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 placement services and commissions for agency-based equity trading services and equity research. Investment Management includes advising third-party investors in Institutional Asset Management and Wealth Management and interests in private equity funds which are not managed by the Company. On October 18, 2017, the Company completed the sale of the Institutional Trust and Independent Fiduciary business of ETC, which was in the Investment Management segment. On September 30, 2016, the Company deconsolidated the assets and liabilities of its Mexican Private Equity business, which was in the Investment Management segment.

The Company's segment information for the years ended December 31, 2018, 2017 and 2016 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.

Other Revenue, net, included in each segment's Net Revenues includes income (losses) earned on marketable securities, including our investment funds which are used as an economic hedge against our deferred cash compensation program, certificates of deposit, cash and cash equivalents and on the Company’s debt security investment in G5, as well as adjustments to amounts due pursuant to the Company’s tax receivable agreement, subsequent to its initial establishment related to changes in enacted tax rates, and gains (losses) resulting from foreign currency fluctuations, principal trading and realized and unrealized gains and losses on interests in Private Equity funds which are not managed by the Company. Other Revenue, net, also includes interest expense associated with the Company’s Notes Payable, subordinated borrowings and lines of credit, as well as revenue and expenses associated with repurchase or resale transactions.

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, execution, clearing and custody fees, 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 the following:


•	Amortization of LP Units/Interests and Certain Other Awards - Includes amortization costs or the reversal of expenses associated with the vesting of Class E LP Units, Class G and H LP Interests and Class J LP Units issued in conjunction with the acquisition of ISI and certain other related awards.

•

Special Charges - Includes expenses in 2018 related to separation benefits and costs for the termination of certain contracts associated with closing the Company's agency trading platform in the U.K. and separation benefits and related charges associated with the Company's businesses in Mexico, as well as the acceleration of depreciation expense for leasehold improvements in conjunction with the expansion of the Company's headquarters in New York. Expenses in 2017 related to the impairment of goodwill in the Company's Institutional Asset Management reporting unit, the impairment of the Company's former equity method investment in G5, and the transition of certain employees in conjunction with the sale of the Institutional Trust and Independent Fiduciary business of ETC. Expenses in 2016 related to an impairment charge associated with the Company's investment in Atalanta Sosnoff.


•	Acquisition and Transition Costs - Includes costs incurred in connection with acquisitions, divestitures and other ongoing business development initiatives, primarily comprised of professional fees for legal and other services. Expenses in 2016 also include the reversal of a provision for certain settlements in 2016, which was previously established in the fourth quarter of 2015.


•	Fair Value of Contingent Consideration - Includes expense, or the reversal of expense, associated with changes in the fair value of contingent consideration issued to the sellers of certain of the Company's acquisitions.


•	Intangible Asset and Other Amortization - Includes amortization of intangible assets and other purchase accounting-related amortization associated with certain acquisitions.

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

The following information presents each segment's contribution.



	For the Years Ended December 31,
	2018		2017		2016
Investment Banking
Net Revenues⁽¹⁾	$	2,012,023	$	1,634,268	$	1,363,859
Operating Expenses	1,448,301		1,175,927		1,020,327
Other Expenses⁽²⁾	30,366		35,810		92,172
Operating Income	533,356		422,531		251,360
Income from Equity Method Investments	518		277		1,370
Pre-Tax Income	$	533,874	$	422,808	$	252,730
Identifiable Segment Assets	$	1,923,783	$	1,294,103	$	1,302,351
Investment Management
Net Revenues⁽¹⁾	$	52,682	$	70,081	$	76,193
Operating Expenses	43,940		51,646		57,379
Other Expenses⁽²⁾	21		12,155		9,000
Operating Income	8,721		6,280		9,814
Income from Equity Method Investments	8,776		8,561		5,271
Pre-Tax Income	$	17,497	$	14,841	$	15,085
Identifiable Segment Assets	$	201,884	$	290,783	$	359,995
Total
Net Revenues⁽¹⁾	$	2,064,705	$	1,704,349	$	1,440,052
Operating Expenses	1,492,241		1,227,573		1,077,706
Other Expenses⁽²⁾	30,387		47,965		101,172
Operating Income	542,077		428,811		261,174
Income from Equity Method Investments	9,294		8,838		6,641
Pre-Tax Income	$	551,371	$	437,649	$	267,815
Identifiable Segment Assets	$	2,125,667	$	1,584,886	$	1,662,346


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



	For the Years Ended December 31,
	2018			2017		2016
Investment Banking^(A)	$	(3,156	)	$	58,399	$	(147	)
Investment Management^(B)	4,436			10,433		12,789
Total Other Revenue, net	$	1,280		$	68,832	$	12,642

(A)

Investment Banking Other Revenue, net, includes interest expense on the Notes Payable, subordinated borrowings and lines of credit of $9,201, $9,960 and $9,578 for the years ended December 31, 2018, 2017 and 2016, respectively, and includes an estimated gain of $77,535 related to a reduction in the liability for amounts due pursuant to the tax receivable agreement and a loss of $16,266 related to the release of cumulative foreign exchange losses resulting from the restructuring of the Company's former equity method investment in G5 for the year ended December 31, 2017. Also includes ($701) and $92 of principal trading gains (losses) for the years ended December 31, 2017 and 2016, respectively, to conform to the current presentation.

(B)

Investment Management Other Revenue, net, includes interest expense on the Notes Payable and lines of credit of $670 for the year ended December 31, 2016, and includes a gain of $7,808 related to the sale of the Institutional Trust and Independent Fiduciary business of ETC for the year ended December 31, 2017. Also includes $2,037 and $12,403 of net realized and unrealized gains on private equity investments for the years ended December 31, 2017 and 2016, respectively, to conform to the current presentation.


(2)	Other Expenses are as follows:



	For the Years Ended December 31,
	2018		2017		2016
Investment Banking
Amortization of LP Units / Interests and Certain Other Awards	$	15,241	$	11,444	$	80,846
Special Charges	5,012		14,400		—
Acquisition and Transition Costs	—		555		(692		)
Fair Value of Contingent Consideration	1,485		—		1,107
Intangible Asset and Other Amortization	8,628		9,411		10,911
Total Investment Banking	30,366		35,810		92,172
Investment Management
Special Charges	—		11,037		8,100
Acquisition and Transition Costs	21		1,118		791
Intangible Asset and Other Amortization	—		—		109
Total Investment Management	21		12,155		9,000
Total Other Expenses	$	30,387	$	47,965	$	101,172

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 located and managed in the following geographical areas:



	For the Years Ended December 31,
	2018		2017		2016
Net Revenues:⁽¹⁾
United States	$	1,591,883	$	1,199,231	$	1,057,633
Europe and Other	438,602		422,271		337,957
Latin America	32,940		14,015		31,820
Total	$	2,063,425	$	1,635,517	$	1,427,410

(1) Excludes Other Revenue, Including Interest and Investments, and Interest Expense.

The Company's total assets are located in the following geographical areas:



	December 31,
	2018		2017
Total Assets:
United States	$	1,757,589	$	1,284,163
Europe and Other	298,917		234,984
Latin America	69,161		65,739
Total	$	2,125,667	$	1,584,886