Segment Operating Results

9 Months Ended

Sep. 30, 2011

Segment Operating Results

Segment Operating Results

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"). During the third quarter of 2011, the Investment Banking segment expanded to include the acquisition of Lexicon.

The Company's segment information for the three and nine months ended September 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.

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: a) amortization costs associated with the modification of unvested LP Units and certain other awards, b) charges associated with the vesting of Event-based Awards, c) the amortization of intangible assets associated with certain acquisitions, d) compensation charges associated with deferred consideration, retention awards and related compensation for Lexicon employees, e) a charge related to the exiting of a lease commitment for office space and an introducing fee in connection with the Lexicon acquisition and f) a charge associated with the write-off of intangible assets associated with the Company's planned exit of EAM .

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

One client accounted for more than 10% of the Company's consolidated Net Revenues for the three months ended September 30, 2011.

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2011			2010			2011			2010
Investment Banking
Net Revenues (1)	$	139,166		$	100,760		$	335,521		$	225,300
Operating Expenses		109,376			75,966			263,037			176,645
Other Expenses (2)		16,969			4,570			37,836			14,557
Operating Income		12,821			20,224			34,648			34,098
Income from Equity Method Investments		256			—			1,172			—
Pre-Tax Income	$	13,077		$	20,224		$	35,820		$	34,098
Identifiable Segment Assets	$	569,741		$	379,281		$	569,741		$	379,281
Investment Management
Net Revenues (1)	$	24,777		$	22,958		$	78,258		$	51,409
Operating Expenses		24,043			24,508			72,699			57,242
Other Expenses (2)		1,831			978			6,141			2,882
Operating Income (Loss)		(1,097	)		(2,528	)		(582	)		(8,715	)
Income (Loss) from Equity Method Investments		(61	)		(131	)		(508	)		(441	)
Pre-Tax Income (Loss)	$	(1,158	)	$	(2,659	)	$	(1,090	)	$	(9,156	)
Identifiable Segment Assets	$	500,084		$	701,187		$	500,084		$	701,187
Total
Net Revenues (1)	$	163,943		$	123,718		$	413,779		$	276,709
Operating Expenses		133,419			100,474			335,736			233,887
Other Expenses (2)		18,800			5,548			43,977			17,439
Operating Income		11,724			17,696			34,066			25,383
Income (Loss) from Equity Method Investments		195			(131	)		664			(441	)
Pre-Tax Income	$	11,919		$	17,565		$	34,730		$	24,942
Identifiable Segment Assets	$	1,069,825		$	1,080,468		$	1,069,825		$	1,080,468

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2011			2010			2011			2010
Investment Banking (A)	$	(829	)	$	(607	)	$	(2,222	)	$	506
Investment Management (B)		(706	)		(585	)		(2,185	)		210
Total Other Revenue, net	$	(1,535	)	$	(1,192	)	$	(4,407	)	$	716

(A) Investment Banking Other Revenue, net, includes interest expense on the Senior Notes of $1,059 and $3,171 for the three and nine months ended September 30, 2011, respectively, and $1,042 and $3,119 for the three and nine months ended September 30, 2010, respectively.

(B) Investment Management Other Revenue, net, includes interest expense on the Senior Notes of $894 and $2,678 for the three and nine months ended September 30, 2011, respectively, and $881 and $2,637 for the three and nine months ended September 30, 2010, respectively.

(2) Other Expenses are as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2011		2010		2011		2010
Investment Banking
Amortization of LP Units and Certain Other Awards	$	4,580	$	4,101	$	15,603	$	13,150
Vesting of Event-based Awards		—		—		8,906		—
Acquisition Related Compensation Charges		7,729		—		7,729		—
Special Charges		2,626		—		2,626		—
Intangible Asset Amortization		2,034		469		2,972		1,407
Total Investment Banking		16,969		4,570		37,836		14,557
Investment Management
Amortization of LP Units and Certain Other Awards		741		863		2,338		2,537
Vesting of Event-based Awards		—		—		2,483		—
Special Charges		975		—		975		—
Intangible Asset Amortization		115		115		345		345
Total Investment Management		1,831		978		6,141		2,882
Total Other Expenses	$	18,800	$	5,548	$	43,977	$	17,439

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 September 30,				For the Nine Months Ended September 30,
	2011		2010		2011		2010
Net Revenues: (1)
United States	$	132,660	$	100,353	$	323,804	$	229,443
Europe and Other		22,364		16,909		69,313		31,111
Latin America		10,454		7,648		25,069		15,439
Total	$	165,478	$	124,910	$	418,186	$	275,993

(1) Excludes Other Revenue and Interest Expense.

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