensed Consolidated Statements of Financial Condition at June 30, 2011 and December 31, 2010.

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

Note 14 – Net Income Per Share Attributable to Evercore Partners Inc. Common Shareholders

The calculations of basic and diluted net income per share attributable to Evercore Partners Inc. common shareholders for the three and six months ended June 30, 2011 and 2010 are described and presented below.

 

     For the Three Months Ended June 30,     For the Six Months Ended June 30,  
     2011     2010     2011     2010  

Basic Net Income Per Share Attributable to Evercore Partners Inc. Common Shareholders

        

Numerator:

        

Net income attributable to Evercore Partners Inc.

   $ 2,261      $ 117      $ 5,849      $ 2,137   

Associated accretion of redemption price of noncontrolling interest in Trilantic (See Note 13)

     (21     (21     (42     (32
                                

Net income attributable to Evercore Partners Inc. common shareholders

   $ 2,240      $ 96      $ 5,807      $ 2,105   

Denominator:

        

Weighted average shares of Class A common stock outstanding, including vested restricted stock units (“RSUs”)

     23,724        19,016        23,204        18,846   
                                

Basic Net Income Per Share Attributable to Evercore Partners Inc. common shareholders

   $ 0.09      $ 0.01      $ 0.25      $ 0.11   
                                

Diluted Net Income Per Share Attributable to Evercore Partners Inc. Common Shareholders

        

Numerator:

        

Net income attributable to Evercore Partners Inc. common shareholders

   $ 2,240      $ 96      $ 5,807      $ 2,105   

Add (deduct)—dilutive effect of:

        

Noncontrolling Interest related to the assumed exchange of LP Units for Class A common shares

     (a     (a     (a     (a

Associated corporate taxes related to the assumed elimination of Noncontrolling Interest described above

     (a     (a     (a     (a
                                

Diluted Net Income Available for Class A common shareholders

   $ 2,240      $ 96      $ 5,807      $ 2,105   
                                

Denominator:

        

Weighted average shares of Class A common stock outstanding, including vested RSUs

     23,724        19,016        23,204        18,846   

Add—dilutive effect of:

        

Assumed exchange of LP Units for Class A common shares

     (a     (a     (a     (a

Additional shares of the Company’s common stock assumed to be issued pursuant to non-vested RSUs, as calculated using the Treasury Stock Method

     1,648        1,700        1,801        1,913   

Assumed conversion of Warrants issued

     1,992        1,647        1,951        1,633   
                                

Diluted weighted average shares of Class A common stock outstanding

     27,364        22,363        26,956        22,392   
                                

Diluted Net Income Per Share Attributable to Evercore Partners Inc. common shareholders

   $ 0.08      $ 0.00      $ 0.22      $ 0.09   
                                

 

(a) During the three and six months ended June 30, 2011 and 2010, the LP Units (which represent the right to receive shares of Class A common stock upon exchange) were antidilutive and consequently the effect of their exchange into shares of Class A common stock has been excluded from the calculation of diluted net income per share attributable to Evercore Partners Inc. common shareholders. The units that would have been included in the computation of diluted net income per share attributable to Evercore Partners Inc. common shareholders if the effect would have been dilutive were 11,664 and 11,789 for the three and six months ended June 30, 2011, respectively, and 14,637 and 14,478 for the three and six months ended June 30, 2010, respectively.

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, basic and diluted net income per share of Class B common stock have not been presented.

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

Note 15 – Stock-Based and Other Deferred Compensation

Subsequent to the IPO, the Company granted new and existing employees RSUs and restricted stock. Certain of these awards vest upon the same terms as the RSUs issued at the time of the IPO (“Event-based Awards”) and certain of these awards vest from one to five years (“Service-based Awards”).

During the six months ended June 30, 2011, pursuant to the Evercore Partners Inc. 2006 Stock Incentive Plan, the Company granted employees 1,619 RSUs that are Service-based Awards. Service-based Awards granted during the six months ended June 30, 2011 had grant date fair values of $32.05 to $36.41 per share. During the six months ended June 30, 2011, 1,240 Service-based Awards vested and 74 Service-based Awards were forfeited.

During the second quarter of 2011, 542 Event-based Awards vested in conjunction of the Company’s offering of Class A common stock resulting in an expense of $11,389. The Company also modified and vested 48 Event-based Awards and 27 Event-based Awards were forfeited during the six months ended June 30, 2011.

During the first quarter of 2011, the Company amended the terms of a Service-based Award with the respect to 133 RSUs. Due to this amendment, $2,828 was reclassified from Additional Paid-in Capital to Other Current Liabilities on the Unaudited Condensed Consolidated Statement of Financial Condition.

During the first quarter of 2011, the Company launched a deferred compensation program providing participants the ability to elect to receive a portion of their deferred compensation in supplemental RSUs or deferred cash, which is indexed to a notional investment portfolio. The Company granted 76 RSUs related to this program during the first quarter of 2011 and awarded deferred cash compensation of $9,153, each of which will vest ratably over four years and require payment upon vesting. Compensation expense related to this deferred compensation program was $745 and $1,070 for the three and six months ended June 30, 2011, respectively.

Compensation expense related to stock-based awards, including compensation expense related to the amortization of the LP Units and the vesting of Event-based Awards, was $28,996 and $47,423 for the three and six months ended June 30, 2011, respectively, and $13,543 and $28,408 for the three and six months ended June 30, 2010, respectively.

In August 2011, the Company is expecting to deliver 2,027 shares directly and indirectly related to awards granted in conjunction with the Company’s IPO.

Note 16 – Commitments and Contingencies

For a complete discussion of the Company’s commitments, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Operating Leases – The Company leases office space under non-cancelable lease agreements, which expire on various dates through 2023. The Company reflects lease expense over the lease terms on a straight-line basis. 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 Unaudited Condensed Consolidated Statements of Operations includes occupancy rental expense relating to operating leases of $3,702 and $7,322 for the three and six months ended June 30, 2011, respectively, and $3,122 and$5,126 for the three and six months ended June 30, 2010, respectively.

The Company has entered into various operating leases for the use of certain office equipment. Rental expense for office equipment totaled $135 and $242 for the three and six months ended June 30, 2011, respectively, and $148 and $329 for the three and six months ended June 30, 2010, respectively. Rental expense for office equipment is included in Occupancy and Equipment Rental on the Unaudited Condensed Consolidated Statements of Operations.

Other Commitments – As of June 30, 2011, the Company has unfunded commitments for capital contributions of $7,356 to the private equity funds. These commitments will be funded as required through the end of each private equity fund’s 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.

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

As a result of the offering of common stock which occurred during the second quarter of 2011, the Amounts Due Pursuant to Tax Receivable Agreements increased to $142,422. As of June 30, 2011, the Company estimates the contractual obligations related to the Tax Receivable Agreements to be $146,405. The Company expects to pay to the counterparties to the Tax Receivable Agreement $3,983 within one year or less, $20,488 in one to three years, $23,451 in three to five years and $98,483 after five years.

On June 7, 2011, the Company entered into a definitive sale and purchase agreement to acquire all of the outstanding partnership interests in Lexicon. See Note 4 for further information.

The Company also has commitments related to its redeemable noncontrolling interests. See Note 13 for further information.

Contingencies

In the normal course of business, from time to time the Company and its affiliates may be involved in judicial, regulatory, arbitration and other proceedings concerning matters arising in connection with the conduct of its businesses, including contractual and employment matters. In the past, the Company and its affiliates have been named as a defendant in civil litigation matters involving present or former clients or competitors. In addition, Mexican, United Kingdom, Hong Kong and United States government agencies and self-regulatory organizations, as well as state securities commissions in the United States, conduct periodic examinations and initiate administrative proceedings regarding the Company’s business, including, among other matters, accounting and operational matters, that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer, investment advisor, or its directors, officers or employees. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that it is not currently party to any material pending proceedings, individually or in the aggregate, the resolution of which would have a material effect on the Company. Legal reserves are established in accordance with ASC 450, “Accounting for Contingencies” when warranted. Once established, reserves are adjusted when there is more information available or when an event occurs requiring a change.

Note 17 – 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 as amended (the “Exchange Act”). Rule 15c3-1 requires the maintenance of net capital, as defined, which shall be the greater of $100 or 6 2/3% of aggregate indebtedness, as defined. EGL’s regulatory net capital as of June 30, 2011 and December 31, 2010 was $65,617 and $62,583, respectively, which exceeded the minimum net capital requirement by $64,357 and $60,738, respectively. Certain other non-U.S. subsidiaries are subject to various securities and banking regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. These subsidiaries have consistently operated in excess of their local capital adequacy requirements.

ETC, which is limited to fiduciary activities, is regulated by the Office of the Comptroller of the Currency (“OCC”) and is a member bank of the Federal Reserve System. The Company, Evercore LP and ETC are subject to written agreements with the OCC that, among other things, require the Company and Evercore LP to (1) maintain at least $5,000 in Tier 1 capital in ETC (or such other amount as the OCC may require), (2) maintain liquid assets in ETC in an amount at least equal to the greater of $3,500 or 90 days coverage of ETC’s operating expenses and (3) provide at least $10,000 of certain collateral held in a segregated account at a third-party depository institution. The collateral is included in Assets Segregated for Bank Regulatory Requirements on the Unaudited Condensed Consolidated Statements of Financial Condition. The Company was in compliance with the aforementioned agreements as of June 30, 2011.

Note 18 – Income Taxes

The Company’s Provision (Benefit) for Income Taxes was $5,977 and $10,235 for the three and six months ended June 30, 2011, respectively, and ($1,698) and $2,961 for the three and six months ended June 30, 2010, respectively. The effective tax rate was 53% and 45% for the three and six months ended June 30, 2011, respectively, and 52% and 40% for the three and six months ended June 30,

 

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EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

2010, respectively. The effective tax rate for 2011 and 2010 reflects the effect of certain compensation transactions as well as the noncontrolling interest associated with LP Units. The effective tax rate for 2010 also reflected the effect of losses in certain foreign jurisdictions for which no income tax benefits are anticipated.

The Company reported a decrease in deferred tax assets of ($1,508) associated with changes in Accumulated Other Comprehensive Income (Loss) for the six months ended June 30, 2011.

As of June 30, 2011, there was $1,981 of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The Company does not anticipate a significant change in unrecognized tax positions as a result of the settlement of income tax audits for examining the Company’s income tax returns during the upcoming year.

The Company classifies interest relating to tax matters and tax penalties as a component of income tax expense in its Unaudited Condensed Consolidated Statements of Operations. Related to the unrecognized tax benefits, the Company accrued interest of $36 and $72 during the three and six months ended June 30, 2011, respectively, and had recognized a liability for penalties of $561 and interest of $789 at June 30, 2011.

As a result of the Company’s offering of common stock which occurred during the second quarter of 2011, Deferred Tax Assets – Non-Current and Amounts Due Pursuant to Tax Receivable Agreements increased $47,481 and $40,360, respectively, on the Company’s Unaudited Condensed Consolidated Statement of Financial Condition as of June 30, 2011. See Note 12 for further information.

Note 19 – Segment Operating Results

Business Segments – The Company’s business results are categorized into the following two segments: Investment Banking and Investment Management. Investment Banking includes providing advice to clients on significant mergers, acquisitions, divestitures and other strategic corporate transactions. During 2010, the Investment Banking segment (formerly called the Advisory segment) expanded to include services related to securities underwriting, private fund placement services and commissions for agency-based equity trading services and equity research. Investment Management includes advising third-party investors in the Institutional Asset Management, Wealth Management and Private Equity sectors. During the second quarter of 2010, the Investment Management segment expanded to include the acquisitions of Atalanta Sosnoff and Morse Williams and Company, Inc. (“Morse Williams”).

The Company’s segment information for the three and six months ended June 30, 2011 and 2010 was prepared using the following methodology:

 

   

Revenue, expenses and income (loss) from equity method investments directly associated with each segment are included in determining pre-tax income.

 

   

Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount and other factors.

 

   

Segment assets are based on those directly associated with each segment, or for certain assets shared across segments, those assets are allocated based on the most relevant measures applicable, including headcount and other factors.

 

   

Investment gains and losses, interest income and interest expense are allocated between the segments based on the segment in which the underlying asset or liability is held.

 

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Table of Contents

EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

Each segment’s Operating Expenses include: a) employee compensation and benefits expenses that are incurred directly in support of the segment and b) non-compensation 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. Other Expenses include amortization costs associated with the modification of unvested LP Units and certain other awards, charges associated with the vesting of Event-based Awards and amortization of intangibles associated with certain acquisitions.

The Company evaluates segment results based on net revenue and pre-tax income, both including and excluding the impact of the Other Expenses.

Two clients and one client accounted for more than 10% of the Company’s consolidated Net Revenues for the three and six months ended June 30, 2011, respectively.

The following information provides a reasonable representation of each segment’s contribution.

 

     For the Three Months Ended June 30,     For the Six Months Ended June 30,  
     2011     2010     2011     2010  

Investment Banking

        

Net Revenues (1)

   $ 113,976      $ 48,025      $ 196,355      $ 124,540   

Operating Expenses

     88,340        44,784        153,661        100,679   

Other Expenses (2)

     14,511        4,659        20,867        9,987   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income (Loss)

     11,125        (1,418     21,827        13,874   

Income from Equity Method Investments

     134        —          916        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Pre-Tax Income (Loss)

   $ 11,259      $ (1,418   $ 22,743      $ 13,874   
  

 

 

   

 

 

   

 

 

   

 

 

 

Identifiable Segment Assets

   $ 489,694      $ 329,058      $ 489,694      $ 329,058   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment Management

        

Net Revenues (1)

   $ 28,015      $ 16,945      $ 53,481      $ 28,451   

Operating Expenses

     24,594        17,730        48,656        32,734   

Other Expenses (2)

     3,379        918        4,310        1,904   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income (Loss)

     42        (1,703     515        (6,187

Income (Loss) from Equity Method Investments

     (65     (130     (447     (310
  

 

 

   

 

 

   

 

 

   

 

 

 

Pre-Tax Income (Loss)

   $ (23   $ (1,833   $ 68      $ (6,497
  

 

 

   

 

 

   

 

 

   

 

 

 

Identifiable Segment Assets

   $ 552,104      $ 561,512      $ 552,104      $ 561,512   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

        

Net Revenues (1)

   $ 141,991      $ 64,970      $ 249,836      $ 152,991   

Operating Expenses

     112,934        62,514        202,317        133,413   

Other Expenses (2)

     17,890        5,577        25,177        11,891   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income (Loss)

     11,167        (3,121     22,342        7,687   

Income (Loss) from Equity Method Investments

     69        (130     469        (310
  

 

 

   

 

 

   

 

 

   

 

 

 

Pre-Tax Income (Loss)

   $ 11,236      $ (3,251   $ 22,811      $ 7,377   
  

 

 

   

 

 

   

 

 

   

 

 

 

Identifiable Segment Assets

   $ 1,041,798      $ 890,570      $ 1,041,798      $ 890,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

EVERCORE PARTNERS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS – (Continued)

(dollars and share amounts in thousands, except per share amounts, unless otherwise noted)

 

(1) Net revenues include Other Revenue, net, allocated to the segments as follows:

 

     For the Three Months Ended June 30,      For the Six Months Ended June 30,  
     2011     2010      2011     2010  

Investment Banking (A)

   $ (720   $ 520       $ (1,393   $ 1,113   

Investment Management (B)

     (756     520         (1,479     795   
                                 

Total Other Revenue, net

   $ (1,476   $ 1,040       $ (2,872   $ 1,908   
                                 

 

  (A) Investment Banking Other Revenue, net, includes interest expense on the Senior Notes of $1,059 and $2,112 for the three and six months ended June 30, 2011, respectively, and $1,042 and $2,077 for the three and six months ended June 30, 2010, respectively.
  (B) Investment Management Other Revenue, net, includes interest expense on the Senior Notes of $894 and $1,784 for the three and six months ended June 30, 2011, respectively, and $881 and $1,756 for the three and six months ended June 30, 2010, respectively.

(2) Other Expenses are as follows:

 

     For the Three Months Ended June 30,      For the Six Months Ended June 30,  
     2011      2010      2011      2010  

Investment Banking

           

Amortization of LP Units and Certain Other Awards

   $ 5,136       $ 4,190       $ 11,023       $ 9,049   

Vesting of Event-based Awards

     8,906         —           8,906         —     

Intangible Asset Amortization

     469         469         938         938   
                                   

Total Investment Banking

     14,511         4,659         20,867         9,987   

Investment Management

           

Amortization of LP Units and Certain Other Awards

     781         803         1,597         1,674   

Vesting of Event-based Awards

     2,483         —           2,483         —     

Intangible Asset Amortization

     115         115         230         230   
                                   

Total Investment Management

     3,379         918         4,310         1,904   
                                   

Total Other Expenses

   $ 17,890       $ 5,577       $ 25,177       $ 11,891   
                                   

Geographic Information – The Company manages its business based on the profitability of the enterprise as a whole.

The Company’s revenues were derived from clients and private equity funds located in the following geographical areas:

 

 

 

     For the Three Months Ended June 30,      For the Six Months Ended June 30,  
     2011      2010      2011      2010  

Net Revenues: (1)

           

United States

   $ 118,644       $ 54,014       $ 191,144       $ 129,090   

Europe and Other

     19,697         4,525         46,949         14,202   

Latin America

     5,126         5,391         14,615         7,791   
                                   

Total

   $ 143,467       $ 63,930       $ 252,708       $ 151,083   
                                   

 

  (1) Excludes Other Revenue and Interest Expense.

Substantially all of the Company’s long-lived assets reside in the United States.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Evercore Partners Inc.’s unaudited condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q.

Forward-Looking Statements

This report contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act, which reflect our current views with respect to, among other things, our operations and financial performance. In some cases, you can identify these forward-looking statements by the use of words such as “outlook”, “believes”, “expects”, “potential”, “continues”, “may”, “should”, “seeks”, “approximately”, “predicts”, “intends”, “plans”, “estimates”, “anticipates” or the negative version of these words or other comparable words. 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 forward-looking statements. All statements other than statements of historical fact 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 Evercore’s business. We believe these factors include, but are not limited to, those described under “Risk Factors” discussed in the Annual Report on Form 10-K for the year ended December 31, 2010 and subsequent quarterly reports on Form 10-Q. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included or incorporated by reference in this report. We undertake no obligation to publicly update or review any forward-looking statement. 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.

Key Financial Measures

Revenue

Total revenues reflect revenues from our Investment Banking (formerly called Advisory) and Investment Management business segments that include transaction-related client reimbursements plus other revenue. Net revenues reflect total revenues less interest expense related to repurchase agreements, the Senior Notes and other borrowings.

Investment Banking. Our Investment Banking business earns fees from our clients for providing advice on mergers, acquisitions, divestitures, leveraged buyouts, restructurings and similar corporate finance matters, and from underwriting and private fund placement activities, as well as commissions from our agency trading activities. The amount and timing of the fees paid vary by the type of engagement. In general, advisory 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 investment banking revenue comes from advisory fees that are dependent on the successful completion of a transaction. A transaction can fail to be completed for many reasons, including failure of parties 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. In the case of bankruptcy engagements, fees are subject to approval of the court. Underwriting revenues are recognized when the offering has been deemed to be completed, placement fees are recognized at the time of the client’s acceptance of capital or capital commitments and commissions are recorded on a trade-date basis.

Revenue trends in our advisory business generally are correlated to the volume of M&A activity and/or restructuring activity, which tends to be counter-cyclical to M&A. However, deviations from this trend can occur in any given year or quarter 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 M&A or restructuring activity.

We operate in a highly competitive environment 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, 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 includes operations related to the management of the Institutional Asset Management, Wealth Management and Private Equity businesses. Revenue sources primarily include management fees, which

 

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include fees earned from portfolio companies, fiduciary and consulting fees, performance fees (including carried interest) and gains (or losses) on our investments.

Management fees for third party clients generally represent a percentage of assets under management (“AUM”). Fiduciary and consulting fees, which are generally a function of the size and complexity of each engagement, are individually negotiated. Management fees from private equity operations are generally a percentage of committed capital or invested capital at rates agreed with the investment funds we manage or with the individual client. Performance fees from private equity funds are earned when specified benchmarks are exceeded. In certain circumstances, such fees are subject to “claw-back” provisions. Portfolio company fees include monitoring, director and transaction fees associated with services provided to the portfolio companies of the private equity funds we manage. Gains and losses include both realized and unrealized gains and losses on principal investments, including those arising from our equity interest in investment partnerships.

Transaction-Related Client Reimbursements. In both our Investment Banking 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 advisory clients or the contracts with the limited partners in the private equity funds we manage, these expenditures may be reimbursable. We define these expenses as transaction-related expenses and record such expenditures as incurred and record revenue when it is determined that clients have an obligation to reimburse us for such transaction-related expenses. Client expense reimbursements are recorded as revenue on the Unaudited Condensed Consolidated Statements of Operations on the later of the date an engagement letter is executed or the date we pay or accrue the expense.

Other Revenue and Interest Expense. Other Revenue and Interest Expense is derived primarily from investing customer funds in financing transactions. These transactions are principally repurchases and resales of Mexican government and government agency securities. Revenue and expenses associated with these transactions are recognized over the term of the repurchase or resale transaction. Other Revenue includes income earned on marketable securities, cash and cash equivalents and assets segregated for regulatory purposes. Interest Expense includes interest expense associated with the Senior Notes.

Operating Expenses

Employee Compensation and Benefits Expense. We include all payments for services rendered by our employees, as well as profits interests in our businesses that have been accounted for as compensation, in employee compensation and benefits expense.

We maintain compensation programs, including base salary, cash, deferred cash and equity bonus awards and benefits programs and manage compensation to estimates of competitive levels based on market conditions. Our level of compensation reflects our plan to maintain competitive compensation levels to retain key personnel, and it reflects the impact of newly-hired senior professionals, including related grants of equity awards which are generally valued at their grant date.

Increasing the number of high-caliber, experienced senior level employees is critical to our growth efforts. In our advisory businesses, these hires generally do not begin to generate significant revenue in the year they are hired.

Our annual compensation program includes stock-based compensation awards and deferred cash awards as a component of the annual bonus awards for certain employees. These awards are generally subject to annual vesting requirements over a four-year period beginning at the date of grant, which generally occurs in the first quarter of each year; accordingly, the expense is amortized over the vesting period.

Non-Compensation Expenses. 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, acquisition and transition costs and other operating expenses. We refer to all of these expenses as non-compensation expenses.

Other Expenses

Other Expenses include compensation costs associated with the modification of unvested LP Units and certain other awards, charges associated with the vesting of Event-based Awards and amortization of intangibles associated with certain acquisitions.

Income from Equity Method Investments

Our share of the income (loss) from our equity interests in Pan and G5 are included within Income (Loss) from Equity Method Investments, as a component of Income Before Income Taxes, on the Unaudited Condensed Consolidated Statements of Operations.

Provision for Income Taxes

We account for income taxes in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”), which requires the recognition of tax benefits or expenses on temporary differences between the financial reporting and tax basis of our assets and liabilities.

 

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Noncontrolling Interest

We record noncontrolling interest relating to the ownership interests of our current and former Senior Managing Directors, their estate planning vehicles and Trilantic in Evercore LP, as well as the portions of our operating subsidiaries not owned by Evercore. As described in Note 13 to our unaudited condensed consolidated financial statements herein, Evercore Partners Inc. is the sole general partner of Evercore LP and has a majority economic interest in Evercore LP. As a result, Evercore Partners Inc. consolidates Evercore LP and records a noncontrolling interest for the economic interest in Evercore LP held by the limited partners.

We generally allocate net income or loss to noncontrolling interests held at Evercore LP and at the operating entity level, where required, by multiplying the vested equity ownership percentage of the noncontrolling interest holders for the period by the net income or loss of the entity to which the noncontrolling interest relates. In circumstances where the governing documents of the entity to which the noncontrolling interest relates require special allocations of profits or losses to the controlling and noncontrolling interest holders, then the net income or loss of these entities will be allocated based on these special allocations.

Results of Operations

The following is a discussion of our results of operations for the three and six months ended June 30, 2011 and 2010. For a more detailed discussion of the factors that affected the revenue and operating expenses of our Investment Banking and Investment Management business segments in these periods, see the discussion in “Business Segments” below.

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 us to predict all risks and uncertainties, nor can we assess the impact of all potentially applicable 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.

 

     For the Three Months Ended June 30,           For the Six Months Ended June 30,        
     2011      2010     Change     2011      2010     Change  
     (dollars in thousands, except per share data)  

Revenues

              

Investment Banking Revenue

   $ 114,696       $ 47,505        141   $ 197,748       $ 123,427        60

Investment Management Revenue

     28,771         16,425        75     54,960         27,656        99

Other Revenue

     4,273         6,973        (39 %)      7,971         13,445        (41 %) 
  

 

 

    

 

 

     

 

 

    

 

 

   

Total Revenues

     147,740         70,903        108     260,679         164,528        58

Interest Expense

     5,749         5,933        (3 %)      10,843         11,537        (6 %) 
  

 

 

    

 

 

     

 

 

    

 

 

   

Net Revenues

     141,991         64,970        119     249,836         152,991        63
  

 

 

    

 

 

     

 

 

    

 

 

   

Expenses

              

Operating Expenses

     112,934         62,514        81     202,317         133,413        52

Other Expenses

     17,890         5,577        221     25,177         11,891        112
  

 

 

    

 

 

     

 

 

    

 

 

   

Total Expenses

     130,824         68,091        92     227,494         145,304        57
  

 

 

    

 

 

     

 

 

    

 

 

   

Income (Loss) Before Income (Loss) from Equity Method Investments and Income Taxes

     11,167         (3,121     NM        22,342         7,687        191

Income (Loss) from Equity Method Investments

     69         (130     NM        469         (310     NM   
  

 

 

    

 

 

     

 

 

    

 

 

   

Income (Loss) Before Income Taxes

     11,236         (3,251     NM        22,811         7,377        209

Provision (Benefit) for Income Taxes

     5,977         (1,698     NM        10,235         2,961        246
  

 

 

    

 

 

     

 

 

    

 

 

   

Net Income (Loss)

     5,259         (1,553     NM        12,576         4,416        185

Net Income (Loss) Attributable to Noncontrolling Interest

     2,998         (1,670     NM        6,727         2,279        195
  

 

 

    

 

 

     

 

 

    

 

 

   

Net Income Attributable to Evercore Partners Inc.

   $ 2,261       $ 117        NM      $ 5,849       $ 2,137        174
  

 

 

    

 

 

     

 

 

    

 

 

   

Diluted Net Income Per Share

   $ 0.08       $ 0.00        NM      $ 0.22       $ 0.09        144

 

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As of June 30, 2011 and 2010 our total headcount was as follows:

 

     As of June 30,  
     2011         
     Evercore
U.S.
     Evercore
Mexico
     Evercore
Europe & Other
     Total      2010  

Senior Managing Directors

     46         8         7         61         54   

Portfolio and Client Relationship Managers

     30         —           —           30         26   

Senior Institutional Equities Professionals

     28         —           —           28         20   

Professionals and Administrative Personnel (1)

     412         125         46         583         452   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Employees

     516         133         53         702         552   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1) Excludes seasonal employees.

Three Months Ended June 30, 2011 versus June 30, 2010

Net revenues were $142.0 million for the three months ended June 30, 2011; an increase of $77.0 million, or 119%, versus net revenues of $65.0 million for the three months ended June 30, 2010. Investment Banking Revenue and Investment Management Revenue increased 141% and 75%, respectively, compared to the three months ended June 30, 2010. See the segment discussion below for further information. Other revenue for the three months ended June 30, 2011 was lower than for the three months ended June 30, 2010 as a result of relatively lower gains on our Marketable Securities portfolios for the three months ended June 30, 2011, compared to the three months ended June 30, 2010. Net revenues include interest expense on our Senior Notes.

Total Operating Expenses were $112.9 million for the three months ended June 30, 2011 as compared to $62.5 million for the three months ended June 30, 2010, a 81% increase. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $83.7 million for the three months ended June 30, 2011, an increase of $42.9 million, or 105%, versus expense of $40.8 million for the three months ended June 30, 2010. The increase was primarily due to an increase in revenues and compensation costs resulting from the expansion of our new and existing businesses. Non-compensation expenses as a component of Operating Expenses were $29.3 million for the three months ended June 30, 2011, an increase of $7.5 million, or 35% over non-compensation operating expenses of $21.7 million for the three months ended June 30, 2010. Non-compensation operating expenses increased compared to the three months ended June 30, 2010 primarily as a result of the expansion of our new and existing businesses.

Total Other Expenses of $17.9 million for the three months ended June 30, 2011 related to compensation costs associated with unvested LP Units and certain other awards of $5.9 million, charges associated with the vesting of Event-based Awards of $11.4 million and amortization of intangibles of $0.6 million. Total Other Expenses of $5.6 million for the three months ended June 30, 2010 related to costs associated with unvested LP Units and certain other awards of $5.0 million and amortization of intangibles of $0.6 million.

Employee Compensation and Benefits Expense as a percentage of Net Revenues was 71% for the three months ended June 30, 2011 and 70% for the three months ended June 30, 2010. Employee Compensation and Benefits Expense was impacted by the vesting of Event-based Awards, which occurred in conjunction with our offering during the second quarter of 2011.

The provision for income taxes for the three months ended June 30, 2011 was $6.0 million, which reflected an effective tax rate of 53%. The provision was impacted by the vesting of LP Units and certain other awards, as well as the noncontrolling interest associated with LP Units. The benefit for income taxes for the three months ended June 30, 2010 was $1.7 million, which reflected an effective tax rate of 52%. This provision was impacted by the non-deductible compensation expense associated with the vesting of LP Units and certain other awards, as well as losses in certain foreign jurisdictions for which no income tax benefits are anticipated.

Income (loss) from equity method investments was $0.1 million for the three months ended June 30, 2011, as compared to ($0.1) million for the three months ended June 30, 2010. The increase was primarily due to our investment in G5, which the Company made in the fourth quarter of 2010.

Noncontrolling interest was $3.0 million for the three months ended June 30, 2011 compared to ($1.7) million for the three months ended June 30, 2010, reflecting an allocation of operating income in the current year as opposed to an operating loss in the prior period.

Six Months Ended June 30, 2011 versus June 30, 2010

Net revenues were $249.8 million for the six months ended June 30, 2011; an increase of $96.8 million, or 63%, versus net revenues of $153.0 million for the six months ended June 30, 2010. Investment Banking Revenue and Investment Management Revenue increased 60% and 99%, respectively, compared to the six months ended June 30, 2010. See the segment discussion below for further information. Other revenue for the six months ended June 30, 2011 was lower than for the six months ended June 30, 2010 as

 

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a result of relatively lower gains on our Marketable Securities portfolios for the six months ended June 30, 2011, compared to the six months ended June 30, 2010. Net revenues include interest expense on our Senior Notes.

Total Operating Expenses were $202.3 million for the six months ended June 30, 2011 as compared to $133.4 million for the six months ended June 30, 2010, a 52% increase. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $147.0 million for the six months ended June 30, 2011, an increase of $56.3 million, or 62%, versus expense of $90.8 million for the six months ended June 30, 2010. The increase was primarily due to increased revenue and compensation costs resulting from the expansion of our new and existing businesses, some of which were not in operation during the entire prior year period. Non-compensation expenses as a component of Operating Expenses were $55.3 million for the six months ended June 30, 2011, an increase of $12.6 million, or 30% over non-compensation operating expenses of $42.7 million for the six months ended June 30, 2010. Non-compensation operating expenses increased compared to the six months ended June 30, 2010 primarily as a result of the expansion of our new and existing businesses.

Total Other Expenses of $25.2 million for the six months ended June 30, 2011 related to compensation costs associated with unvested LP Units and certain other awards of $12.6 million, charges associated with the vesting of Event-based Awards of $11.4 million and amortization of intangibles of $1.2 million. Total Other Expenses of $11.9 million for the three months ended June 30, 2010 related to costs associated with unvested LP Units and certain other awards of $10.7 million and amortization of intangibles of $1.2 million.

Employee Compensation and Benefits Expense as a percentage of Net Revenues was 68% for the six months ended June 30, 2011, compared to 66% for the six months ended June 30, 2010. The increase was primarily attributable to increased compensation expense associated with the amortization of unvested LP Units and certain other awards and the effect of new businesses, offset by higher revenues. Employee Compensation and Benefits Expense was impacted by the vesting of Event-based Awards, which occurred in conjunction with our offering during the second quarter of 2011.

The provision for income taxes for the six months ended June 30, 2011 was $10.2 million, which reflected an effective tax rate of 45%. The provision was impacted by the vesting of LP Units and certain other awards, as well as the noncontrolling interest associated with LP Units. The provision for income taxes for the six months ended June 30, 2010 was $3.0 million, which reflected an effective tax rate of 40%. This provision was impacted by the non-deductible compensation expense associated with the vesting of LP Units and certain other awards, as well as losses in certain foreign jurisdictions for which no income tax benefits are anticipated.

Income (loss) from equity method investments was $0.5 million for the six months ended June 30, 2011, as compared to ($0.3) million for the six months ended June 30, 2010. The increase was primarily due to our investment in G5, which the Company made in the fourth quarter of 2010.

Noncontrolling interest was $6.7 million for the six months ended June 30, 2011 compared to $2.3 million for the six months ended June 30, 2010.

 

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Business Segments

The following data presents revenue, expenses and contributions by business segment.

Investment Banking

The following table summarizes the operating results of the Investment Banking segment.

 

     For the Three Months Ended June 30,           For the Six Months Ended June 30,         
     2011     2010     Change     2011     2010      Change  
                 (dollars in thousands)               

Revenues

             

Investment Banking Revenue (1)

   $ 114,696      $ 47,505        141   $ 197,748      $ 123,427         60

Other Revenue, net (2)

     (720     520        NM        (1,393     1,113         NM   
  

 

 

   

 

 

     

 

 

   

 

 

    

Net Revenues

     113,976        48,025        137     196,355        124,540         58
  

 

 

   

 

 

     

 

 

   

 

 

    

Expenses

             

Operating Expenses

     88,340        44,784        97     153,661        100,679         53

Other Expenses

     14,511        4,659        211     20,867        9,987         109
  

 

 

   

 

 

     

 

 

   

 

 

    

Total Expenses

     102,851        49,443        108     174,528        110,666         58
  

 

 

   

 

 

     

 

 

   

 

 

    

Operating Income (Loss) (3)

     11,125        (1,418     NM        21,827        13,874         57

Income from Equity Method Investments

     134        —          NM        916        —           NM   
  

 

 

   

 

 

     

 

 

   

 

 

    

Pre-Tax Income (Loss)

   $ 11,259      $ (1,418     NM      $ 22,743      $ 13,874         64
  

 

 

   

 

 

     

 

 

   

 

 

    

 

(1) Includes client related expenses of $3.0 million and $6.6 million for the three and six months ended June 30, 2011, respectively, and $2.0 million and $6.6 million for the three and six months ended June 30, 2010, respectively.
(2) Includes interest expense on the Senior Notes of $1.1 million and $2.1 million for the three and six months ended June 30, 2011, respectively, and $1.0 million and $2.1 million for the three and six months ended June 30, 2010, respectively.
(3) Includes Noncontrolling interest of ($1.0) million and ($1.7) million for the three and six months ended June 30, 2011, respectively, and ($0.6) million for the three and six months ended June 30, 2010.

For the three and six months ended June 30, 2011, the level of announced and completed M&A activity was higher versus the three and six months ended June 30, 2010, as evidenced by the following statistics regarding the volume of transactions:

 

     For the Three Months Ended June 30,      For the Six Months Ended June 30,  
     2011      2010      2011      2010  

Industry Statistics ($ in billions) *

           

Value of North American M&A Deals Announced

   $ 291       $ 232       $ 680       $ 454   

Value of North American M&A Deals Completed

   $ 290       $ 213       $ 568       $ 387   

Value of Global M&A Deals Announced

   $ 721       $ 536       $ 1,485       $ 1,045   

Value of Global M&A Deals Completed

   $ 605       $ 495       $ 1,212       $ 909   

Evercore Statistics **

           

Total Number of Fee Paying Clients

     77         72         118         105   

Investment Banking Clients With Fees of at Least $1 million

     21         12         38         24   

 

  * Source: Thomson Financial July 13, 2011
  ** Includes revenue generating clients only

Investment Banking Results of Operations

Three Months Ended June 30, 2011 versus June 30, 2010

Net Investment Banking Revenues were $114.0 million for the three months ended June 30, 2011 compared to $48.0 million for the three months ended June 30, 2010, which represented an increase of 137%. Investment Banking Revenues for the three months ended June 30, 2011 included $3.4 million and $4.4 million of commissions and underwriting revenues, respectively. We earned revenue from 77 advisory clients during the three months ended June 30, 2011, 21 of which exceeded $1.0 million in revenue, compared to 72 clients during the three months ended June 30, 2010, 12 of which exceeded $1.0 million in revenue. M&A deal activity increased from the three months ended June 30, 2010.

 

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Operating Expenses were $88.3 million for the three months ended June 30, 2011, as compared to $44.8 million for the three months ended June 30, 2010, an increase of $43.6 million, or 97%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $67.3 million for the three months ended June 30, 2011, as compared to $29.4 million for the three months ended June 30, 2010, an increase of $37.9 million, or 129%. The increase was due to compensation costs resulting primarily from increased revenue, as well as increased headcount in our advisory business. Non-compensation expenses, as a component of Operating Expenses, were $21.0 million for the three months ended June 30, 2011, as compared to $15.4 million for the three months ended June 30, 2010, an increase of $5.6 million, or 36%. Non-compensation operating expenses increased from the prior year primarily driven by growth in the business and higher deal-related activity levels. The increase in Investment Banking headcount has led directly and indirectly to cost increases relating to occupancy, travel, and professional and regulatory fees.

Other Expenses of $14.5 million for the three months ended June 30, 2011 included $5.1 million related to compensation costs associated with unvested LP Units and certain other awards, $8.9 million of charges related to the vesting of Event-based Awards and $0.5 million of intangible asset amortization. Other Expenses of $4.7 million for the three months ended June 30, 2010 included $4.2 million related to costs associated with unvested LP Units and certain other awards and $0.5 million of intangible asset amortization.

Six Months Ended June 30, 2011 versus June 30, 2010

Net Investment Banking Revenues were $196.4 million for the six months ended June 30, 2011 compared to $124.5 million for the six months ended June 30, 2010, which represented an increase of 58%. Investment Banking Revenues for the six months ended June 30, 2011 included $5.9 million and $7.6 million of commissions and underwriting revenues, respectively. We earned revenue from 118 advisory clients during the six months ended June 30, 2011, 38 of which exceeded $1.0 million in revenue, compared to 105 clients during the six months ended June 30, 2010, 24 of which exceeded $1.0 million in revenue. M&A deal activity increased from the six months ended June 30, 2010. Advisory revenues for the six months ended June 30, 2011 were similar to those in the prior year period, impacted by the timing of the completion of the respective transactions.

Operating Expenses were $153.7 million for the six months ended June 30, 2011, as compared to $100.7 million for the six months ended June 30, 2010, an increase of $53.0 million, or 53%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $114.8 million for the six months ended June 30, 2011, as compared to $69.9 million for the six months ended June 30, 2010, an increase of $44.9 million, or 64%. The increase was due to compensation costs resulting primarily from our new businesses, as well as increased headcount in our advisory business. Non-compensation expenses, as a component of Operating Expenses, were $38.9 million for the six months ended June 30, 2011, as compared to $30.8 million for the six months ended June 30, 2010, an increase of $8.1 million, or 26%. Non-compensation operating expenses increased from the prior year primarily driven by growth in the business and higher deal-related activity levels. The increase in Investment Banking headcount has led directly and indirectly to cost increases relating to occupancy, travel, and professional and regulatory fees.

Other Expenses of $20.9 million for the six months ended June 30, 2011 included $11.0 million related to compensation costs associated with unvested LP Units and certain other awards, $8.9 million of charges related to the vesting of Event-based Awards and $0.9 million of intangible asset amortization. Other Expenses of $10.0 million for the six months ended June 30, 2010 included $9.0 million related to costs associated with unvested LP Units and certain other awards and $0.9 million of intangible asset amortization.

 

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Investment Management

The following table summarizes the operating results of the Investment Management segment.

 

     For the Three Months Ended June 30,           For the Six Months Ended June 30,        
     2011     2010     Change     2011     2010     Change  
                 (dollars in thousands)              

Revenues

            

Management Fees:

            

Wealth Management

   $ 3,764      $ 2,442        54   $ 7,232      $ 4,359        66

Institutional Asset Management

     18,425        9,719        90     37,308        16,438        127

Private Equity

     1,714        2,202        (22 %)      3,443        4,180        (18 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Total Management Fees

     23,903        14,363        66     47,983        24,977        92
  

 

 

   

 

 

     

 

 

   

 

 

   

Realized and Unrealized Gains (Losses):

            

Institutional Asset Management

     990        1,581        (37 %)      2,157        2,784        (23 %) 

Private Equity

     3,878        481        706     4,820        (105     NM   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total Realized and Unrealized Gains

     4,868        2,062        136     6,977        2,679        160
  

 

 

   

 

 

     

 

 

   

 

 

   

Investment Management Revenue (1)

     28,771        16,425        75     54,960        27,656        99

Other Revenue, net (2)

     (756     520        NM        (1,479     795        NM   
  

 

 

   

 

 

     

 

 

   

 

 

   

Net Investment Management Revenues

     28,015        16,945        65     53,481        28,451        88
  

 

 

   

 

 

     

 

 

   

 

 

   

Expenses

            

Operating Expenses

     24,594        17,730        39     48,656        32,734        49

Other Expenses

     3,379        918        268     4,310        1,904        126
  

 

 

   

 

 

     

 

 

   

 

 

   

Total Expenses

     27,973        18,648        50     52,966        34,638        53
  

 

 

   

 

 

     

 

 

   

 

 

   

Operating Income (Loss) (3)

     42        (1,703     NM        515        (6,187     NM   

Income (Loss) from Equity Method
Investments (4)

     (65     (130     50     (447     (310     (44 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Pre-Tax Income (Loss)

   $ (23   $ (1,833     99   $ 68      $ (6,497     NM   
  

 

 

   

 

 

     

 

 

   

 

 

   

 

(1) Includes client related expenses of $0.1 million and $0.4 million for the three and six months ended June 30, 2011, respectively.
(2) Includes interest expense on the Senior Notes of $0.9 million and $1.8 million for the three and six months ended June 30, 2011, respectively, and $0.9 million and $1.8 million for the three and six months ended June 30, 2010, respectively.
(3) Includes Noncontrolling interest of $0.7 million and $1.3 million for the three and six months ended June 30, 2011, respectively, and ($0.2) million and ($0.6) million for the three and six months ended June 30, 2010, respectively.
(4) Equity in Pan and G5 are classified as Income (Loss) from Equity Method Investments.

Investment Management Results of Operations

Our Wealth Management business includes the results of EWM and our acquisition of Morse Williams during the second quarter of 2010. Our Institutional Asset Management business includes the results of Atalanta Sosnoff, which was acquired during the second quarter of 2010. Fee-based revenues from EWM and Atalanta Sosnoff are primarily earned on a percentage of AUM, while ETC primarily earns fees from negotiated trust services and fiduciary consulting arrangements.

Our U.S. private equity funds, with the exception of Evercore Capital Partners L.P. and its affiliated entities (“ECP I”), earn management fees of 1% of invested capital. Starting January 1, 2010, pursuant to an amendment to the ECP I Partnership Agreement, no management fees were earned. Our Mexican private equity fund, EMCP II, earns management fees of 2.25% on committed capital during its investment period and 2.25% on net funded committed capital thereafter.

In addition, the general partner of the private equity funds earns carried interest of 20% based on the fund’s performance, provided it exceeds preferred return hurdles to its limited partners. We own 8%-9% of the carried interest earned by the general partner of ECP II and 100% of Carried Interest in EMCP II. A significant portion of any gains recognized related to ECP II are distributed to certain of our U.S. private equity professionals.

In the event the fund performs poorly we may be obligated to repay certain carried interest previously distributed. As of June 30, 2011, we had $2.7 million of previously received carried interest that may be subject to repayment.

 

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Assets Under Management

AUM for our Investment Management business of $16.8 billion at June 30, 2011, decreased from $17.4 billion at December 31, 2010. The amounts of AUM presented in the table below reflect the assets for which we charge a management fee. These assets reflect the fair value of assets managed on behalf of Institutional Asset Management and Wealth Management clients, and the amount of either invested or committed capital to the Private Equity funds. As defined in ASC 820, valuations performed for Level I investments are based on quoted prices obtained from active markets generated by third parties and Level II investments are valued through the use of models based on either direct or indirect observable inputs in the use of models or other valuation methodologies performed by third parties to determine fair value. For both the Level I and Level II investments, we obtain both active quotes from nationally recognized exchanges and third-party pricing services to determine market or fair value quotes, respectively. Wealth Management maintained 50% and 48% of Level I investments and 50% and 52% of Level II investments as of June 30, 2011 and December 31, 2010, respectively, and Institutional Asset Management maintained 95% and 95% of Level I investments and 5% and 5% of Level II investments as of June 30, 2011 and December 31, 2010, respectively. As noted above, Private Equity AUM is not presented at fair market value, but reported at either invested or committed capital in line with fee arrangements; notwithstanding, these assets represent primarily Level III investments. The following table summarizes AUM activity for the six months ended June 30, 2011:

 

     Wealth
Management
    Institutional Asset
Management
    Private Equity     Total  
           (dollars in millions)        

Balance at December 31, 2010

   $ 2,506      $ 14,252      $ 629      $ 17,387   

Inflows

     323        991        —          1,314   

Outflows

     (15     (1,354     (24     (1,393

Market Appreciation

     23        476        —          499   
                                

Balance at March 31, 2011

   $ 2,837      $ 14,365      $ 605      $ 17,807   

Inflows

     106        998        —          1,104   

Outflows

     (57     (1,831     —          (1,888

Market Appreciation (Depreciation)

     6        (221     —          (215
                                

Balance at June 30, 2011

   $ 2,892      $ 13,311      $ 605      $ 16,808   
                                

AUM decreased from December 31, 2010 primarily due to net outflows in Institutional Asset Management partially offset by inflows in Wealth Management.

Three Months Ended June 30, 2011 versus June 30, 2010

Net Investment Management Revenues were $28.0 million for the three months ended June 30, 2011, compared to $16.9 million for the three months ended June 30, 2010. Fee-based revenues earned from the management of client portfolios and other investment advisory services increased 66% from the three months ended June 30, 2010 primarily as a result of the full quarter’s impact of the acquisition of new businesses within Institutional Asset Management and Wealth Management, as well as year-over-year growth in AUM. Fee-based revenues included $0.1 million of revenues from performance fees during the three months ended June 30, 2011 compared to $0.1 million for the three months ended June 30, 2010. Realized and Unrealized Gains (Losses) increased from the prior year primarily resulting from gains in our private equity funds, which were principally driven by carried interest from Trilantic.

Operating Expenses were $24.6 million for the three months ended June 30, 2011, as compared to $17.7 million for the three months ended June 30, 2010, an increase of $6.9 million, or 39%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $16.4 million for the three months ended June 30, 2011, as compared to $11.4 million for the three months ended June 30, 2010, an increase of $5.0 million, or 43%. Non-compensation expenses, as a component of Operating Expenses, were $8.2 million for the three months ended June 30, 2011, as compared to $6.3 million for the three months ended June 30, 2010, an increase of $1.9 million, or 30%. The increase in Operating Expenses was primarily a result of the acquisition and expansion of new businesses added during the second quarter of 2010.

Other Expenses of $3.4 million for the three months ended June 30, 2011 included $0.8 million related to compensation costs associated with unvested LP Units and certain other awards, $2.5 million of charges related to the vesting of Event-based Awards and amortization of intangibles of $0.1 million. Other Expenses of $0.9 million for the three months ended June 30, 2010 included $0.8 million related to costs associated with unvested LP Units and certain other awards and amortization of intangibles of $0.1 million.

Six Months Ended June 30, 2011 versus June 30, 2010

Net Investment Management Revenues were $53.5 million for the six months ended June 30, 2011, compared to $28.5 million for the six months ended June 30, 2010. Fee-based revenues earned from the management of client portfolios and other investment

 

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advisory services increased 92% from the six months ended June 30, 2010 primarily as a result of the full quarter’s impact of the acquisition of new businesses within Institutional Asset Management and Wealth Management, as well as year-over-year growth in AUM. Fee-based revenues included $0.1 million of revenues from performance fees during the six months ended June 30, 2011 compared to $0.2 million for the six months ended June 30, 2010. Realized and Unrealized Gains (Losses) increased from the prior year primarily resulting from gains in our private equity funds, which were principally driven by carried interest from Trilantic.

Operating Expenses were $48.7 million for the six months ended June 30, 2011, as compared to $32.7 million for the six months ended June 30, 2010, an increase of $15.9 million, or 49%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $32.2 million for the six months ended June 30, 2011, as compared to $20.8 million for the six months ended June 30, 2010, an increase of $11.4 million, or 55%. Non-compensation expenses, as a component of Operating Expenses, were $16.4 million for the six months ended June 30, 2011, as compared to $11.9 million for the six months ended June 30, 2010, an increase of $4.5 million, or 38%. The increase in Operating Expenses was primarily a result of the acquisition and expansion of new businesses added during the second quarter of 2010.

Other Expenses of $4.3 million for the six months ended June 30, 2011 included $1.6 million related to compensation costs associated with unvested LP Units and certain other awards, $2.5 million of charges related to the vesting of Event-based Awards and amortization of intangibles of $0.2 million. Other Expenses of $1.9 million for the six months ended June 30, 2010 included $1.7 million related to costs associated with unvested LP Units and certain other awards and amortization of intangibles of $0.2 million.

Cash Flows

Our operating cash flows are primarily influenced by the timing and receipt of investment banking and investment management fees, and the payment of operating expenses, including bonuses to our employees and interest expense on our Senior Notes. Investment Banking advisory fees are generally collected within 90 days of billing. Management fees from our private equity investment management activities are generally billed in advance but collected at the end of a half year period from billing. Fees from our wealth management and institutional asset management businesses are generally billed and collected within 90 days. We traditionally pay a substantial portion of incentive compensation to personnel in the Investment Banking business and to executive officers during the first three months of each calendar year with respect to the prior year’s results. Our investing and financing cash flows are primarily influenced by activities to deploy capital to fund investments and acquisitions, raise capital through the issuance of stock or debt, repurchase of outstanding Class A shares, payment of dividends and other periodic distributions to our stakeholders. We generally make dividend payments and other distributions on a quarterly basis. A summary of our operating, investing and financing cash flows is as follows:

 

     For the Six Months Ended June 30,  
     2011     2010  
     (dollars in thousands)  

Cash Provided By (Used In)

    

Operating activities:

    

Net income

   $ 12,576      $ 4,416   

Non-cash charges

     53,222        30,994   

Other operating activities

     (58,064     (50,710
  

 

 

   

 

 

 

Operating activities

     7,734        (15,300

Investing activities

     19,627        (6,662

Financing activities

     35,788        (38,281

Effect of exchange rate changes

     (37     (1,614
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     63,112        (61,857

Cash and Cash Equivalents

    

Beginning of Period

     141,337        206,682   
  

 

 

   

 

 

 

End of Period

   $ 204,449      $ 144,825   
  

 

 

   

 

 

 

Six Months Ended June 30, 2011. Cash and Cash Equivalents were $204.4 million at June 30, 2011, an increase of $63.1 million versus Cash and Cash Equivalents of $141.3 million at December 31, 2010. Operating activities resulted in a net inflow of $7.7 million, primarily related to earnings offset by an increase in accounts receivable and a decrease in accrued compensation and benefits. Cash of $19.6 million was provided by investing activities primarily related to proceeds from maturities and sales of our marketable securities. Financing activities during the period provided cash of $35.8 million, primarily from our June 2011 offering, offset by the payment of dividends, distributions to Partners and treasury stock purchases.

 

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Six Months Ended June 30, 2010. Cash and Cash Equivalents were $144.8 million at June 30, 2010, a decrease of $61.9 million versus Cash and Cash Equivalents of $206.7 million at December 31, 2009. Operating activities resulted in a net outflow of $15.3 million, primarily related to the payment of 2009 bonus awards, offset by an increase in equity-based and other deferred compensation and deferred revenue. Cash of $6.7 million was used in investing activities primarily due to cash paid for acquisitions, offset by net proceeds from sales of Marketable Securities. Financing activities during the period used cash of $38.3 million, primarily for the purchase of treasury stock, as well as distributions to Evercore LP members and payment of dividends.

Liquidity and Capital Resources

General

Our current assets include Cash and Cash Equivalents, Marketable Securities and Accounts Receivable in relation to Investment Banking and Investment Management revenues. Our current liabilities include accrued expenses and accrued employee compensation. We traditionally have made payments for employee bonuses and year-end distributions to partners in the first quarter of the year with respect to the prior year’s results. Cash distributions related to partnership tax allocations are made to the partners of Evercore LP in accordance with our corporate estimated payment calendar; these payments are made prior to the end of each calendar quarter. In addition, dividends on Class A common shares are paid when and if declared by the Board of Directors, which is generally quarterly.

We regularly monitor our liquidity position, including cash, other significant working capital, current assets and liabilities, long-term liabilities, lease commitments, principal investment commitments related to our Investment Management business, dividends on Class A common shares, partnership distributions and other matters relating to liquidity and compliance with regulatory requirements. Our liquidity is highly dependent on our revenue stream from our operations, principally from our Investment Banking business, which is a function of closing transactions and earning success fees, the timing and realization of which is irregular and dependent upon factors that are not subject to our control. Our revenue stream funds the payment of our expenses, including annual bonus payments, a portion of which are guaranteed, interest expense on our Senior Notes and income taxes. Payments made for income taxes may be reduced by deductions taken for the increase in tax basis of our investment in Evercore LP. These tax deductions, when realized, require payment under our long-term liability, Amounts Due Pursuant to Tax Receivable Agreements. We intend to fund these payments from cash and cash equivalents on hand, principally derived from cash flows from operations. These tax deductions, when realized, will result in cash otherwise required to satisfy tax obligations becoming available for other purposes. Our Management Committee meets regularly to monitor our liquidity and cash positions against our short and long-term obligations, as well as our capital commitments. The result of this review contributes to management’s recommendation to the Board of Directors as to the level of quarterly dividend payments, if any.

As a financial services firm, our businesses are materially affected by conditions in the global financial markets and economic conditions throughout the world. Revenue generated by our advisory activities is directly related to the number and value of the transactions in which we are involved. During periods of unfavorable market or economic conditions, the number and value of M&A transactions generally decrease, and they increase during periods of favorable market or economic conditions. Restructuring activity generally is counter-cyclical to M&A activity. In addition, our Investment Management business may be impacted by reduced equity valuations and generate relatively lower revenue because fees we receive typically are in part based on the market value of underlying publicly-traded securities. Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions. Reduced equity valuations resulting from future adverse economic events and/or market conditions may impact our performance, which could result in future impairment charges related to our goodwill and/or intangibles assets. For a further discussion of risks related to our business, refer to “Risk Factors” in our Form 10-K for the year ended December 31, 2010.

In October 2010, our Board of Directors authorized the repurchase of up to 2 million shares of Evercore Class A Common Stock and/or LP Units for up to $85.0 million. Under this share repurchase program, shares may be repurchased from time to time in open market transactions, in privately-negotiated transactions or otherwise. The timing and the actual amount of shares repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. This program may be suspended or discontinued at any time and does not have a specified expiration date.

In addition, periodically, we buy shares into treasury from our employees in order to fund the minimum tax requirements for share deliveries under our share equity plan. During the six months ended June 30, 2011, we repurchased 488,579 shares for $16.8 million related to funding the minimum tax withholding requirements of share deliveries.

On August 21, 2008, we entered into a Purchase Agreement with Mizuho pursuant to which Mizuho purchased from us $120.0 million principal amount of Senior Notes and the Warrants to purchase 5,454,545 shares of Evercore Class A common stock at $22.00 per share expiring in 2020. The holder of the Senior Notes may require us to purchase, for cash, all or any portion of the holder’s Senior Notes upon a change of control of the Company for a price equal to the Accreted Amount, plus accrued and unpaid interest. Senior Notes held by Mizuho will be redeemable at the Accreted Amount at our option at any time within 90 days following the date on which Mizuho notifies us that it is terminating their Strategic Alliance Agreement. Senior Notes held by any holder other than

 

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Mizuho will be redeemable at the Accreted Amount (plus accrued and unpaid interest) at our option at any time beginning on the third anniversary of closing. In the event of a default under the indenture, the trustee or holders of 33 1/3% of the Senior Notes may declare that the Accreted Amount is immediately due and payable.

Pursuant to the agreement, Mizuho may not transfer the Senior Notes or Warrants until either (a) after August 16, 2012 or (b) if the Strategic Alliance Agreement is terminated, the later of the third anniversary of the closing of the purchase of the Senior Notes and Warrants or one year following such termination. We have a right of first offer on any proposed transfer by Mizuho of the Warrants, Common Stock purchased by Mizuho in the open market or acquired by Mizuho upon exercise of the Warrants and associated Common Stock issued as dividends.

The exercise price for the Warrants is payable, at the option of the holder of the Warrants, either in cash or by tender of Senior Notes at the Accreted Amount, at any point in time.

Pursuant to the agreement with Mizuho, Evercore is subject to certain nonfinancial covenants. As of June 30, 2011, we were in compliance with all of these covenants.

During the second quarter of 2011, we had an offering of 5,364,991 shares of Class A common stock. A portion of the proceeds were used to purchase from certain holders, including members of the Company’s senior management, a number of outstanding LP Units that was equal to the number of newly-issued shares of Class A common stock sold in the offering. See Note 12 to our unaudited condensed consolidated financial statements.

This offering resulted in an increase to Common Stock and Additional Paid-In-Capital of $0.1 million and $167.6 million, respectively, on the Unaudited Condensed Consolidated Statement of Financial Condition as of June 30, 2011. The purchase of outstanding LP Units resulted in a decrease to Additional Paid-In-Capital of $84.2 million on the Unaudited Condensed Consolidated Statements of Financial Condition as of June 30, 2011. See Note 13 to our unaudited condensed consolidated financial statements for the impact of this transaction on Noncontrolling Interest. Additionally, the above transaction resulted in an increase in the tax basis of the tangible and intangible assets of Evercore LP, which triggered an additional liability under the tax receivable agreement that was entered into in 2006 between the Company and the LP Unit holders. The agreement provides for a payment to the LP Unit holders of 85% of the cash tax savings (if any), resulting from the increased tax benefits from the exchange and for the Company to retain 15% of such benefits. Accordingly, Deferred Tax Assets – Non-Current, Amounts Due Pursuant to Tax Receivable Agreements and Additional Paid-In-Capital increased $47.5 million, $40.4 million and $7.1 million, respectively, on the Unaudited Condensed Consolidated Statement of Financial Condition as of June 30, 2011. For a complete discussion of the Company’s Tax Receivable Agreement, refer to the Company’s Annual Report on Form 10–K for the year ended December 31, 2010. See Contractual Obligations for future payments related to the Tax Receivable Agreement.

Upon completion of the offering, Messrs. Altman, Beutner and Aspe (and trusts benefiting their families and permitted transferees) beneficially owned less than 50% of the aggregate LP Units owned by them at the time of our IPO. Accordingly, the IPO related Event-based Awards vested upon completion of the offering. In August 2011, we are expecting to deliver 2,027,340 shares directly and indirectly related to awards granted in conjunction with the Company’s IPO.

We have made certain capital commitments, with respect to our investment activities, as well as commitments related to redeemable noncontrolling interest and contingent consideration from our acquisitions, which are included in the Contractual Obligations section below.

PCB maintains a line of credit with BBVA Bancomer to fund its trading activities on an intra-day and overnight basis. The intra-day facility is approximately $8.5 million and secured with trading securities. No interest is charged on the intra-day facility. The overnight facility is charged the Inter-Bank Balance Interest Rate plus 10 basis points and is secured with trading securities. There have been no significant draw downs on PCB’s line of credit since August 10, 2006. The line of credit is renewable annually.

Pursuant to deferred compensation arrangements, we are obligated to make cash payments in future periods. For further information see Note 15 to our unaudited condensed consolidated financial statements.

Certain of our subsidiaries are regulated entities and are subject to capital requirements. For further information see Note 17 to our unaudited condensed consolidated financial statements.

Collateralized Financing Activity at PCB

PCB enters into repurchase agreements with clients seeking overnight money market returns whereby PCB transfers to the clients 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

 

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collateralized financing transactions. We record a liability on our Unaudited Condensed Consolidated Statements of Financial Condition in relation to repurchase transactions executed with clients as Securities Sold Under Agreements to Repurchase. We record as assets on our Unaudited Condensed Consolidated Statements 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 repurchase agreements by entering into reverse repurchase agreements with unrelated third parties). These Mexican government securities included in Financial Instruments Owned and Pledged as Collateral at Fair Value on the Unaudited Condensed Consolidated Statements of Financial Condition have an estimated average time to maturity of approximately 2.7 years, as of June 30, 2011, and are pledged as collateral against repurchase agreements, which are collateralized financing agreements. Generally, collateral is posted equal to the contract value at inception and is subject to market changes. These repurchase agreements are primarily with institutional customer accounts managed by PCB, generally mature within one business day and permit the counterparty to pledge the securities. Increases and decreases in asset and liability levels related to these transactions are a function of growth in PCB’s AUM, as well as clients’ investment allocations requiring positioning in repurchase transactions.

PCB has procedures in place to monitor the daily risk limits for positions taken, as well as the credit risk based on the collateral pledged under these agreements against their contract value from inception to maturity date. The daily risk measure is Value at Risk, which is a statistical measure, at a 98% confidence level, of the potential losses from adverse market movements in an ordinary market environment based on a historical simulation using the prior year’s historical data. PCB’s Risk Management Committee meets monthly to analyze the overall market risk exposure based on positions taken, as well as the credit risk, based on the collateral pledged under these agreements against the contract value from inception to maturity date.

We periodically assess the collectability or credit quality related to securities purchased under agreements to resell; as of June 30, 2011, the Company believes it maintains a sufficient level of cash or collateral.

As of June 30, 2011 and December 31, 2010, a summary of PCB’s assets, liabilities and risk measures related to its collateralized financing activities is as follows:

 

     June 30, 2011     December 31, 2010  
     Amount     Market Value of
Collateral Received
or (Pledged)
    Amount     Market Value of
Collateral Received
or (Pledged)
 
     (dollars in thousands)  

Assets

        

Financial Instruments Owned and Pledged as Collateral at Fair Value

   $ 83,311        $ 52,217     

Securities Purchased Under Agreements to Resell

     100,598      $ 100,605        126,401      $ 126,386   
                    

Total Assets

     183,909          178,618     

Liabilities

        

Securities Sold Under Agreements to Repurchase

     (184,062   $ (184,202     (178,683   $ (178,603
                    

Net Liabilities

   $ (153     $ (65  
                    

Risk Measures

        

Value at Risk

   $ 49        $ 27     
                    

Sensitivity to a 100 basis point increase in the interest rate

   $ (176     $ (54  
                    

Sensitivity to a 100 basis point decrease in the interest rate

   $ 176        $ 54     
                    

Contractual Obligations

For a complete discussion of our contractual obligations, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

As of June 30, 2011, we were unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority, hence, per ASC 740, unrecognized tax benefits have been excluded from this disclosure.

As a result of the offering of common stock which occurred during the second quarter of 2011, the Amounts Due Pursuant to Tax Receivable Agreements increased to $142.4 million. As of June 30, 2011, we estimated the contractual obligations related to the Tax Receivable Agreements to be $146.4 million. We expect to pay to the counterparties to the Tax Receivable Agreement $4.0 million within one year or less, $20.5 million in one to three years, $23.5 million in three to five years and $98.5 million after five years.

On June 7, 2011, we entered into a definitive sale and purchase agreement to acquire all of the outstanding partnership interests in Lexicon. See Note 4 to our unaudited condensed consolidated financial statements for information related to our commitment in this transaction.

 

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We had total commitments (not reflected on our Unaudited Condensed Consolidated Statements of Financial Condition) relating to future principal investments of $7.4 million and $8.1 million as of June 30, 2011 and December 31, 2010, respectively. We expect to fund these commitments with cash flows from operations. We may be required to fund these commitments at any time through December 2017, depending on the timing and level of investments by our private equity funds.

We also have commitments related to our redeemable noncontrolling interests. See Note 13 of our unaudited condensed consolidated financial statements for further information.

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 unaudited condensed consolidated financial statements.

Market Risk and Credit Risk

We, in general, are not a capital-intensive organization and as such, are not subject to significant market or credit risks. Nevertheless, we have established procedures to assess both the market and credit risk, as well as specific investment risk, exchange rate risk and credit risk related to receivables.

Market and Investment Risk

Institutional Asset Management

We invest in funds managed by EAM, EWM and G5. These funds principally hold readily-marketable investment securities. As of June 30, 2011, the fair value of our investments with these products, based on closing prices, was $17.6 million.

We estimate that a hypothetical 10% adverse change in the market value of the investments would have resulted in a decrease in pre-tax income of approximately $1.8 million for the three months ended June 30, 2011.

See “-Liquidity and Capital Resources” above for a discussion of collateralized financing transactions at PCB.

Private Equity Funds

Through our principal investments in our private equity funds and our ability to earn carried interest from these funds, we face exposure to changes in the estimated fair value of the companies in which these funds invest. Our professionals devote considerable time and resources to work closely with the portfolio company’s management to assist in designing a business strategy, allocating capital and other resources and evaluating expansion or acquisition opportunities. On a quarterly basis, we perform a comprehensive analysis and valuation of all of the portfolio companies. Our analysis includes reviewing the current market conditions and valuations of each portfolio company. Valuations and analysis regarding our investments in CSI Capital and Trilantic are performed by their respective professionals.

We estimate that a hypothetical 10% adverse change in the value of the private equity funds would have resulted in a decrease in pre-tax income of approximately $2.5 million for the three months ended June 30, 2011.

Exchange Rate Risk

We have foreign operations, through our subsidiaries and affiliates, in Mexico, the United Kingdom, Brazil and Hong Kong which creates foreign exchange rate risk. Their respective functional currencies are the Mexican peso, British pound sterling, Brazilian real and Hong Kong dollar. We have not entered into any transactions to hedge our exposure to these foreign exchange fluctuations through the use of derivative instruments or otherwise. An appreciation or depreciation of any of these currencies relative to the U.S. dollar would result in an adverse or beneficial impact to our financial results. A significant portion of our Latin American revenues have been, and will continue to be, derived from contracts denominated in Mexican pesos and Evercore Europe’s revenue and expenses are denominated primarily in British pounds sterling and euro. Historically, the value of these foreign currencies has fluctuated relative to the U.S. dollar. For the six months ended June 30, 2011, the net impact of the fluctuation of foreign currencies recorded in Other Comprehensive Income and Noncontrolling Interest within the Unaudited Condensed Consolidated Statement of Equity was $2.4 million. It is currently not our intention to hedge our foreign currency exposure, and we will reevaluate this policy from time to time.

 

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Credit Risks

We maintain cash and cash equivalents with financial institutions with high credit ratings. At times, we may maintain deposits in federally insured financial institutions in excess of federally insured (“FDIC”) limits. However, we believe that we are not exposed to significant credit risk due to the financial position of the depository institution in which those deposits are held.

Accounts Receivable consists primarily of advisory fees and expense reimbursements billed to our clients. Receivables are reported net of any allowance for doubtful accounts. We maintain an allowance for bad debts to provide coverage for probable losses from our customer receivables and derive the estimate through specific identification for the allowance for doubtful accounts and an assessment of the client’s creditworthiness. As of June 30, 2011 and December 31, 2010, total receivables amounted to $83.1 million and $49.6 million, respectively, net of an allowance. The Investment Banking and Investment Management receivables collection periods generally are within 90 days of invoice. The collection period for restructuring transactions and private equity fee receivables may exceed 90 days. We recorded minimal bad debt expense for each of the six months ended June 30, 2011 and 2010.

With respect to our Marketable Securities portfolio, which is comprised primarily of highly rated corporate and municipal bonds, mutual funds and Seed Capital Investments, we manage our credit risk exposure by limiting concentration risk and maintaining minimum credit quality. As of June 30, 2011, we had Marketable Securities of $73.5 million, of which 64% were corporate and municipal bonds and other debt securities primarily with S&P ratings ranging from AAA to BB+ and 36% were Seed Capital Investments and mutual funds.

Critical Accounting Policies and Estimates

The unaudited condensed consolidated financial statements included in this report are prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions regarding future events that affect the amounts reported in our unaudited condensed consolidated 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. For a complete discussion of our critical accounting policies and estimates, refer to our Annual Report on Form 10-K for the year ended December 31, 2010.

Recently Issued Accounting Standards

ASU 2011-03 – In April 2011, the FASB issued ASU No. 2011-03, “Reconsideration of Effective Control for Repurchase Agreements” (“ASU 2011-03”). ASU 2011-03 provides amendments to ASC No. 860 “Transfers and Servicing”, which remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this update are effective prospectively for transactions or modifications of existing transactions that occur on or after the beginning of the first interim or annual reporting period beginning on or after December 15, 2011, with early adoption not permitted. The Company is currently assessing the impact of the adoption of this update on the Company’s financial condition, results of operations and cash flows.

ASU 2011-04 – In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”). ASU 2011-04 provides amendments to ASC No. 820 “Fair Value Measurement”, which results in a consistent definition of fair value and common requirements for measurement of and disclosure of fair value between U.S. GAAP and IFRS. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements, while others change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this update are effective prospectively during interim and annual periods beginning after December 15, 2011, with early adoption not permitted. The Company is currently assessing the impact of the adoption of this update on the Company’s financial condition, results of operations and cash flows.

ASU 2011-05 – In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 provides amendments to ASC No. 220 “Comprehensive Income”, which require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this update are effective retrospectively for fiscal years and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company is currently assessing the impact of the adoption of this update on the Company’s financial condition, results of operations and cash flows.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Risk Management

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk and Credit Risk.” 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 Risk and Credit Risk” above.

 

Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation 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 upon that evaluation and subject to the foregoing, our chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Controls over Financial Reporting

We have not made any changes during the three months ended June 30, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

General

In the normal course of business, from time to time the Company and its affiliates may be involved in judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its businesses, and, in the past, the Company and its affiliates have been named as a defendant in civil litigation matters involving present or former clients or competitors. In addition, Mexican, United Kingdom, Hong Kong and United States government agencies and self-regulatory organizations, as well as state securities commissions in the United States, conduct periodic examinations and initiate administrative proceedings regarding the Company’s business, including, among other matters, accounting and operational matters, that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer, investment advisor, or its directors, officers or employees. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that it is not currently party to any material pending legal proceedings, individually or in the aggregate, the resolution of which would have a material effect on the Company. Legal reserves are established in accordance with ASC 450, “Accounting for Contingencies” when warranted. Once established, reserves are adjusted when there is more information available or when an event occurs requiring a change.

 

Item 1A. Risk Factors

There have not been any material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales

 

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None

Issuer Purchases of Equity Securities

2011

   Total Number of
Shares (or Units)
Purchased (1)
     Average
Price Paid
Per Share
     Total Number of
Shares (or Units)
Purchased as Part  of
Publicly Announced
Plans or Programs (2)
     Maximum Number (or
Approximate Dollar Value) of
Shares (or  Units) that May Yet
Be Purchased Under the Plan
or Program (2)
 

April 1 to April 30

     3,217       $ 34.57         —         $ 85,000,000   

May 1 to May 31

     32,442         34.15         —           85,000,000   

June 1 to June 30

     54,961         35.48         —           85,000,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     90,620       $ 34.97         —         $ 85,000,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) These reflect treasury transactions arising from net settlement of equity awards to satisfy minimum tax obligations.

 

(2) In October 2010, Evercore’s Board authorized the repurchase of up to 2 million shares of Evercore Class A Common Stock and/or LP Units for up to $85.0 million. Under this share repurchase program, shares may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of shares repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. This program may be suspended or discontinued at any time and does not have a specified expiration date.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Removed and Reserved

 

Item 5. Other Information

None.

 

Item 6. Exhibits

 

Exhibit
Number

  

Description

31.1    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith)
31.2    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith)
32.1    Certification of the 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 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)
101   

The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, are formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Consolidated Statements of Financial Condition as of June 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Changes In Equity for the six months ended June 30, 2011 and 2010, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (v) Notes to Condensed Consolidated Financial Statements (furnished herewith)

 

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SIGNATURES

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: August 5, 2011

 

Evercore Partners Inc.
By:  

/s/ RALPH SCHLOSSTEIN

Name:   Ralph Schlosstein
Title:   Chief Executive Officer and Director
By:  

/S/ ROBERT B. WALSH

Name:   Robert B. Walsh
Title:   Chief Financial Officer

 

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Exhibit Index

 

Exhibit
Number

  

Description

31.1    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith)
31.2    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith)
32.1    Certification of the 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 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)
101   

The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, are formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Consolidated Statements of Financial Condition as of June 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Changes In Equity for the six months ended June 30, 2011 and 2010, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (v) Notes to Condensed Consolidated Financial Statements (furnished herewith)

 

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