Segment Operating Results

12 Months Ended

Dec. 31, 2012

Segment Operating Results

Note 22 – 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. Investment Management includes advising third-party investors in the Institutional Asset Management, Wealth Management and Private Equity sectors. On December 28, 2012, the Company, through EWM, acquired Mt. Eden, which is included in the Investment Management segment.

The Company’s segment information for the years ended December 31, 2012, 2011 and 2010 is 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) 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 and e) special charges related to the Lexicon acquisition, including the exiting of facilities for office space in the UK, an introducing fee as well as other professional fees incurred by Lexicon.

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

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

	For the Years Ended December 31,
	2012			2011			2010
Investment Banking
Net Revenues(1)	$	565,219		$	428,124		$	301,847
Operating Expenses		444,510			337,886			240,312
Other Expenses(2)		50,774			55,591			19,408
Operating Income		69,935			34,647			42,127
Income from Equity Method Investments		2,258			1,101			16
Pre-Tax Income from Continuing Operations	$	72,193		$	35,748		$	42,143
Identifiable Segment Assets	$	624,977		$	530,008		$	370,329
Investment Management
Net Revenues(1)	$	77,154		$	96,140		$	74,058
Operating Expenses		78,876			89,269			75,704
Other Expenses(2)		2,678			5,706			3,621
Operating Income (Loss)		(4,400	)		1,165			(5,267	)
Income (Loss) from Equity Method Investments		2,594			(182	)		(573	)
Pre-Tax Income (Loss) from Continuing Operations	$	(1,806	)	$	983		$	(5,840	)
Identifiable Segment Assets	$	520,241		$	513,584		$	527,756
Total
Net Revenues(1)	$	642,373		$	524,264		$	375,905
Operating Expenses		523,386			427,155			316,016
Other Expenses(2)		53,452			61,297			23,029
Operating Income		65,535			35,812			36,860
Income (Loss) from Equity Method Investments		4,852			919			(557	)
Pre-Tax Income from Continuing Operations	$	70,387		$	36,731		$	36,303
Identifiable Segment Assets	$	1,145,218		$	1,043,592		$	898,085

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

	For the Years Ended December 31,
	2012			2011			2010
Investment Banking(A)	$	(3,019	)	$	(2,473	)	$	(84	)
Investment Management(B)		(2,636	)		(3,021	)		(552	)
Total Other Revenue, net	$	(5,655	)	$	(5,494	)	$	(636	)

(A) Investment Banking Other Revenue, net, includes interest expense on the Senior Notes of $4,312, $4,238 and $4,169 for the years ended December 31, 2012, 2011 and 2010, respectively.

(B) Investment Management Other Revenue, net, includes interest expense on the Senior Notes of $3,643, $3,579 and $3,525 for the years ended December 31, 2012, 2011 and 2010, respectively.

(2) Other Expenses are as follows:

	For the Years Ended December 31,
	2012		2011		2010
Investment Banking
Amortization of LP Units and Certain Other Awards	$	18,601	$	21,328	$	17,532
Vesting of Event-based Awards		—		8,906		—
Acquisition Related Compensation Charges		28,163		14,618		—
Special Charges		662		3,894		—
Intangible Asset Amortization		3,348		6,845		1,876
Total Investment Banking		50,774		55,591		19,408
Investment Management
Amortization of LP Units and Certain Other Awards		2,350		2,892		3,289
Vesting of Event-based Awards		—		2,483		—
Intangible Asset Amortization		328		331		332
Total Investment Management		2,678		5,706		3,621
Total Other Expenses	$	53,452	$	61,297	$	23,029

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 Years Ended December 31,
	2012		2011		2010
Net Revenues:(1)
United States	$	452,594	$	387,063	$	290,693
Europe and Other		151,261		112,049		60,605
Latin America		44,173		30,646		25,243
Total	$	648,028	$	529,758	$	376,541

(1) Excludes Other Revenue and Interest Expense.

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