Segment Operating Results

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Operating Results

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 3, 2013, the Company sold its investment in Pan and the results are presented within Discontinued Operations. The following segment information reflects the Company's results from its continuing operations.

The Company’s segment information for the three and nine months ended September 30, 2014 and 2013 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, c) compensation charges associated with deferred consideration, retention awards and related compensation for The Lexicon Partnership LLP ("Lexicon") employees, d) professional fees for the expense associated with share based awards resulting from increases in the share price, which is required upon change in employment status, e) special charges incurred related to termination benefits, primarily consisting of cash severance and the acceleration of the vesting of restricted stock units, as well as the write-off of leasehold improvements in the Institutional Equities business and f) acquisition and transition costs primarily for professional fees for legal and other services incurred related to the Company’s agreement to acquire all of the outstanding equity interests of the operating businesses of ISI.

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

No clients accounted for more than 10% of the Company’s consolidated Net Revenues for the three and nine months ended September 30, 2014.

The following information presents each segment’s contribution.

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2014			2013		2014		2013
Investment Banking
Net Revenues (1)	$	203,028		$	163,645	$	522,202	$	477,846
Operating Expenses	156,549			126,472		410,832		369,927
Other Expenses (2)	8,828			7,427		16,279		26,738
Operating Income	37,651			29,746		95,091		81,181
Income (Loss) from Equity Method Investments	(48		)	—		455		460
Pre-Tax Income from Continuing Operations	$	37,603		$	29,746	$	95,546	$	81,641
Identifiable Segment Assets	$	719,351		$	611,266	$	719,351	$	611,266
Investment Management
Net Revenues (1)	$	24,133		$	23,683	$	71,768	$	68,910
Operating Expenses	22,356			20,968		63,518		61,853
Other Expenses (2)	82			593		246		1,939
Operating Income	1,695			2,122		8,004		5,118
Income from Equity Method Investments	1,150			562		2,926		1,873
Pre-Tax Income from Continuing Operations	$	2,845		$	2,684	$	10,930	$	6,991
Identifiable Segment Assets	$	504,400		$	492,075	$	504,400	$	492,075
Total
Net Revenues (1)	$	227,161		$	187,328	$	593,970	$	546,756
Operating Expenses	178,905			147,440		474,350		431,780
Other Expenses (2)	8,910			8,020		16,525		28,677
Operating Income	39,346			31,868		103,095		86,299
Income from Equity Method Investments	1,102			562		3,381		2,333
Pre-Tax Income from Continuing Operations	$	40,448		$	32,430	$	106,476	$	88,632
Identifiable Segment Assets	$	1,223,751		$	1,103,341	$	1,223,751	$	1,103,341

(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,
	2014			2013			2014			2013
Investment Banking (A)	$	850		$	(330	)	$	(731	)	$	(966	)
Investment Management (B)	(644		)	(555		)	(1,725		)	(1,854		)
Total Other Revenue, net	$	206		$	(885	)	$	(2,456	)	$	(2,820	)

(A) Investment Banking Other Revenue, net, includes interest expense on the Senior Notes of $1,134 and $3,344for the three and nine months ended September 30, 2014, respectively, and $1,098 and $3,281for the three and nine months ended September 30, 2013, respectively.

(B) Investment Management Other Revenue, net, includes interest expense on the Senior Notes of $956 and $2,820for the three and nine months ended September 30, 2014, respectively, and $927 and $2,770for the three and nine months ended September 30, 2013, respectively.

(2) Other Expenses are as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
Investment Banking
Amortization of LP Units and Certain Other Awards	$	—	$	4,304	$	—	$	13,513
Acquisition Related Compensation Charges	592		3,123		6,371		13,225
Special Charges	3,732		—		3,732		—
Intangible Asset Amortization	382		—		382		—
Professional Fees	—		—		1,672		—
Acquisition and Transition Costs	4,122		—		4,122		—
Total Investment Banking	8,828		7,427		16,279		26,738
Investment Management
Amortization of LP Units and Certain Other Awards	—		511		—		1,693
Intangible Asset Amortization	82		82		246		246
Total Investment Management	82		593		246		1,939
Total Other Expenses	$	8,910	$	8,020	$	16,525	$	28,677

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 September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
Net Revenues: (1)
United States	$	127,478	$	131,499	$	377,907	$	379,950
Europe and Other	89,146		37,465		173,931		112,331
Latin America	10,331		19,249		44,588		57,295
Total	$	226,955	$	188,213	$	596,426	$	549,576

(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.