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8-K/A - FORM 8-K/A - Evercore Inc.d249882d8ka.htm
EX-23.1 - CONSENT OF INDEPENDENT AUDITORS - Evercore Inc.d249882dex231.htm
EX-99.1 - AUDITED CONSOLIDATED BALANCE SHEET OF LEXICON - Evercore Inc.d249882dex991.htm

Exhibit 99.2

Evercore Partners Inc. and The Lexicon Partnership LLP

Unaudited Pro Forma Condensed Combined

Financial Statements

On August 19, 2011, Evercore Partners Inc. (“the Company”) completed its previously announced acquisition of all of the outstanding partnership interests of The Lexicon Partnership LLP, a U.K. incorporated limited liability partnership (“Lexicon”), in accordance with the definitive sale and purchase agreement entered into on June 7, 2011, for consideration consisting of cash and stock (the “Acquisition”). The unaudited pro forma condensed combined statements of operations and the unaudited pro forma condensed combined statement of financial condition are based upon the historical consolidated financial statements of the Company and Lexicon after giving effect to the Acquisition, and after applying the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

The historical consolidated financial statements of Lexicon were prepared in conformity with accounting principles generally accepted in the United Kingdom (“U.K. GAAP”), which differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). Necessary adjustments have been made to reconcile the historical consolidated financial statements of Lexicon to U.S. GAAP. These adjustments relate primarily to differences such as the translation of foreign currency, the accrual for vacation benefits and the tax effects of such adjustments.

The Company and Lexicon’s fiscal year ends are December 31st and March 31st, respectively. Since these year-ends differ by less than 93 days, the Company has combined the fiscal year end results without recasting Lexicon’s results. Accordingly, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2010 combines the Company’s audited consolidated statement of operations for the year ended December 31, 2010 with Lexicon’s audited consolidated statement of operations for the year ended March 31, 2011. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2011, combines the Company’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2011 with Lexicon’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2011. Lexicon’s results for the three months ended March 31, 2011 are included within both the full year and interim period pro forma results since Lexicon’s fiscal year-end is March 31st and the Company’s most recent interim period is June 30, 2011. These results included pre-tax income of approximately $12.0 million. These unaudited pro forma combined statements of operations are presented as if the Acquisition had occurred on January 1, 2010, the first day of the Company’s year ended December 31, 2010.

The unaudited pro forma condensed combined statement of financial condition as of June 30, 2011, combines the Company’s June 30, 2011 unaudited condensed consolidated statement of financial condition with Lexicon’s June 30, 2011 unaudited condensed consolidated statement of financial condition, and is presented as if the Acquisition had occurred on June 30, 2011.

The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial

 

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statements should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial statements were based on and should be read in conjunction with the:

 

   

separate historical financial statements as of the Company as of and for the year ended December 31, 2010 and the related notes included in Company’s Annual Report on Form 10-K for the year ended December 31, 2010;

 

   

separate historical financial statements of Lexicon as of and for the year ended March 31, 2011 and the related notes as of and for the year ended March 31, 2011, included herein, which includes a reconciliation from U.K. GAAP to U.S. GAAP;

 

   

separate historical financial statements of the Company as of and for the six months ended June 30, 2011 and the related notes included in the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2011.

The financial information for Lexicon as of June 30, 2011 and for the six months ended June 30, 2011 was derived from the unaudited accounting records of Lexicon after making adjustments to convert this financial information to U.S. GAAP and accounting policies consistent with that of the Company.

The unaudited pro forma condensed combined financial information has been presented for informational purposes only. The unaudited pro forma condensed combined financial statements were prepared in accordance with regulations of the Securities and Exchange Commission and should not be considered indicative of the financial position or results of operations that would have occurred if the acquisition had been consummated on the dates indicated, nor are they indicative of the future financial position or results of operations of the combined company. There were no material transactions between the Company and Lexicon during the periods presented in the unaudited pro forma condensed combined financial statements that would need to be eliminated. The unaudited pro forma adjustments are based on currently available information and certain assumptions that we believe are reasonable and supportable.

The transaction consummated by the acquisition will be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) No. 805, Business Combinations. The acquisition accounting is dependent upon certain valuations and other studies that are currently subject to finalization. Accordingly, the pro forma adjustments included herein are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information and may be revised as additional information becomes available and as additional analyses are performed. Differences between these preliminary estimates reflected in these unaudited condensed combined financial statements and the final acquisition accounting may occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations, financial position and cash flows.

The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Acquisition or the costs to integrate the operations of the Company and Lexicon or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

 

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PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

(UNAUDITED)

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

 

           The Lexicon Partnership LLP              
     Evercore
Partners Inc.
    UK GAAP      US GAAP
Adjustments (1)
    Pro Forma
Adjustments
    Pro Forma
Combined
 

Revenues

           

Investment Banking Revenue

   $ 301,931      $ 62,016       $ 1,033      $ —        $ 364,980   

Investment Management Revenue

     77,579        —           —          —          77,579   

Other Revenue, Including Interest

     22,228        8,281         —          (1,052 )(b)      29,457   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Revenues

     401,738        70,297         1,033        (1,052     472,016   

Interest Expense

     22,841        9         —          —          22,850   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net Revenues

     378,897        70,288         1,033        (1,052     449,166   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Expenses

           

Employee Compensation and Benefits

     251,917        41,777         (22     34,696 (d)      328,368   

Occupancy and Equipment Rental

     18,329        2,868         —          —          21,197   

Professional Fees

     28,464        509         —          —          28,973   

Travel and Related Expenses

     16,593        1,631         1,032        —          19,256   

Communications and Information Services

     6,074        3,070         —          —          9,144   

Depreciation and Amortization

     10,077        331         —          —          10,408   

Acquisition and Transition Costs

     3,399        —           —          —          3,399   

Other Operating Expenses

     9,802        2,055         (25     —          11,832   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Expenses

     344,655        52,241         985        34,696        432,577   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income Before Income from Equity Method Investments and Income Taxes

     34,242        18,047         48        (35,748     16,589   

Income (Loss) from Equity Method Investments

     (557     —           —          —          (557
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income Before Income Taxes

     33,685        18,047         48        (35,748     16,032   

Provision for Income Taxes

     15,880        4,906         14        (8,390 )(g)      12,410   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net Income

     17,805        13,141         34        (27,358     3,622   

Net Income Attributable to Noncontrolling Interest

     8,851        —           —          (7,216 )(h)      1,635   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net Income Attributable to Evercore Partners Inc.

   $ 8,954      $ 13,141       $ 34      $ (20,142   $ 1,987   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net Income Attributable to Evercore Partners Inc. Common Shareholders

   $ 8,880      $ —         $ —        $ —        $ 1,913   

Weighted Average Shares of Class A Common Stock Outstanding

           

Basic

     19,655        —           —          28 (e)      19,683   

Diluted

     22,968        —           —          680 (e)      23,648   

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

           

Basic

   $ 0.45      $ —         $ —        $ —        $ 0.10   

Diluted

   $ 0.39      $ —         $ —        $ —        $ 0.08   

 

(1) See Note 19 to the separate historical financial statements of Lexicon as of and for the year ended March 31, 2011 and the related notes as of and for the year ended March 31, 2011, included herein, which includes a reconciliation from U.K. GAAP to U.S. GAAP.

See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.

 

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PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(UNAUDITED)

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

 

            The Lexicon Partnership LLP              
     Evercore
Partners Inc.
     UK GAAP      US GAAP
Adjustments (1)
    Pro Forma
Adjustments
    Pro Forma
Combined
 

Revenues

            

Investment Banking Revenue

   $ 197,748       $ 37,176       $ 485      $ —        $ 235,409   

Investment Management Revenue

     54,960         —           —          —          54,960   

Other Revenue, Including Interest

     7,971         7,500         —          (127 )(b)      15,344   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Revenues

     260,679         44,676         485        (127     305,713   

Interest Expense

     10,843         3         —          —          10,846   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net Revenues

     249,836         44,673         485        (127     294,867   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Expenses

            

Employee Compensation and Benefits

     171,024         25,858         129        15,679 (d)      212,690   

Occupancy and Equipment Rental

     10,917         1,454         —          —          12,371   

Professional Fees

     16,219         238         —          —          16,457   

Travel and Related Expenses

     10,013         871         485        —          11,369   

Communications and Information Services

     4,182         1,521         —          —          5,703   

Depreciation and Amortization

     6,062         183         —          —          6,245   

Acquisition and Transition Costs

     1,134         —           —          (850 )(a)      284   

Other Operating Expenses

     7,943         1,222         29        —          9,194   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Expenses

     227,494         31,347         643        14,829        274,313   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income Before Income from Equity Method Investments and Income Taxes

     22,342         13,326         (158     (14,956     20,554   

Income from Equity Method Investments

     469         —           —            469   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income Before Income Taxes

     22,811         13,326         (158     (14,956     21,023   

Provision for Income Taxes

     10,235         4,942         (44     (3,365 )(g)      11,768   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net Income

     12,576         8,384         (114     (11,591     9,255   

Net Income Attributable to Noncontrolling Interest

     6,727         —           —          (1,323 )(h)      5,404   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net Income Attributable to Evercore Partners Inc.

   $ 5,849       $ 8,384       $ (114   $ (10,268   $ 3,851   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net Income Attributable to Evercore Partners Inc. Common Shareholders

   $ 5,807       $ —         $ —        $ —        $ 3,809   

Weighted Average Shares of Class A Common Stock Outstanding

            

Basic

     23,204         —           —          112 (e)      23,316   

Diluted

     26,956         —           —          1,167 (e)      28,123   

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

            

Basic

   $ 0.25       $ —         $ —        $ —        $ 0.16   

Diluted

   $ 0.22       $ —         $ —        $ —        $ 0.14   

 

(1) See Note 19 to the separate historical financial statements of Lexicon as of and for the year ended March 31, 2011 and the related notes as of and for the year ended March 31, 2011, included herein, which includes a reconciliation from U.K. GAAP to U.S. GAAP.

See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.

 

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PRO FORMA CONDENSED COMBINED

STATEMENT OF FINANCIAL CONDITION

AS OF JUNE 30, 2011

(UNAUDITED)

(dollars in thousands)

 

           The Lexicon Partnership LLP              
     Evercore
Partners
Inc.
    UK GAAP      US GAAP
Adjustments (1)
    Pro Forma
Adjustments
    Pro
Forma
Combined
 

Assets

           

Current Assets

           

Cash and Cash Equivalents

   $ 204,449      $ 30,108       $ —        $ (67,088 )(c)(f)(i)    $ 167,469   

Marketable Securities

     73,456        —           —          —          73,456   

Financial Instruments Owned and Pledged as Collateral at Fair Value

     83,311        —           —          —          83,311   

Securities Purchased Under Agreements to Resell

     100,598        —           —          —          100,598   

Accounts Receivable

     83,088        7,688         —          —          90,776   

Receivable from Employees and Related Parties

     6,151        139         —          —          6,290   

Deferred Tax Assets - Current

     5,092        468         (95     —          5,465   

Other Current Assets

     16,540        2,457         —          2,346 (i)      21,343   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Assets

     572,685        40,860         (95     (64,742     548,708   

Investments

     67,024        —           —          —          67,024   

Deferred Tax Assets - Non-Current

     182,550        —           111        —          182,661   

Furniture, Equipment and Leasehold Improvements

     14,605        402         —          —          15,007   

Goodwill

     140,777        —           —          42,163 (c)      182,940   

Intangible Assets

     44,785        —           —          7,164 (c)      51,949   

Assets Segregated for Bank Regulatory Requirements

     10,200        —           —          —          10,200   

Other Assets

     9,172        368         —          —          9,540   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,041,798      $ 41,630       $ 16      $ (15,415   $ 1,068,029   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities and Equity

           

Current Liabilities

           

Accrued Compensation and Benefits

   $ 63,129      $ 1,729       $ —        $ —        $ 64,858   

Accounts Payable and Accrued Expenses

     14,887        3,486         128        —          18,501   

Securities Sold Under Agreements to Repurchase

     184,062        —           —          —          184,062   

Payable to Employees and Related Parties

     4,031        1,416         —          —          5,447   

Taxes Payable

     1,566        3,997         —          —          5,563   

Other Current Liabilities

     16,698        10,115         (70     9,274 (c)      36,017   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     284,373        20,743         58        9,274        314,448   

Notes Payable

     98,858        —           —          —          98,858   

Amounts Due Pursuant to Tax Receivable Agreements

     142,422        —           —          —          142,422   

Other Long-term Liabilities

     16,455        8,072         —          (8,318 )(f)      16,209   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Liabilities

     542,108        28,815         58        956        571,937   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Redeemable Noncontrolling Interest

     25,448        —           —          —          25,448   

Equity

           

Evercore Partners Inc. Stockholders’ Equity

           

Common Stock

           

Class A, par value $0.01 per share

     284        —           —          —          284   

Class B, par value $0.01 per share

     —          —           —          —          —     

Additional Paid-In-Capital/Members’ Capital

     530,106        12,812         (48     (12,107 )(c)      530,763   

Accumulated Other Comprehensive Income (Loss)

     (2,626     3         6        —          (2,617

Retained Earnings (Deficit)

     (64,907     —           —          (2,995 )(i)      (67,902

Treasury Stock at Cost

     (51,288     —           —          —          (51,288
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Evercore Partners Inc. Stockholders’ Equity

     411,569        12,815         (42     (15,102     409,240   

Noncontrolling Interest

     62,673        —           —          (1,269 )(i)      61,404   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Equity

     474,242        12,815         (42     (16,371     470,644   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 1,041,798      $ 41,630       $ 16      $ (15,415   $ 1,068,029   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) See Note 19 to the separate historical financial statements of Lexicon as of and for the year ended March 31, 2011 and the related notes as of and for the year ended March 31, 2011, included herein, which includes a reconciliation from U.K. GAAP to U.S. GAAP.

See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

(dollars in thousands)

Note 1 – Transaction Description

On August 19, 2011, the Company completed its previously announced acquisition of all of the outstanding partnership interests of Lexicon, in accordance with the definitive sale and purchase agreement entered into on June 7, 2011, for consideration consisting of cash and stock. In the aggregate, the sellers will receive approximately £46,142, or $76,167, in cash and 1,911,360 shares of the Company’s Class A common stock, par value $0.01 per share (“Class A Shares”). Of the total consideration, £31,598, or $52,160, in cash was paid and 27,867 Class A Shares were issued to the sellers at closing, and approximately £5,619, or $9,274, in cash will be paid to the sellers on December 31, 2011.

Payment of the remaining approximately £8,925, or $14,733, in cash and 1,883,493 Class A Shares will be deferred and will vest in various installments over a four-year future service period. 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, upon closing the Company funded the repayment of £5,039, or $8,318, of outstanding Lexicon capital notes.

Note 2 – Basis of Presentation

The unaudited pro forma condensed combined financial information was prepared using U.S. GAAP and was based on the historical consolidated financial statements of the Company and Lexicon. All pro forma financial statements use the Company’s period end date and no adjustments were made to Lexicon’s reported information for its different period end dates for the year ended statement of operations.

The acquisition method of accounting is based on the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Subtopic 805-10, Business Combinations, and uses the fair value concepts defined in ASC Subtopic 820-10, Fair Value Measurements and Disclosures, which the Company has adopted as required. The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under U.S. GAAP. ASC Subtopic 805-10 requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. In addition, ASC Subtopic 805-10 establishes that the consideration transferred be measured at the closing date of the Acquisition at the then-current market price.

ASC Subtopic 820-10 defines the term “fair value” and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined in ASC Subtopic 820-10 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in

 

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the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. As a result of these standards, the Company may be required to record assets which are not intended to be used or sold and/or to value assets at fair value measures that do not reflect the Company’s intended use of those assets. Many of these fair value measurements can be highly subjective and it is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

Under the acquisition method of accounting, the assets acquired and liabilities assumed will be recorded as of the completion of the Acquisition, at their respective fair values and added to those of the Company. Financial statements and reported results of operations of the Company issued after completion of the Acquisition will reflect these values, but will not be retroactively restated to reflect the historical financial position or results of operations of Lexicon.

Under ASC Subtopic 805-10, acquisition-related transaction costs ( i.e., advisory, legal, valuation, and other professional fees) and certain acquisition-related restructuring charges impacting the target company are not included as a component of consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. The unaudited pro forma condensed combined financial statements do not reflect any acquisition-related restructuring charges incurred in connection with the Acquisition but these costs will be expensed as incurred. Acquisition-related transaction costs were $850 for the six months ended June 30, 2011.

The historical unaudited condensed combined statement of financial condition for Lexicon was prepared in British pounds and has been translated to U. S. Dollars using a rate of $1.602, which approximates the British pound conversion rate to U.S. Dollars on June 30, 2011. The Lexicon historical audited condensed combined statement of operations for the year ended March 31, 2011 and unaudited condensed combined statement of operations for the six months ended June 30, 2011 have been translated to U.S. Dollars using exchange rates of $1.556 and $1.616, respectively, which approximate the average British pound conversion rate to U.S. Dollars for the applicable period. The pro forma adjustments have been translated to U.S. Dollars using an exchange rate of $1.651, which approximates the British pound conversion rate to U.S. Dollars on August 19, 2011, at the time of the closing of the transaction.

Note 3 – Significant Accounting Policies

At this time, the Company is not aware of any differences that would have a material impact on the combined financial statements. The unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies.

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

(dollars in thousands)

 

Note 4 – Consideration Transferred

In accordance with U.S. GAAP, the fair value of the Company’s class A common stock issued as part of the consideration transferred was measured on the closing date of the Acquisition at the then-current market price. The following provides a reasonable indication of consideration transferred to effect the acquisition of Lexicon:

 

     Shares Issued      Share Price      Fair Value  

Transferred At Closing:

        

Cash

         $ 52,160   

Class A Common Stock (1)

     27,867       $ 22.81         636   

Fair Value of Deferred Cash Consideration (2)

           9,274   
        

 

 

 

Total Consideration Transferred at Closing

         $ 62,070   
        

 

 

 

 

(1) Value of Class A Common Stock determined utilizing closing share price on August 19, 2011.
(2) Deferred cash consideration was not discounted and the effect of discounting would have an immaterial effect as amounts will be paid at December 31, 2011.

Note 5 – Assets Acquired and Liabilities Assumed

The following is a summary of the assets acquired and liabilities assumed by the Company in the Acquisition as if it had occurred on June 30, 2011:

 

Fair Value of Assets Acquired and Liabilities Assumed:

  

Cash and Cash Equivalents

   $ 21,812   

Accounts Receivable

     7,821   

Prepaid Expenses

     11,627   

Fixed Assets

     429   

Other Assets

     964   

Intangible Assets

     7,164   

Current Liabilities

     (21,592

Long-term Debt

     (8,318
  

 

 

 

Identifiable Net Assets

   $ 19,907   
  

 

 

 

Note 6 – Pro Forma Adjustments

Adjustments included in the column under the heading “Pro Forma Adjustments” represent the following:

 

  (a) To reflect advisory and legal costs incurred, which are directly attributable to the Acquisition, but which are not expected to have a continuing impact on the combined company’s results, as a reduction from Acquisition and Transition Costs on the Statement of Operations of $850 for the six months ended June 30, 2011.

 

  (b) To reflect the estimate of forgone interest and investment income on the combined company’s cash and cash equivalents used to effect the Acquisition, for both the initial cash consideration paid as well as the cash used to redeem Lexicon’s capital notes, as a decrease in Other Revenue, Including Interest, on the Statement of Operations of $1,052 and $127 for the twelve months ended December 31, 2010 and six months ended June 30, 2011, respectively. These estimates were based on the actual yields earned on the Company’s cash and cash equivalents for the year ended December 31, 2010 and six months ended June 30, 2011.

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

(dollars in thousands)

 

  (c) To reflect the consideration transferred in conjunction with the Acquisition, Goodwill and Intangible Assets, based on a preliminary purchase price allocation. These adjustments resulted in a decrease to Cash and Cash Equivalents of $52,160, an increase in Goodwill of $42,163, an increase in Intangible Assets of $7,164, an increase to Other Current Liabilities of $9,274 and a net decrease to Additional Paid-in-Capital/Members’ Capital of $12,107, on the Statement of Financial Condition.

 

      Amount  

Purchase Price:

  

Cash Paid

   $ 52,160   

Fair Value of Shares Issued

     636   

Fair Value of Deferred Cash Consideration

     9,274   
  

 

 

 

Total Fair Value of Purchase Price

     62,070   
  

 

 

 

Fair Value of Assets Acquired and Liabilities Assumed:

  

Cash and Cash Equivalents

     21,812   

Accounts Receivable

     7,821   

Prepaid Expenses

     11,627   

Fixed Assets

     429   

Other Assets

     964   

Intangible Assets

     7,164   

Current Liabilities

     (21,592

Long-term Debt

     (8,318
  

 

 

 

Identifiable Net Assets

     19,907   
  

 

 

 

Goodwill Resulting from Business Combination

   $ 42,163   
  

 

 

 

 

9


NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

(dollars in thousands)

 

  (d) To reflect compensation awarded in conjunction with the Acquisition on the Statement of Operations:

 

  i. Amortization of Restricted Stock and Deferred Cash Awards:

 

     Amortization  
     Twelve Months Ended
December 31, 2010
     Six Months Ended
June 30, 2011
 

Restricted Stock Awards (1,883,493 shares at $22.735 per share)

   $ 18,084       $ 7,980   

Deferred Cash Awards (Total deferred cash awards of $14,733)

   $ 6,762       $ 2,942   

Note: Awards vest under graded vesting in various installments over a four-year period. The Company utilized the average of the high and low share price on August 19, 2011.

 

  ii. Amortization of Retention Awards:

 

     Amortization  
     Twelve Months Ended
December 31, 2010
     Six Months Ended
June 30, 2011
 

Share-based Retention Awards (135,138 shares at $22.735 per share)

   $ 1,419       $ 713   

Cash-based Retention Awards (Total cash-based retention awards of $1,892)

   $ 1,183       $ 420   

Note: Share-based Awards and Cash-based Awards vest over a four-year period and two-year period, respectively, from the date of the transaction. The Company utilized the average of the high and low share price on August 19, 2011.

 

  iii. To reflect other compensation adjustments for Lexicon employees of approximately $7,248 and $3,624 for the twelve months ended December 31, 2010 and six months ended June 30, 2011, respectively.

 

  (e) To reflect in the Company’s weighted average shares of Class A common stock outstanding, 27,867 Class A Shares issued at closing as part of the purchase price, and the dilutive effects under the Treasury Stock Method of 1,883,493 deferred Class A Shares, which were issued to the sellers at closing as part of the initial consideration, treated as compensation, and 135,138 restricted stock units issued to Lexicon employees as retention awards, all of which are assumed outstanding for the full year ended December 31, 2010 and the six months ended June 30, 2011.

 

  (f) To reflect the redemption of Lexicon’s capital notes, resulting in a decrease in Cash and Cash Equivalents and Other Long-term Liabilities of $8,318 on the Statement of Financial Condition.

 

  (g) To reflect income tax adjustments associated with the Pro Forma Adjustments and the fact that Lexicon is now under a U.S. corporate holding company. The Company assumed a combined U.S. federal and state statutory rate of 40% and 41%, for the twelve months ended December 31, 2010 and six months ended June 30, 2011, respectively, when estimating all tax impacts of the acquisition. The effective tax rate of the combined company could be significantly different than the rates assumed for purposes of preparing these pro forma financials for a variety of factors, including post-acquisition activities.

 

10


NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

(dollars in thousands)

 

  (h) To reflect the impact on Noncontrolling Interest for the Company’s immediate contribution of Lexicon to Evercore LP, a Delaware limited partnership, for which the Company’s economic interest was 67% and 80% for the twelve months ended December 31, 2010 and six months ended June 30, 2011, respectively. The Noncontrolling Interest adjustment is computed based on the after-tax effect of Lexicon’s earnings and the pro forma adjustments impacting Evercore LP and its subsidiaries.

 

  (i) To reflect expenses incurred in conjunction with the acquisition, and related tax effects, of $1,915 related to the payment of the cash-based retention awards, $1,895 related to an introducing fee and $2,800 related to other cash compensation adjustments. These expenses resulted in a decrease to Cash and Cash Equivalents of $6,610, an increase in Other Current Assets of $2,346, a decrease in Retained Earnings of $2,995 and a decrease in Noncontrolling Interest of $1,269 on the Statement of Financial Condition.

Note 7 – Amortization of Intangible Assets

The above adjustments exclude the impact of amortization expenses of $7,164 associated with the intangible assets identified in connection with the Acquisition. The intangible assets acquired in the acquisition represent customer related intangible assets, which have an estimated useful life of six months.

 

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