Segment Operating Results

3 Months Ended

Mar. 31, 2013

Segment Operating Results

Note 18 – 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 Investment Advisors, LLC (“Mt. Eden”), which is included in the Investment Management segment. On March 15, 2013, the Company consolidated its investment in Pan, which is included in the Investment Management segment.

The Company’s segment information for the three months ended March 31, 2013 and 2012 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) the amortization of intangible assets associated with certain acquisitions and c) compensation charges associated with deferred consideration, retention awards and related compensation for Lexicon employees.

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 March 31, 2013.

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

	For the Three Months Ended March 31,
	2013			2012
Investment Banking
Net Revenues (1)	$	131,596		$	83,785
Operating Expenses		105,066			78,976
Other Expenses (2)		9,855			16,107
Operating Income (Loss)		16,675			(11,298	)
Income from Equity Method Investments		170			1,628
Pre-Tax Income (Loss)	$	16,845		$	(9,670	)
Identifiable Segment Assets	$	526,549		$	449,359
Investment Management
Net Revenues (1)	$	19,826		$	19,013
Operating Expenses		20,807			19,250
Other Expenses (2)		750			608
Operating Income (Loss)		(1,731	)		(845	)
Income from Equity Method Investments		586			757
Pre-Tax Income (Loss)	$	(1,145	)	$	(88	)
Identifiable Segment Assets	$	449,940		$	492,758
Total
Net Revenues (1)	$	151,422		$	102,798
Operating Expenses		125,873			98,226
Other Expenses (2)		10,605			16,715
Operating Income (Loss)		14,944			(12,143	)
Income from Equity Method Investments		756			2,385
Pre-Tax Income (Loss)	$	15,700		$	(9,758	)
Identifiable Segment Assets	$	976,489		$	942,117

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

	For the Three Months Ended March 31,
	2013			2012
Investment Banking (A)	$	213		$	(710	)
Investment Management (B)		(1,713	)		(751	)
Total Other Revenue, net	$	(1,500	)	$	(1,461	)

(A) Investment Banking Other Revenue, net, includes interest expense on the Senior Notes of $1,088 and $1,070 for the three months ended March 31, 2013 and 2012, respectively.

(B) Investment Management Other Revenue, net, includes interest expense on the Senior Notes of $919 and $904 for the three months ended March 31, 2013 and 2012, respectively.

(2) Other Expenses are as follows:

	For the Three Months Ended March 31,
	2013		2012
Investment Banking
Amortization of LP Units and Certain Other Awards	$	4,909	$	4,216
Acquisition Related Compensation Charges		4,946		9,645
Intangible Asset Amortization		—		2,246
Total Investment Banking		9,855		16,107
Investment Management
Amortization of LP Units and Certain Other Awards		668		526
Intangible Asset Amortization		82		82
Total Investment Management		750		608
Total Other Expenses	$	10,605	$	16,715

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 and managed in the following geographical areas:

	For the Three Months Ended March 31,
	2013		2012
Net Revenues: (1)
United States	$	90,856	$	69,661
Europe and Other		39,471		24,322
Latin America		22,595		10,276
Total	$	152,922	$	104,259

(1) Excludes Other Revenue and Interest Expense.

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