Segment Operating Results

9 Months Ended

Sep. 30, 2012

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, as well as services related to securities underwriting, private fund placement services and commissions for agency-based equity trading services and equity research. During 2011, the Investment Banking segment expanded to include the acquisition of Lexicon. Investment Management includes advising third-party investors in the Institutional Asset Management, Wealth Management and Private Equity sectors.

The Company’s segment information for the three and nine months ended September 30, 2012 and 2011 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, square footage and other performance and time-based 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 and vesting of LP Units and certain other awards, b) compensation charges associated with deferred consideration, retention awards and related compensation for Lexicon employees, c) charges associated with the vesting of Event-based Awards, d) special charges incurred in connection with exiting facilities in the UK, e) special charges related to the exiting of a lease commitment for office space and an introducing fee in connection with the Lexicon acquisition and f) amortization of intangibles associated with certain acquisitions.

The Company evaluates segment results based on net revenue and pre-tax income from continuing operations, 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, 2012.

During the nine months ended September 30, 2012, the Company granted separation benefits to employees of its Investment Banking segment. See Note 15 for further information.

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,
	2012			2011			2012			2011
Investment Banking
Net Revenues (1)	$	133,415		$	139,166		$	370,364		$	335,521
Operating Expenses		106,897			109,376			304,556			263,037
Other Expenses (2)		12,057			16,969			40,062			37,836
Operating Income		14,461			12,821			25,746			34,648
Income (Loss) from Equity Method Investments		(200	)		256			1,395			1,172
Pre-Tax Income from Continuing Operations	$	14,261		$	13,077		$	27,141		$	35,820
Identifiable Segment Assets	$	519,000		$	569,741		$	519,000		$	569,741
Investment Management
Net Revenues (1)	$	19,614		$	24,015		$	57,960		$	75,962
Operating Expenses		19,152			22,570			58,467			68,719
Other Expenses (2)		678			824			1,942			5,070
Operating Income (Loss)		(216	)		621			(2,449	)		2,173
Income (Loss) from Equity Method Investments		615			(61	)		2,124			(508	)
Pre-Tax Income (Loss) from Continuing Operations	$	399		$	560		$	(325	)	$	1,665
Identifiable Segment Assets	$	509,764		$	500,084		$	509,764		$	500,084
Total
Net Revenues (1)	$	153,029		$	163,181		$	428,324		$	411,483
Operating Expenses		126,049			131,946			363,023			331,756
Other Expenses (2)		12,735			17,793			42,004			42,906
Operating Income		14,245			13,442			23,297			36,821
Income from Equity Method Investments		415			195			3,519			664
Pre-Tax Income from Continuing Operations	$	14,660		$	13,637		$	26,816		$	37,485
Identifiable Segment Assets	$	1,028,764		$	1,069,825		$	1,028,764		$	1,069,825

(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,
	2012			2011			2012			2011
Investment Banking (A)	$	(435	)	$	(829	)	$	(2,407	)	$	(2,222	)
Investment Management (B)		(820	)		(708	)		(2,274	)		(2,192	)
Total Other Revenue, net	$	(1,255	)	$	(1,537	)	$	(4,681	)	$	(4,414	)

(A) Investment Banking Other Revenue, net, includes interest expense on the Senior Notes of $1,082 and $3,227 for the three and nine months ended September 30, 2012, respectively, and $1,059 and $3,171 for the three and nine months ended September 30, 2011, respectively.

(B) Investment Management Other Revenue, net, includes interest expense on the Senior Notes of $914 and $2,727 for the three and nine months ended September 30, 2012, respectively, and $894 and $2,678 for the three and nine months ended September 30, 2011, respectively.

(2) Other Expenses are as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2012		2011		2012		2011
Investment Banking
Amortization of LP Units and Certain Other Awards	$	4,866	$	4,580	$	13,577	$	15,603
Vesting of Event-based Awards		—		—		—		8,906
Acquisition Related Compensation Charges		6,802		7,729		22,799		7,729
Special Charges		—		2,626		662		2,626
Intangible Asset Amortization		389		2,034		3,024		2,972
Total Investment Banking		12,057		16,969		40,062		37,836
Investment Management
Amortization of LP Units and Certain Other Awards		596		741		1,696		2,338
Vesting of Event-based Awards		—		—		—		2,483
Intangible Asset Amortization		82		83		246		249
Total Investment Management		678		824		1,942		5,070
Total Other Expenses		$12,735		$17,793		$42,004		$42,906

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,
	2012		2011		2012		2011
Net Revenues: (1)
United States	$	114,018	$	131,900	$	315,085	$	321,515
Europe and Other		30,860		22,364		90,491		69,313
Latin America		9,406		10,454		27,429		25,069
Total	$	154,284	$	164,718	$	433,005	$	415,897

(1) Excludes Other Revenue and Interest Expense.

The majority of the Company’s long-lived assets reside in the United States.