UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): August 19, 2011
EVERCORE PARTNERS INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-32975 | 20-4748747 | ||
| (State or other jurisdiction of incorporation) |
(Commission File No.) |
(IRS Employer Identification No.) |
55 East 52nd Street
New York, New York 10055
(Address of principal executive offices)
(212) 857-3100
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EXPLANATORY NOTE
On August 25, 2011, Evercore Partners Inc. (“Evercore”) filed a Current Report on Form 8-K in connection with the August 19, 2011 closing of the acquisition of all of the outstanding partnership interests of The Lexicon Partnership LLP, a U.K. incorporated limited liability partnership (“Lexicon”), in accordance with the definitive sale and purchase agreement entered into on June 7, 2011 (the “Acquisition”). The description of the Acquisition is set forth in the August 25, 2011 Current Report on Form 8-K. This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed on August 25, 2011 to include the financial statements required below.
| Item 9.01 | Financial Statements and Exhibits |
(a) Financial Statements of Businesses Acquired
The audited consolidated balance sheet of Lexicon as at March 31, 2011 and 2010 and the audited consolidated profit and loss account, statement of recognised gains and losses and consolidated cash flow statement of Lexicon for the three years ended March 31, 2011 and related notes, including reconciliations to U.S. GAAP as at and for the years ended March 31, 2011 and 2010, are filed as Exhibit 99.1 hereto.
(b) Pro Forma Financial Information
The unaudited pro forma condensed combined financial statements of Evercore and Lexicon as of and for the six months ended June 30, 2011 and for the year ended December 31, 2010 are filed as Exhibit 99.2 hereto.
(d) Exhibits.
| EXHIBIT NO. |
DESCRIPTION | |
| Exhibit 23.1 | Consent of Independent Auditors | |
| Exhibit 99.1 | Audited consolidated balance sheet of Lexicon as at March 31, 2011 and 2010, and the audited consolidated profit and loss account, statement of recognsied gains and losses and consolidated cash flow statement of Lexicon for the three years ended March 31, 2011 and related notes, including reconciliations to U.S. GAAP as at and for the years ended March 31, 2011 and 2010 | |
| Exhibit 99.2 | Unaudited pro forma condensed combined financial statements of Evercore and Lexicon as of and for the six months ended June 30, 2011 and for the year ended December 31, 2010 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| EVERCORE PARTNERS INC. | ||
| By: | /s/ ROBERT B. WALSH | |
| Name: | Robert B. Walsh | |
| Title: | Chief Financial Officer | |
Dated: November 4, 2011
EXHIBIT INDEX
| EXHIBIT NO. |
DESCRIPTION | |
| Exhibit 23.1 | Consent of Independent Auditors | |
| Exhibit 99.1 | Audited consolidated balance sheet of Lexicon as at March 31, 2011 and 2010, and the audited consolidated profit and loss account, statement of recognsied gains and losses and consolidated cash flow statement of Lexicon for the three years ended March 31, 2011 and related notes, including reconciliations to U.S. GAAP as at and for the years ended March 31, 2011 and 2010 | |
| Exhibit 99.2 | Unaudited pro forma condensed combined financial statements of Evercore and Lexicon as of and for the six months ended June 30, 2011 and for the year ended December 31, 2010 | |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements No. 333-145696, No. 333-174866, on Form S-3 of our report dated 4 November 2011 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to accounting principles generally accepted in the United Kingdom that vary in certain significant respects from accounting principles generally accepted in the United States of America) relating to the consolidated financial statements of The Lexicon Partnership LLP (the “Company”) appearing in this Current Report on Form 8-K/A of Evercore Partners Inc.
| /s/ Deloitte LLP |
| London, United Kingdom |
| 4 November 2011 |
Exhibit 99.1
THE LEXICON PARTNERSHIP LLP
Consolidated Financial Statements
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE LEXICON PARTNERSHIP LLP (the ‘‘LLP’’)
We have audited the accompanying consolidated balance sheet of The Lexicon Partnership LLP as at 31 March 2011 and 2010, and the related consolidated profit and loss account, statement of recognised gains and losses and cash flow statement for the three years ended 31 March 2011. These consolidated financial statements are the responsibility of the LLP’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the LLP’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the LLP as at 31 March 2011 and 2010, and the results of its operations and its cash flows for the three years ended 31 March 2011 in conformity with accounting principles generally accepted in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of these differences is presented in note 19 to the consolidated financial statements. The application of the latter would have affected the determination of net income for each of the two years ended 31 March 2011 and the determination of members’ deficit at 31 March 2011 and 2010 to the extent summarised in Note 19.
/s/ Deloitte LLP
London, United Kingdom
4 November 2011
1
THE LEXICON PARTNERSHIP LLP
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 31 March
| Notes | 2011 £’000 |
2010 £’000 |
2009 £’000 |
|||||||||||||
| TURNOVER |
2 | 39,857 | 32,813 | 41,471 | ||||||||||||
| Administrative expenses |
(16,018 | ) | (17,299 | ) | (14,980 | ) | ||||||||||
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| OPERATING PROFIT |
3 | 23,839 | 15,514 | 26,491 | ||||||||||||
| Loss on disposal of tangible fixed assets |
— | (2 | ) | — | ||||||||||||
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| PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST |
23,839 | 15,512 | 26,491 | |||||||||||||
| Interest receivable and similar income |
4 | 5,321 | 108 | 1,031 | ||||||||||||
| Interest payable and similar charges |
5 | (5 | ) | (9 | ) | (3 | ) | |||||||||
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| PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION |
29,155 | 15,611 | 27,519 | |||||||||||||
| Tax on profit on ordinary activities |
6 | (3,153 | ) | (161 | ) | (159 | ) | |||||||||
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| PROFIT FOR THE FINANCIAL YEAR BEFORE MEMBERS’ REMUNERATION AND PROFIT SHARES |
26,002 | 15,450 | 27,360 | |||||||||||||
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| PROFIT FOR THE FINANCIAL YEAR BEFORE MEMBERS’ REMUNERATION AND PROFIT SHARES |
26,002 | 15,450 | 27,360 | |||||||||||||
| Members’ remuneration charged as an expense |
13 | (17,556 | ) | (729 | ) | (204 | ) | |||||||||
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| PROFIT FOR THE FINANCIAL YEAR AVAILABLE FOR DISCRETIONARY DIVISION AMONG MEMBERS |
13 | 8,446 | 14,721 | 27,156 | ||||||||||||
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The results of the group are wholly attributable to continuing operations.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 31 March
| 2011 £’000 |
2010 £’000 |
2009 £’000 |
||||||||||
| Profit for the financial year available for discretionary division among members |
8,446 | 14,721 | 27,156 | |||||||||
| Currency translation difference on foreign currency net investments |
(4 | ) | (4 | ) | 12 | |||||||
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| TOTAL RECOGNISED GAINS AND LOSSES RELATING TO THE YEAR ATTRIBUTABLE TO MEMBERS |
8,442 | 14,717 | 27,168 | |||||||||
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2
THE LEXICON PARTNERSHIP LLP
CONSOLIDATED BALANCE SHEET
As at 31 March
| Notes | 2011 £’000 |
2010 £’000 |
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| FIXED ASSETS |
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| Tangible assets |
8 | 287 | 317 | |||||||||
| Other investments |
9 | — | 5,112 | |||||||||
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| 287 | 5,429 | |||||||||||
| CURRENT ASSETS |
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| Debtors |
10 | 9,017 | 12,192 | |||||||||
| Cash at bank and in hand |
21,429 | 11,986 | ||||||||||
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| 30,446 | 24,178 | |||||||||||
| CREDITORS: amounts falling due within one year |
11 | (10,283 | ) | (8,317 | ) | |||||||
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| NET CURRENT ASSETS |
20,163 | 15,861 | ||||||||||
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| NET ASSETS ATTRIBUTABLE TO MEMBERS |
20,450 | 21,290 | ||||||||||
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| REPRESENTED BY: |
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| LOANS AND OTHER DEBTS DUE TO MEMBERS |
||||||||||||
| Members’ capital classified as a liability |
13 | 5,039 | 5,000 | |||||||||
| Other amounts |
13 | 15,407 | 16,282 | |||||||||
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| 20,446 | 21,282 | |||||||||||
| MEMBERS’ OTHER INTERESTS |
||||||||||||
| Other reserves classified as equity |
13 | 4 | 8 | |||||||||
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| 20,450 | 21,290 | |||||||||||
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| 2011 £’000 |
2010 £’000 |
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| TOTAL MEMBERS’ INTERESTS |
||||||||
| Loans and other debts due to members |
20,446 | 21,282 | ||||||
| Members’ other interests |
4 | 8 | ||||||
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| 20,450 | 21,290 | |||||||
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3
THE LEXICON PARTNERSHIP LLP
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 March
| Notes | 2011 | 2010 | 2009 | |||||||||||||
| £’000 | £’000 | £’000 | ||||||||||||||
| Net cash inflow from operating activities |
14 | 26,173 | 14,268 | 34,021 | ||||||||||||
| Returns on investments and servicing of finance |
||||||||||||||||
| Interest received |
64 | 120 | 991 | |||||||||||||
| Interest paid |
(5 | ) | (9 | ) | (3 | ) | ||||||||||
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| 59 | 111 | 988 | ||||||||||||||
| Taxation |
||||||||||||||||
| UK corporation tax paid |
5 | (157 | ) | (239 | ) | |||||||||||
| Foreign tax paid |
(158 | ) | (435 | ) | (45 | ) | ||||||||||
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| (153 | ) | (592 | ) | (284 | ) | |||||||||||
| Capital expenditure and financial investment |
||||||||||||||||
| Purchase of tangible fixed assets |
(190 | ) | (290 | ) | (240 | ) | ||||||||||
| Proceeds on disposal of Jupiter Investment |
9 | 6,962 | — | — | ||||||||||||
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| 6,772 | (290 | ) | (240 | ) | ||||||||||||
| Transactions with members and former members |
||||||||||||||||
| Payments to members |
(23,469 | ) | (25,209 | ) | (47,081 | ) | ||||||||||
| Payments to former members |
— | — | (12 | ) | ||||||||||||
| Contributions by members |
39 | 1,048 | 576 | |||||||||||||
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| (23,430 | ) | (24,161 | ) | (46,517 | ) | |||||||||||
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| Increase/(decrease) in cash |
15 | 9,421 | (10,664 | ) | (12,032 | ) | ||||||||||
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4
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ACCOUNTING POLICIES |
The consolidated financial statements are prepared in accordance with applicable United Kingdom law, the Statement of Recommended Practice, “Accounting by Limited Liability Partnerships” (issued March 2010), and accounting principles generally accepted in the United Kingdom (‘‘UK GAAP’’). The particular accounting policies adopted are described below and have been applied consistently in both the current and preceding years. The consolidated financial statements are prepared on the going concern basis as discussed below.
Accounting convention
The consolidated financial statements are prepared under the historical cost convention.
Basis of consolidation
The consolidated financial statements incorporate a consolidation of the financial statements of The Lexicon Partnership LLP (the “LLP”) and its subsidiary undertakings (the ‘‘group’’) drawn up to 31 March each year.
Turnover
Turnover represents amounts receivable for success fees and retainer fees net of value added tax.
Turnover is recognised when (i) there is persuasive evidence of an arrangement with a client, (ii) fees are fixed or determinable, (iii) the agreed-upon services have been completed and delivered to the client or events contemplated in the engagement letter are determined to be completed and (iv) collection is reasonably assured.
Success fees are recognised when the relevant event that determines success has occurred, as defined in the engagement letter. Retainer fees are accrued during the applicable time period within which the service is rendered. Amounts billable to clients for the reimbursement of expenses are offset against the related expense in the consolidated profit and loss account.
Tangible fixed assets
Tangible fixed assets are stated at cost less depreciation and any provision for impairment. Depreciation on tangible fixed assets is provided at rates estimated to write off the cost, less estimated residual value, of each asset on a straight line basis over its expected useful life as follows:
| Leasehold improvements | term of lease | |||
| Fixtures and fittings | 5 years | |||
| Computer equipment | 12 months |
Investments
Fixed asset investments are shown at cost less provision for impairment, if any.
Current tax
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered), using the rates and laws that have been enacted, or substantively enacted, by the balance sheet date.
Deferred tax
Deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements.
Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.
5
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ACCOUNTING POLICIES (continued) |
Foreign currencies
Transactions denominated in foreign currencies are translated into Sterling at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated into Sterling at the rates of exchange ruling at the end of the financial year.
The results of overseas operations and their balance sheets are translated into Sterling at the rates of exchange ruling at the end of the financial year. Exchange differences arising on translation of the opening net assets are reported in the statement of total recognised gains and losses. All other exchange differences are dealt with in the profit and loss account.
Pension scheme arrangements
The group makes contributions to money purchase schemes (defined contribution plans), the assets of the schemes being held separately from the assets of the group. The pension cost charge represents contributions payable to the schemes.
Leases
Rental payments under operating leases are charged to the profit and loss account on a straight line basis over the lease term. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight line basis over the shorter of the lease term and the period until a review date.
Tax provisions
The taxation payable on the LLP’s profits is the personal liability of the members during the year. A retention from profits is made to fund payments of taxation on members’ behalf. The retention is reflected in members’ current accounts and payments are charged against this retention.
Going concern
The members believe that the LLP is well placed to manage its business risks and financial risks successfully. After making enquiries, the members have a reasonable expectation that the LLP has adequate resources to continue in operational existence for the foreseeable future.
Following completion of the transaction referred to in note 18, the members have considered the consequences for the LLP of the transaction and concluded that, since no plans or timetable for a restructuring of the enlarged group have been confirmed, it is appropriate to adopt the going concern basis of accounting in preparing the financial statements.
| 2. | TURNOVER |
Turnover is attributable to the one principal activity of the group which was conducted at the registered offices of Lexicon Partners Limited in the UK, Lexicon Partners (US) LLC in the United States of America and Lexicon Partners (Asia) Limited in Hong Kong.
| 2011 | 2010 | 2009 | ||||||||||
| £’000 | £’000 | £’000 | ||||||||||
| UK |
33,423 | 32,139 | 41,138 | |||||||||
| USA |
4,313 | 540 | — | |||||||||
| Hong Kong |
2,121 | 134 | 333 | |||||||||
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| 39,857 | 32,813 | 41,471 | ||||||||||
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6
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 3. | OPERATING PROFIT |
The operating profit is stated after charging/(crediting):
| 2011 | 2010 | 2009 | ||||||||||
| £’000 | £’000 | £’000 | ||||||||||
| Operating lease rentals |
||||||||||||
| - land and buildings |
1,188 | 1,133 | 959 | |||||||||
| - other |
45 | 49 | 38 | |||||||||
| Loss/(profit) on foreign exchange |
292 | 65 | (542 | ) | ||||||||
| Depreciation and amounts written off tangible fixed assets |
210 | 263 | 481 | |||||||||
| 4. | INTEREST RECEIVABLE AND SIMILAR INCOME |
| 2011 | 2010 | 2009 | ||||||||||
| £’000 | £’000 | £’000 | ||||||||||
| Bank interest receivable |
62 | 108 | 1,031 | |||||||||
| Other interest receivable |
1 | — | — | |||||||||
| Gain on disposal of Jupiter investment (note 9) |
5,258 | — | — | |||||||||
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| 5,321 | 108 | 1,031 | ||||||||||
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| 5. | INTEREST PAYABLE AND SIMILAR CHARGES |
| 2011 | 2010 | 2009 | ||||||||||
| £’000 | £’000 | £’000 | ||||||||||
| Bank interest payable |
5 | 5 | 3 | |||||||||
| Other interest |
— | 4 | — | |||||||||
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| 5 | 9 | 3 | ||||||||||
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7
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 6. | TAX ON PROFIT ON ORDINARY ACTIVITIES |
The tax charge comprises:
| 2011 | 2010 | 2009 | ||||||||||
| £’000 | £’000 | £’000 | ||||||||||
| Current tax |
||||||||||||
| UK corporation tax for the current year at 28% |
2,406 | 21 | 299 | |||||||||
| (2010: 28%, 2009: 28%) |
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| Double tax relief |
— | — | (146 | ) | ||||||||
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| 2,406 | 21 | 153 | ||||||||||
| Foreign tax |
683 | 90 | 397 | |||||||||
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| 3,089 | 111 | 550 | ||||||||||
| Adjustments in respect of prior years |
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| - UK corporation tax |
(4 | ) | 2 | (6 | ) | |||||||
| - Foreign tax |
(5 | ) | (17 | ) | (2 | ) | ||||||
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| Total current tax |
3,080 | 96 | 542 | |||||||||
| Deferred tax |
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| Origination and reversal of timing differences |
72 | 119 | (383 | ) | ||||||||
| Adjustment for change in UK corporation tax rate |
2 | — | — | |||||||||
| Adjustment in respect of prior years |
(1 | ) | (54 | ) | — | |||||||
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| Total deferred tax (see note 12) |
73 | 65 | (383 | ) | ||||||||
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| Total tax on profit on ordinary activities |
3,153 | 161 | 159 | |||||||||
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Factors affecting the current tax charge are as follows:
| 2011 | 2010 | 2009 | ||||||||||
| £’000 | £’000 | £’000 | ||||||||||
| Profit on ordinary activities before tax |
29,155 | 15,611 | 27,519 | |||||||||
| LLP profits not subject to taxation in the group |
(18,610 | ) | (15,450 | ) | (27,360 | ) | ||||||
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| 10,545 | 161 | 159 | ||||||||||
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| Tax at 28% thereon (2010: 28%, 2009: 28%) |
2,953 | 45 | 46 | |||||||||
| Effects of: |
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| Expenses not deductible for tax purposes |
124 | 99 | 331 | |||||||||
| Capital allowances in excess of depreciation |
(19 | ) | (28 | ) | 40 | |||||||
| Other deferred tax movements |
(6 | ) | 3 | — | ||||||||
| Marginal relief |
— | (3 | ) | — | ||||||||
| Non taxable foreign dividends |
(200 | ) | (51 | ) | — | |||||||
| Difference in tax rates on overseas earnings |
237 | 46 | 133 | |||||||||
| Adjustments to tax charge in respect of previous periods |
(9 | ) | (15 | ) | (8 | ) | ||||||
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| Current tax charge for year |
3,080 | 96 | 542 | |||||||||
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8
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 7. | MEMBERS’ SHARE OF PROFITS |
Each year the members decide how profits should be shared amongst themselves. The profit attributable to the member with the largest entitlement to profit was £1,560,642 (2010: £1,237,078, 2009: £3,269,590). The average number of members in the year was 30 (2010: 28, 2009: 24).
Amounts due to members in respect of participation rights in the profits for the year that give rise to liabilities, including any automatic division of profits, are treated as members’ remuneration charged as an expense. Any share of profits arising from a division of profits that is discretionary on the part of the LLP is treated as profit available for discretionary division.
| 8. | TANGIBLE FIXED ASSETS |
| Leasehold improvements £’000 |
Fixtures and fittings £’000 |
Computer equipment £’000 |
Total £’000 |
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| Cost |
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| At 1 April 2010 |
1,814 | 291 | 153 | 2,258 | ||||||||||||
| Additions |
49 | 11 | 130 | 190 | ||||||||||||
| Disposals |
(1,703 | ) | (63 | ) | (67 | ) | (1,833 | ) | ||||||||
| Exchange adjustments |
(4 | ) | (6 | ) | (4 | ) | (14 | ) | ||||||||
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| At 31 March 2011 |
156 | 233 | 212 | 601 | ||||||||||||
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| Depreciation |
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| At 1 April 2010 |
1,720 | 106 | 115 | 1,941 | ||||||||||||
| Charge for the year |
38 | 48 | 124 | 210 | ||||||||||||
| Disposals |
(1,703 | ) | (63 | ) | (67 | ) | (1,833 | ) | ||||||||
| Exchange adjustments |
(1 | ) | (1 | ) | (2 | ) | (4 | ) | ||||||||
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| At 31 March 2011 |
54 | 90 | 170 | 314 | ||||||||||||
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| Net book value |
||||||||||||||||
| At 31 March 2011 |
102 | 143 | 42 | 287 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| At 31 March 2010 |
94 | 185 | 38 | 317 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
9
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 9. | FIXED ASSET INVESTMENTS |
| 2011 £’000 |
2010 £’000 |
|||||||
| Other investments |
— | 5,112 | ||||||
|
|
|
|
|
|||||
The following details relate to the LLP’s subsidiary undertakings:
| Name | Country of incorporation |
Holding | % | Nature of trade | ||||||||
| Lexicon Group Limited |
Great Britain | Ordinary | 100 | % | Holding company | |||||||
| Lexicon Partners Limited |
Great Britain | Ordinary | 100 | % | Corporate finance advisory services | |||||||
| Lexicon Group Services Limited |
Great Britain | Ordinary | 100 | % | Services to other group companies | |||||||
| Lexicon Partners (Asia) Limited |
Hong Kong | Ordinary | 100 | % | Corporate finance advisory services | |||||||
| Lexicon Group Services (Asia) Limited |
Hong Kong | Ordinary | 100 | % | Services to other group companies | |||||||
| Lexicon Partners (US) LLC |
United States of America | Member | 100 | % | Corporate finance advisory services | |||||||
All subsidiary undertakings prepare financial statements to 31 March.
Other investments comprise 4,625,493 (2010: 4,625,493) ordinary shares in Intrinsic Financial Services Limited (formerly Clearhurst Limited) acquired at a cost of £46 (2010: £46); nil (2010: 23,742) ordinary shares in Jupiter Investment Management Holdings Limited (“Jupiter”), nil (2010: 1,044,634) preference shares in Jupiter and £nil (2010: £4,043,789) unsecured subordinated preferred finance securities in Jupiter Fund Management Group Limited. The Jupiter investment was recorded at cost when it was acquired in June 2007 and at cost less impairment, if any, for all periods since. On acquisition, the LLP approved the proportions in which the LLP’s investment in Jupiter would be beneficially owned by certain members. Since legal title to the shares remained in the name of the LLP, the Jupiter investment remained as an asset on the balance sheet of the LLP and a corresponding liability to the members was recorded.
In May 2010, Jupiter announced its intention to float on the main market of the London Stock Exchange. As part of the flotation process, Jupiter undertook a capital reorganisation and reregistered as a public company. As a consequence of the reorganisation, the LLP’s holding of ordinary shares and preference shares was converted into 2,032,350 ordinary shares in Jupiter Fund Management plc. Upon flotation, the LLP’s holding of unsecured subordinated preferred finance securities in Jupiter Fund Management Group Limited was redeemed in full for £4,043,789. In December 2010, legal title to 264,172 ordinary shares, having a value at that time of £804,404, was transferred to the beneficial owners. In January 2011, 954,452 ordinary shares were sold for £2,918,272 and the proceeds were distributed to the beneficial owners. In February 2011, legal title to the balance of the LLP’s shareholding, comprising 813,726 ordinary shares and having a value at that time of £2,603,923, was transferred to the beneficial owners. Upon completion of the transactions referred to above, the carrying value of the investment was eliminated and the gain was recorded as “Interest receivable and similar income” and as “Members’ remuneration charged as an expense” because the allocation to the individual members was predetermined.
10
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 10. | DEBTORS |
| 2011 £’000 |
2010 £’000 |
|||||||
| Trade debtors |
7,289 | 10,290 | ||||||
| Other debtors |
285 | 472 | ||||||
| Prepayments and accrued income |
1,178 | 994 | ||||||
| Corporation tax |
— | 82 | ||||||
| Deferred tax asset (see note 12) |
265 | 354 | ||||||
|
|
|
|
|
|||||
| 9,017 | 12,192 | |||||||
|
|
|
|
|
|||||
| 11. | CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR |
| 2011 £’000 |
2010 £’000 |
|||||||
| Trade creditors |
1,046 | 896 | ||||||
| Corporation tax |
2,850 | 5 | ||||||
| Other taxation and social security |
805 | 2,263 | ||||||
| Other creditors |
2 | 609 | ||||||
| Accruals and deferred income |
5,580 | 4,544 | ||||||
|
|
|
|
|
|||||
| 10,283 | 8,317 | |||||||
|
|
|
|
|
|||||
11
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 12. | DEFERRED TAXATION |
The group has the following deferred tax balances in its constituent entities:
| UK £’000 |
Overseas £’000 |
|||||||
| As at 1 April 2009 |
95 | 344 | ||||||
| Charged to profit and loss account (see note 6) |
(9 | ) | (56 | ) | ||||
| Exchange difference |
— | (20 | ) | |||||
|
|
|
|
|
|||||
| As at 31 March 2010 |
86 | 268 | ||||||
|
|
|
|
|
|||||
| As at 1 April 2010 |
86 | 268 | ||||||
| Charged to profit and loss account (see note 6) |
(28 | ) | (45 | ) | ||||
| Exchange difference |
— | (16 | ) | |||||
|
|
|
|
|
|||||
| As at 31 March 2011 |
58 | 207 | ||||||
|
|
|
|
|
|||||
The deferred tax asset is comprised as follows:
| 2011 | 2010 | |||||||||||||||
| UK £’000 |
Overseas £’000 |
UK £’000 |
Overseas £’000 |
|||||||||||||
| Decelerated/(accelerated) capital allowances |
58 | (10 | ) | 80 | (1 | ) | ||||||||||
| Other timing differences |
— | 217 | 6 | 269 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Deferred tax asset |
58 | 207 | 86 | 268 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
A deferred tax asset of £265,000 has been recognised at 31 March 2011 (2010: £354,000), of which £207,000 (2010: £268,000) relates to temporary differences in the tax basis of assets and liabilities of Lexicon Partners (US) LLC and their reported amounts in the consolidated balance sheet. The members are of the opinion, based on current and forecast trading, that the level of profit in the current and next financial year will exceed the tax deductible amounts in relation to these assets and liabilities.
12
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 13. | TOTAL MEMBERS’ INTERESTS |
| Members’ other interests | Loans and other debts due to members | Total | ||||||||||||||||||||||
| Other reserves £’000 |
Total £’000 |
Members’ capital £’000 |
Other amounts £’000 |
Total £’000 |
members’ interests £’000 |
|||||||||||||||||||
| Members’ interests as at 1 April 2008 |
(4 | ) | (4 | ) | 3,376 | 45,654 | 49,030 | 49,026 | ||||||||||||||||
| Members’ remuneration charged as an expense |
— | — | — | 204 | 204 | 204 | ||||||||||||||||||
| Profit for the financial year available for discretionary division among members |
27,156 | 27,156 | — | — | — | 27,156 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Members’ interests after profit for the year |
27,152 | 27,152 | 3,376 | 45,858 | 49,234 | 76,386 | ||||||||||||||||||
| Other divisions of profits |
(27,152 | ) | (27,152 | ) | — | 27,152 | 27,152 | — | ||||||||||||||||
| Introduced by members |
— | — | 576 | — | 576 | 576 | ||||||||||||||||||
| Drawings |
— | — | — | (47,081 | ) | (47,081 | ) | (47,081 | ) | |||||||||||||||
| Other movements |
12 | 12 | — | — | — | 12 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Members’ interests as at 1 April 2009 |
12 | 12 | 3,952 | 25,929 | 29,881 | 29,893 | ||||||||||||||||||
| Members’ remuneration charged as an expense |
— | — | — | 729 | 729 | 729 | ||||||||||||||||||
| Profit for the financial year available for discretionary division among members |
14,721 | 14,721 | — | — | — | 14,721 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Members’ interests after profit for the year |
14,733 | 14,733 | 3,952 | 26,658 | 30,610 | 45,343 | ||||||||||||||||||
| Other divisions of profits |
(14,721 | ) | (14,721 | ) | — | 14,721 | 14,721 | — | ||||||||||||||||
| Introduced by members |
— | — | 1,048 | — | 1,048 | 1,048 | ||||||||||||||||||
| Drawings |
— | — | — | (25,209 | ) | (25,209 | ) | (25,209 | ) | |||||||||||||||
| Other movements |
(4 | ) | (4 | ) | — | 112 | 112 | 108 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Members’ interests as at 31 March 2010 |
8 | 8 | 5,000 | 16,282 | 21,282 | 21,290 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
13
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 13. | TOTAL MEMBERS’ INTERESTS (continued) |
| Members’ other interests | Loans and other debts due to members | Total | ||||||||||||||||||||||
| Other reserves £’000 |
Total £’000 |
Members’ Capital £’000 |
Other Amounts £’000 |
Total £’000 |
members’ interests £’000 |
|||||||||||||||||||
| Members’ interests as at 1 April 2010 |
8 | 8 | 5,000 | 16,282 | 21,282 | 21,290 | ||||||||||||||||||
| Members’ remuneration charged as an expense |
— | — | — | 17,556 | 17,556 | 17,556 | ||||||||||||||||||
| Profit for the financial year available for discretionary division among members |
8,446 | 8,446 | — | — | — | 8,446 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Members’ interests after profit for the year |
8,454 | 8,454 | 5,000 | 33,838 | 38,838 | 47,292 | ||||||||||||||||||
| Other divisions of profits |
(8,446 | ) | (8,446 | ) | — | 8,446 | 8,446 | — | ||||||||||||||||
| Introduced by members |
— | — | 39 | — | 39 | 39 | ||||||||||||||||||
| Drawings |
— | — | — | (23,469 | ) | (23,469 | ) | (23,469 | ) | |||||||||||||||
| Transfer of Jupiter investment |
— | — | — | (3,408 | ) | (3,408 | ) | (3,408 | ) | |||||||||||||||
| Other movements |
(4 | ) | (4 | ) | — | — | — | (4 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Members’ interests as at 31 March 2011 |
4 | 4 | 5,039 | 15,407 | 20,446 | 20,450 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans and other debts due to members rank pari passu with ordinary creditors in the event of a winding up of the LLP. Refer to note 7 (members’ share of profits) for an explanation of members’ remuneration charged as an expense. There was a substantial increase in members’ remuneration charged as expense in the year ended 31 March 2011 due to the gain made upon the disposal of the Jupiter investment (see note 9) and the fact that significant profits were retained in certain subsidiary entities in the year ended 31 March 2011.
All loans and other debts due to members fall due within one year except for members’ capital.
14
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 14. | RECONCILIATION OF CONSOLIDATED OPERATING PROFIT TO CASH FLOWS |
| 2011 £’000 |
2010 £’000 |
2009 £’000 |
||||||||||
| Operating profit |
23,839 | 15,512 | 26,491 | |||||||||
| Depreciation |
210 | 263 | 481 | |||||||||
| Decrease/(increase) in debtors |
3,003 | (1,252 | ) | 8,203 | ||||||||
| Decrease in creditors |
(879 | ) | (255 | ) | (1,154 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net cash inflow from operating activities |
26,173 | 14,268 | 34,021 | |||||||||
|
|
|
|
|
|
|
|||||||
| 15. | ANALYSIS OF CONSOLIDATED NET DEBT |
| At 1 April 2010 £’000 |
Cash flow £’000 |
Non-cash transaction £’000 |
Exchange movement £’000 |
At 31 March 2011 £’000 |
||||||||||||||||
| Cash at bank and in hand |
11,986 | 9,421 | — | 22 | 21,429 | |||||||||||||||
| Loans and other debts due to members |
(21,282 | ) | 23,430 | (22,594 | ) | — | (20,446 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (9,296 | ) | 32,851 | (22,594 | ) | 22 | 983 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-cash distributions consists of the profit for the financial year available for discretionary division among members of £8,445,139 and members’ remuneration charged as an expense of £17,556,572, net of the value of Jupiter shares transferred to the beneficial owners of £3,408,327.
| At 1 April 2009 £’000 |
Cash flow £’000 |
Non-cash transaction £’000 |
Exchange movement £’000 |
At 31 March 2010 £’000 |
||||||||||||||||
| Cash at bank and in hand |
22,648 | (10,664 | ) | — | 2 | 11,986 | ||||||||||||||
| Loans and other debts due to members |
(29,881 | ) | 24,161 | (15,562 | ) | — | (21,282 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (7,233 | ) | 13,497 | (15,562 | ) | 2 | (9,296 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-cash distributions consists of the profit for the financial year available for discretionary division among members of £14,721,573 and members’ remuneration charged as an expense of £728,882.
Included in cash at bank and in hand is an amount held on deposit with HSBC guaranteeing a letter of credit between HSBC and 600 Partners Co., LP for £229,760 and £248,792, as at 31 March 2011 and 2010 respectively. This letter of credit is in respect of the security deposit payable by Lexicon Partners (US) LLC for its corporate offices.
15
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 16. | FINANCIAL COMMITMENTS |
Annual commitments under non-cancellable operating leases are as follows:
| 2011 | 2010 | |||||||||||||||
| Land and buildings £’000 |
Other £’000 |
Land and buildings £’000 |
Other £’000 |
|||||||||||||
| Group |
||||||||||||||||
| Expiry date: |
||||||||||||||||
| - within one year |
— | 2 | — | — | ||||||||||||
| - between two and five years |
1,292 | 47 | 1,319 | 50 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 1,292 | 49 | 1,319 | 50 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 17. | RELATED PARTIES |
The outstanding balance of amounts due to employees of overseas group companies, who are also members at the year end, is £1,103,063 (2010: £1,666,990) which includes unpaid expense claims and accrued bonuses. The outstanding balance of amounts due from employees of overseas group companies, who are also members at the year end, is £104,026 (2010: £293,973) made up of employee advances.
| 18. | SUBSEQUENT EVENTS |
On 7 June 2011, the members of the LLP entered into an agreement under which the LLP and all of its subsidiaries would be acquired by Evercore Partners Inc., an investment banking advisory firm headquartered in the USA (the “transaction”). Pursuant to the terms of this agreement, the members agreed to retain £7.4 million of net profits in the LLP’s subsidiaries as members’ equity. This amount was classified within “Loans and other debts due to members – other amounts” in the consolidated balance sheet as at 31 March 2011.
On 19 August 2011, the transaction completed following receipt of the necessary regulatory approvals. It is likely that there will be a restructuring of the enlarged group but any changes are subject to mutual agreement.
On 19 August 2011, Evercore Partners Inc. contributed its 100% interest in The Lexicon Partnership LLP to Evercore Partners LP (a partnership registered in the US). On 1 September 2011, Evercore Partners LP contributed its 100% interest in The Lexicon Partnership LLP to Evercore Holdings Limited (a company registered in England and Wales). On the same day, Evercore Holdings Limited contributed 99.9% of its interest in The Lexicon Partnership LLP to Evercore Partners Limited (a company registered in England and Wales).
16
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 19. | SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES IN THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA |
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United Kingdom (“UK GAAP”) which differs in certain respects from accounting principles in the United States of America (“US GAAP”).
The following are the adjustments to net income and members’ equity determined in accordance with UK GAAP, necessary to reconcile to net income and members’ equity determined in accordance with US GAAP.
| Notes | 2011 £’000 |
2010 £’000 |
||||||||
| Profit for the financial year available for discretionary division among members |
8,446 | 14,721 | ||||||||
| Translation of foreign currency financial statements |
a | 16 | (3 | ) | ||||||
| Vacation pay |
b | 14 | (31 | ) | ||||||
| Deferred tax |
c | (9 | ) | 10 | ||||||
|
|
|
|
|
|||||||
| Net income in accordance with US GAAP |
8,467 | 14,697 | ||||||||
|
|
|
|
|
|||||||
| 2011 £’000 |
2010 £’000 |
|||||||||
| Members’ equity in accordance with UK GAAP |
4 | 8 | ||||||||
| Vacation pay |
b | (51 | ) | (65 | ) | |||||
| Deferred tax |
c | 14 | 19 | |||||||
|
|
|
|
|
|||||||
| Members’ deficit in accordance with US GAAP |
(33 | ) | (38 | ) | ||||||
|
|
|
|
|
|||||||
| (a) | TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS |
Under UK GAAP, the results of foreign subsidiaries having functional currencies other than Sterling are translated using the closing spot foreign exchange rate as at the balance sheet date.
Under US GAAP, the results of operations of foreign subsidiaries are required to be translated at the average exchange rate for the year.
| (b) | VACATION PAY |
Under UK GAAP, an accrual for annual holiday entitlement carried forward, to the extent permitted by employment contracts, is not recognised.
Under US GAAP, a liability must be accrued for vacation benefits that employees have earned but have not yet taken.
17
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 19. | SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES IN THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA (continued) |
| (c) | DEFERRED TAX |
Under UK GAAP, deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more, or to pay less tax, at rates expected to apply when they crystallise, based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the consolidated financial statements. Deferred tax assets are regarded as recoverable and recognised only to the extent that, on the available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Under US GAAP, deferred tax assets and liabilities are provided in full on all temporary differences and a valuation adjustment is established in respect of those deferred tax assets where it is more likely than not that some portion will not be realised. The adjustments in respect of deferred taxation relate to the tax effects of the US GAAP adjustments at the statutory rate.
PRESENTATION AND CLASSIFICATION DIFFERENCES
In addition to the recognition and measurement differences between UK and US GAAP, there are a number of differences in the manner in which amounts are presented and classified in the accounts. The principal presentation and classification differences are summarised below:
| 1. | Balance sheet and profit and loss account presentation |
General
The format of a balance sheet prepared in accordance with UK GAAP differs in certain respects from US GAAP. UK GAAP requires assets to be presented in ascending order of liquidity whereas under US GAAP assets are presented in descending order of liquidity.
Net deferred tax assets
Under UK GAAP all net deferred tax assets are classified in the balance sheet as current assets. Under US GAAP £57,869 and £79,872 as at 31 March 2011 and 2010 was reclassified as non-current based on the classification of the underlying balance sheet account and when it will be realised.
Transaction related expenses
Under UK GAAP, the recovery of out of pocket expenses billable to customers is offset against the related expense in the profit and loss account.
Under US GAAP, all amounts billable to customers must be recorded within revenue and the corresponding expense reported within expenses in the profit and loss account. Revenue and related expenses of £663,684 and £418,115 for the years ended 31 March 2011 and 2010 would be recorded respectively.
Restricted cash balance
Under UK GAAP, Lexicon Group Services Limited, a subsidiary of the group, guaranteed a line of credit to Lexicon Partners (US) LLC for £229,760 and £248,792, as at 31 March 2011 and 2010 respectively. These amounts are included in cash at bank and in hand as disclosed in note 15.
Under US GAAP these guarantees for a line of credit would be classified as restricted cash as it is considered to be restricted as to withdrawal or usage.
18
THE LEXICON PARTNERSHIP LLP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 19. | SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES IN THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA (continued) |
PRESENTATION AND CLASSIFICATION DIFFERENCES (continued)
| 2. | Consolidated statement of cash flow |
The consolidated statement of cash flow prepared under UK GAAP presents substantially the same information as that required under US GAAP. Cash flow under UK GAAP represents increases or decreases in “cash”, which comprises cash in hand and deposits repayable on demand. Under US GAAP, cash flow represents increases or decreases in “Cash and Cash Equivalents”, which includes short-term, highly liquid investments with original maturities of less than three months, and excludes restricted cash.
Under UK GAAP, cash flows are presented separately for operating activities, returns on investment and servicing of finance, taxation, capital expenditure and financial investment and transactions with members and former members. Under US GAAP, only three categories of cash flow activity are presented, being cash flows relating to operating activities, investing activities and financing activities. Cash flows from operating activities includes net cash inflow from operating activities, returns on investments and servicing of finance and taxation. Cash flows from investing includes capital expenditure and financial investments and movement in restricted cash. Cash flows from financing activities includes transactions with members and former members.
The following statements summarise the statements of cash flows as if they had been presented in accordance with US GAAP, and include the adjustments that reconcile cash and cash equivalents under US GAAP to cash and short term deposits under UK GAAP.
| 2011 £’000 |
2010 £’000 |
|||||||
| Net cash provided by operating activities |
26,079 | 13,787 | ||||||
| Net cash provided by/(used) in investing activities |
6,791 | (319 | ) | |||||
| Net cash used in financing activities |
(23,430 | ) | (24,161 | ) | ||||
|
|
|
|
|
|||||
| Net increase/(decrease) in cash and cash equivalents |
9,440 | (10,693 | ) | |||||
| Effect of exchange rate changes on cash |
22 | 2 | ||||||
| Cash and cash equivalents, excluding restricted cash, under US GAAP at beginning of year |
11,737 | 22,428 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, excluding restricted cash, under US GAAP at end of year |
21,199 | 11,737 | ||||||
|
|
|
|
|
|||||
19
Exhibit 99.2
Evercore Partners Inc. and The Lexicon Partnership LLP
Unaudited Pro Forma Condensed Combined
Financial Statements
On August 19, 2011, Evercore Partners Inc. (“the Company”) completed its previously announced acquisition of all of the outstanding partnership interests of The Lexicon Partnership LLP, a U.K. incorporated limited liability partnership (“Lexicon”), in accordance with the definitive sale and purchase agreement entered into on June 7, 2011, for consideration consisting of cash and stock (the “Acquisition”). The unaudited pro forma condensed combined statements of operations and the unaudited pro forma condensed combined statement of financial condition are based upon the historical consolidated financial statements of the Company and Lexicon after giving effect to the Acquisition, and after applying the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.
The historical consolidated financial statements of Lexicon were prepared in conformity with accounting principles generally accepted in the United Kingdom (“U.K. GAAP”), which differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). Necessary adjustments have been made to reconcile the historical consolidated financial statements of Lexicon to U.S. GAAP. These adjustments relate primarily to differences such as the translation of foreign currency, the accrual for vacation benefits and the tax effects of such adjustments.
The Company and Lexicon’s fiscal year ends are December 31st and March 31st, respectively. Since these year-ends differ by less than 93 days, the Company has combined the fiscal year end results without recasting Lexicon’s results. Accordingly, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2010 combines the Company’s audited consolidated statement of operations for the year ended December 31, 2010 with Lexicon’s audited consolidated statement of operations for the year ended March 31, 2011. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2011, combines the Company’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2011 with Lexicon’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2011. Lexicon’s results for the three months ended March 31, 2011 are included within both the full year and interim period pro forma results since Lexicon’s fiscal year-end is March 31st and the Company’s most recent interim period is June 30, 2011. These results included pre-tax income of approximately $12.0 million. These unaudited pro forma combined statements of operations are presented as if the Acquisition had occurred on January 1, 2010, the first day of the Company’s year ended December 31, 2010.
The unaudited pro forma condensed combined statement of financial condition as of June 30, 2011, combines the Company’s June 30, 2011 unaudited condensed consolidated statement of financial condition with Lexicon’s June 30, 2011 unaudited condensed consolidated statement of financial condition, and is presented as if the Acquisition had occurred on June 30, 2011.
The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial
1
statements should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial statements were based on and should be read in conjunction with the:
| • | separate historical financial statements as of the Company as of and for the year ended December 31, 2010 and the related notes included in Company’s Annual Report on Form 10-K for the year ended December 31, 2010; |
| • | separate historical financial statements of Lexicon as of and for the year ended March 31, 2011 and the related notes as of and for the year ended March 31, 2011, included herein, which includes a reconciliation from U.K. GAAP to U.S. GAAP; |
| • | separate historical financial statements of the Company as of and for the six months ended June 30, 2011 and the related notes included in the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2011. |
The financial information for Lexicon as of June 30, 2011 and for the six months ended June 30, 2011 was derived from the unaudited accounting records of Lexicon after making adjustments to convert this financial information to U.S. GAAP and accounting policies consistent with that of the Company.
The unaudited pro forma condensed combined financial information has been presented for informational purposes only. The unaudited pro forma condensed combined financial statements were prepared in accordance with regulations of the Securities and Exchange Commission and should not be considered indicative of the financial position or results of operations that would have occurred if the acquisition had been consummated on the dates indicated, nor are they indicative of the future financial position or results of operations of the combined company. There were no material transactions between the Company and Lexicon during the periods presented in the unaudited pro forma condensed combined financial statements that would need to be eliminated. The unaudited pro forma adjustments are based on currently available information and certain assumptions that we believe are reasonable and supportable.
The transaction consummated by the acquisition will be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) No. 805, Business Combinations. The acquisition accounting is dependent upon certain valuations and other studies that are currently subject to finalization. Accordingly, the pro forma adjustments included herein are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information and may be revised as additional information becomes available and as additional analyses are performed. Differences between these preliminary estimates reflected in these unaudited condensed combined financial statements and the final acquisition accounting may occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations, financial position and cash flows.
The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Acquisition or the costs to integrate the operations of the Company and Lexicon or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.
2
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2010
(UNAUDITED)
(dollars and share amounts in thousands, except per share data)
| The Lexicon Partnership LLP | ||||||||||||||||||||
| Evercore Partners Inc. |
UK GAAP | US GAAP Adjustments (1) |
Pro Forma Adjustments |
Pro Forma Combined |
||||||||||||||||
| Revenues |
||||||||||||||||||||
| Investment Banking Revenue |
$ | 301,931 | $ | 62,016 | $ | 1,033 | $ | — | $ | 364,980 | ||||||||||
| Investment Management Revenue |
77,579 | — | — | — | 77,579 | |||||||||||||||
| Other Revenue, Including Interest |
22,228 | 8,281 | — | (1,052 | )(b) | 29,457 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Revenues |
401,738 | 70,297 | 1,033 | (1,052 | ) | 472,016 | ||||||||||||||
| Interest Expense |
22,841 | 9 | — | — | 22,850 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Revenues |
378,897 | 70,288 | 1,033 | (1,052 | ) | 449,166 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Expenses |
||||||||||||||||||||
| Employee Compensation and Benefits |
251,917 | 41,777 | (22 | ) | 34,696 | (d) | 328,368 | |||||||||||||
| Occupancy and Equipment Rental |
18,329 | 2,868 | — | — | 21,197 | |||||||||||||||
| Professional Fees |
28,464 | 509 | — | — | 28,973 | |||||||||||||||
| Travel and Related Expenses |
16,593 | 1,631 | 1,032 | — | 19,256 | |||||||||||||||
| Communications and Information Services |
6,074 | 3,070 | — | — | 9,144 | |||||||||||||||
| Depreciation and Amortization |
10,077 | 331 | — | — | 10,408 | |||||||||||||||
| Acquisition and Transition Costs |
3,399 | — | — | — | 3,399 | |||||||||||||||
| Other Operating Expenses |
9,802 | 2,055 | (25 | ) | — | 11,832 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Expenses |
344,655 | 52,241 | 985 | 34,696 | 432,577 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income Before Income from Equity Method Investments and Income Taxes |
34,242 | 18,047 | 48 | (35,748 | ) | 16,589 | ||||||||||||||
| Income (Loss) from Equity Method Investments |
(557 | ) | — | — | — | (557 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income Before Income Taxes |
33,685 | 18,047 | 48 | (35,748 | ) | 16,032 | ||||||||||||||
| Provision for Income Taxes |
15,880 | 4,906 | 14 | (8,390 | )(g) | 12,410 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Income |
17,805 | 13,141 | 34 | (27,358 | ) | 3,622 | ||||||||||||||
| Net Income Attributable to Noncontrolling Interest |
8,851 | — | — | (7,216 | )(h) | 1,635 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Income Attributable to Evercore Partners Inc. |
$ | 8,954 | $ | 13,141 | $ | 34 | $ | (20,142 | ) | $ | 1,987 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Income Attributable to Evercore Partners Inc. Common Shareholders |
$ | 8,880 | $ | — | $ | — | $ | — | $ | 1,913 | ||||||||||
| Weighted Average Shares of Class A Common Stock Outstanding |
||||||||||||||||||||
| Basic |
19,655 | — | — | 28 | (e) | 19,683 | ||||||||||||||
| Diluted |
22,968 | — | — | 680 | (e) | 23,648 | ||||||||||||||
| Net Income Per Share Attributable to Evercore Partners Inc. Common Shareholders |
||||||||||||||||||||
| Basic |
$ | 0.45 | $ | — | $ | — | $ | — | $ | 0.10 | ||||||||||
| Diluted |
$ | 0.39 | $ | — | $ | — | $ | — | $ | 0.08 | ||||||||||
| (1) | See Note 19 to the separate historical financial statements of Lexicon as of and for the year ended March 31, 2011 and the related notes as of and for the year ended March 31, 2011, included herein, which includes a reconciliation from U.K. GAAP to U.S. GAAP. |
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
3
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2011
(UNAUDITED)
(dollars and share amounts in thousands, except per share data)
| The Lexicon Partnership LLP | ||||||||||||||||||||
| Evercore Partners Inc. |
UK GAAP | US GAAP Adjustments (1) |
Pro Forma Adjustments |
Pro Forma Combined |
||||||||||||||||
| Revenues |
||||||||||||||||||||
| Investment Banking Revenue |
$ | 197,748 | $ | 37,176 | $ | 485 | $ | — | $ | 235,409 | ||||||||||
| Investment Management Revenue |
54,960 | — | — | — | 54,960 | |||||||||||||||
| Other Revenue, Including Interest |
7,971 | 7,500 | — | (127 | )(b) | 15,344 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Revenues |
260,679 | 44,676 | 485 | (127 | ) | 305,713 | ||||||||||||||
| Interest Expense |
10,843 | 3 | — | — | 10,846 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Revenues |
249,836 | 44,673 | 485 | (127 | ) | 294,867 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Expenses |
||||||||||||||||||||
| Employee Compensation and Benefits |
171,024 | 25,858 | 129 | 15,679 | (d) | 212,690 | ||||||||||||||
| Occupancy and Equipment Rental |
10,917 | 1,454 | — | — | 12,371 | |||||||||||||||
| Professional Fees |
16,219 | 238 | — | — | 16,457 | |||||||||||||||
| Travel and Related Expenses |
10,013 | 871 | 485 | — | 11,369 | |||||||||||||||
| Communications and Information Services |
4,182 | 1,521 | — | — | 5,703 | |||||||||||||||
| Depreciation and Amortization |
6,062 | 183 | — | — | 6,245 | |||||||||||||||
| Acquisition and Transition Costs |
1,134 | — | — | (850 | )(a) | 284 | ||||||||||||||
| Other Operating Expenses |
7,943 | 1,222 | 29 | — | 9,194 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Expenses |
227,494 | 31,347 | 643 | 14,829 | 274,313 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income Before Income from Equity Method Investments and Income Taxes |
22,342 | 13,326 | (158 | ) | (14,956 | ) | 20,554 | |||||||||||||
| Income from Equity Method Investments |
469 | — | — | 469 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income Before Income Taxes |
22,811 | 13,326 | (158 | ) | (14,956 | ) | 21,023 | |||||||||||||
| Provision for Income Taxes |
10,235 | 4,942 | (44 | ) | (3,365 | )(g) | 11,768 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Income |
12,576 | 8,384 | (114 | ) | (11,591 | ) | 9,255 | |||||||||||||
| Net Income Attributable to Noncontrolling Interest |
6,727 | — | — | (1,323 | )(h) | 5,404 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Income Attributable to Evercore Partners Inc. |
$ | 5,849 | $ | 8,384 | $ | (114 | ) | $ | (10,268 | ) | $ | 3,851 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Income Attributable to Evercore Partners Inc. Common Shareholders |
$ | 5,807 | $ | — | $ | — | $ | — | $ | 3,809 | ||||||||||
| Weighted Average Shares of Class A Common Stock Outstanding |
||||||||||||||||||||
| Basic |
23,204 | — | — | 112 | (e) | 23,316 | ||||||||||||||
| Diluted |
26,956 | — | — | 1,167 | (e) | 28,123 | ||||||||||||||
| Net Income Per Share Attributable to Evercore Partners Inc. Common Shareholders |
||||||||||||||||||||
| Basic |
$ | 0.25 | $ | — | $ | — | $ | — | $ | 0.16 | ||||||||||
| Diluted |
$ | 0.22 | $ | — | $ | — | $ | — | $ | 0.14 | ||||||||||
| (1) | See Note 19 to the separate historical financial statements of Lexicon as of and for the year ended March 31, 2011 and the related notes as of and for the year ended March 31, 2011, included herein, which includes a reconciliation from U.K. GAAP to U.S. GAAP. |
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
4
PRO FORMA CONDENSED COMBINED
STATEMENT OF FINANCIAL CONDITION
AS OF JUNE 30, 2011
(UNAUDITED)
(dollars in thousands)
| The Lexicon Partnership LLP | ||||||||||||||||||||
| Evercore Partners Inc. |
UK GAAP | US GAAP Adjustments (1) |
Pro Forma Adjustments |
Pro Forma Combined |
||||||||||||||||
| Assets |
||||||||||||||||||||
| Current Assets |
||||||||||||||||||||
| Cash and Cash Equivalents |
$ | 204,449 | $ | 30,108 | $ | — | $ | (67,088 | )(c)(f)(i) | $ | 167,469 | |||||||||
| Marketable Securities |
73,456 | — | — | — | 73,456 | |||||||||||||||
| Financial Instruments Owned and Pledged as Collateral at Fair Value |
83,311 | — | — | — | 83,311 | |||||||||||||||
| Securities Purchased Under Agreements to Resell |
100,598 | — | — | — | 100,598 | |||||||||||||||
| Accounts Receivable |
83,088 | 7,688 | — | — | 90,776 | |||||||||||||||
| Receivable from Employees and Related Parties |
6,151 | 139 | — | — | 6,290 | |||||||||||||||
| Deferred Tax Assets - Current |
5,092 | 468 | (95 | ) | — | 5,465 | ||||||||||||||
| Other Current Assets |
16,540 | 2,457 | — | 2,346 | (i) | 21,343 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Current Assets |
572,685 | 40,860 | (95 | ) | (64,742 | ) | 548,708 | |||||||||||||
| Investments |
67,024 | — | — | — | 67,024 | |||||||||||||||
| Deferred Tax Assets - Non-Current |
182,550 | — | 111 | — | 182,661 | |||||||||||||||
| Furniture, Equipment and Leasehold Improvements |
14,605 | 402 | — | — | 15,007 | |||||||||||||||
| Goodwill |
140,777 | — | — | 42,163 | (c) | 182,940 | ||||||||||||||
| Intangible Assets |
44,785 | — | — | 7,164 | (c) | 51,949 | ||||||||||||||
| Assets Segregated for Bank Regulatory Requirements |
10,200 | — | — | — | 10,200 | |||||||||||||||
| Other Assets |
9,172 | 368 | — | — | 9,540 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Assets |
$ | 1,041,798 | $ | 41,630 | $ | 16 | $ | (15,415 | ) | $ | 1,068,029 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Liabilities and Equity |
||||||||||||||||||||
| Current Liabilities |
||||||||||||||||||||
| Accrued Compensation and Benefits |
$ | 63,129 | $ | 1,729 | $ | — | $ | — | $ | 64,858 | ||||||||||
| Accounts Payable and Accrued Expenses |
14,887 | 3,486 | 128 | — | 18,501 | |||||||||||||||
| Securities Sold Under Agreements to Repurchase |
184,062 | — | — | — | 184,062 | |||||||||||||||
| Payable to Employees and Related Parties |
4,031 | 1,416 | — | — | 5,447 | |||||||||||||||
| Taxes Payable |
1,566 | 3,997 | — | — | 5,563 | |||||||||||||||
| Other Current Liabilities |
16,698 | 10,115 | (70 | ) | 9,274 | (c) | 36,017 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Current Liabilities |
284,373 | 20,743 | 58 | 9,274 | 314,448 | |||||||||||||||
| Notes Payable |
98,858 | — | — | — | 98,858 | |||||||||||||||
| Amounts Due Pursuant to Tax Receivable Agreements |
142,422 | — | — | — | 142,422 | |||||||||||||||
| Other Long-term Liabilities |
16,455 | 8,072 | — | (8,318 | )(f) | 16,209 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Liabilities |
542,108 | 28,815 | 58 | 956 | 571,937 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Redeemable Noncontrolling Interest |
25,448 | — | — | — | 25,448 | |||||||||||||||
| Equity |
||||||||||||||||||||
| Evercore Partners Inc. Stockholders’ Equity |
||||||||||||||||||||
| Common Stock |
||||||||||||||||||||
| Class A, par value $0.01 per share |
284 | — | — | — | 284 | |||||||||||||||
| Class B, par value $0.01 per share |
— | — | — | — | — | |||||||||||||||
| Additional Paid-In-Capital/Members’ Capital |
530,106 | 12,812 | (48 | ) | (12,107 | )(c) | 530,763 | |||||||||||||
| Accumulated Other Comprehensive Income (Loss) |
(2,626 | ) | 3 | 6 | — | (2,617 | ) | |||||||||||||
| Retained Earnings (Deficit) |
(64,907 | ) | — | — | (2,995 | )(i) | (67,902 | ) | ||||||||||||
| Treasury Stock at Cost |
(51,288 | ) | — | — | — | (51,288 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Evercore Partners Inc. Stockholders’ Equity |
411,569 | 12,815 | (42 | ) | (15,102 | ) | 409,240 | |||||||||||||
| Noncontrolling Interest |
62,673 | — | — | (1,269 | )(i) | 61,404 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Equity |
474,242 | 12,815 | (42 | ) | (16,371 | ) | 470,644 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Liabilities and Equity |
$ | 1,041,798 | $ | 41,630 | $ | 16 | $ | (15,415 | ) | $ | 1,068,029 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (1) | See Note 19 to the separate historical financial statements of Lexicon as of and for the year ended March 31, 2011 and the related notes as of and for the year ended March 31, 2011, included herein, which includes a reconciliation from U.K. GAAP to U.S. GAAP. |
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
5
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Note 1 – Transaction Description
On August 19, 2011, the Company completed its previously announced acquisition of all of the outstanding partnership interests of Lexicon, in accordance with the definitive sale and purchase agreement entered into on June 7, 2011, for consideration consisting of cash and stock. In the aggregate, the sellers will receive approximately £46,142, or $76,167, in cash and 1,911,360 shares of the Company’s Class A common stock, par value $0.01 per share (“Class A Shares”). Of the total consideration, £31,598, or $52,160, in cash was paid and 27,867 Class A Shares were issued to the sellers at closing, and approximately £5,619, or $9,274, in cash will be paid to the sellers on December 31, 2011.
Payment of the remaining approximately £8,925, or $14,733, in cash and 1,883,493 Class A Shares will be deferred and will vest in various installments over a four-year future service period. Accordingly, these amounts will be expensed over the vesting period. This deferred consideration, whether in the form of Class A Shares or cash, upon vesting, will be delivered to the sellers on the earlier of (i) the first anniversary of the relevant vesting date and (ii) the date of the first secondary offering by the Company following the relevant vesting date. Vesting of the Class A Shares and cash consideration will accelerate in certain circumstances, including, but not limited to, a seller’s termination without cause, a qualifying retirement or upon a change of control.
In addition, upon closing the Company funded the repayment of £5,039, or $8,318, of outstanding Lexicon capital notes.
Note 2 – Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared using U.S. GAAP and was based on the historical consolidated financial statements of the Company and Lexicon. All pro forma financial statements use the Company’s period end date and no adjustments were made to Lexicon’s reported information for its different period end dates for the year ended statement of operations.
The acquisition method of accounting is based on the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Subtopic 805-10, Business Combinations, and uses the fair value concepts defined in ASC Subtopic 820-10, Fair Value Measurements and Disclosures, which the Company has adopted as required. The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under U.S. GAAP. ASC Subtopic 805-10 requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. In addition, ASC Subtopic 805-10 establishes that the consideration transferred be measured at the closing date of the Acquisition at the then-current market price.
ASC Subtopic 820-10 defines the term “fair value” and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined in ASC Subtopic 820-10 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in
6
the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. As a result of these standards, the Company may be required to record assets which are not intended to be used or sold and/or to value assets at fair value measures that do not reflect the Company’s intended use of those assets. Many of these fair value measurements can be highly subjective and it is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.
Under the acquisition method of accounting, the assets acquired and liabilities assumed will be recorded as of the completion of the Acquisition, at their respective fair values and added to those of the Company. Financial statements and reported results of operations of the Company issued after completion of the Acquisition will reflect these values, but will not be retroactively restated to reflect the historical financial position or results of operations of Lexicon.
Under ASC Subtopic 805-10, acquisition-related transaction costs ( i.e., advisory, legal, valuation, and other professional fees) and certain acquisition-related restructuring charges impacting the target company are not included as a component of consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. The unaudited pro forma condensed combined financial statements do not reflect any acquisition-related restructuring charges incurred in connection with the Acquisition but these costs will be expensed as incurred. Acquisition-related transaction costs were $850 for the six months ended June 30, 2011.
The historical unaudited condensed combined statement of financial condition for Lexicon was prepared in British pounds and has been translated to U. S. Dollars using a rate of $1.602, which approximates the British pound conversion rate to U.S. Dollars on June 30, 2011. The Lexicon historical audited condensed combined statement of operations for the year ended March 31, 2011 and unaudited condensed combined statement of operations for the six months ended June 30, 2011 have been translated to U.S. Dollars using exchange rates of $1.556 and $1.616, respectively, which approximate the average British pound conversion rate to U.S. Dollars for the applicable period. The pro forma adjustments have been translated to U.S. Dollars using an exchange rate of $1.651, which approximates the British pound conversion rate to U.S. Dollars on August 19, 2011, at the time of the closing of the transaction.
Note 3 – Significant Accounting Policies
At this time, the Company is not aware of any differences that would have a material impact on the combined financial statements. The unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies.
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NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
Note 4 – Consideration Transferred
In accordance with U.S. GAAP, the fair value of the Company’s class A common stock issued as part of the consideration transferred was measured on the closing date of the Acquisition at the then-current market price. The following provides a reasonable indication of consideration transferred to effect the acquisition of Lexicon:
| Shares Issued | Share Price | Fair Value | ||||||||||
| Transferred At Closing: |
||||||||||||
| Cash |
$ | 52,160 | ||||||||||
| Class A Common Stock (1) |
27,867 | $ | 22.81 | 636 | ||||||||
| Fair Value of Deferred Cash Consideration (2) |
9,274 | |||||||||||
|
|
|
|||||||||||
| Total Consideration Transferred at Closing |
$ | 62,070 | ||||||||||
|
|
|
|||||||||||
| (1) | Value of Class A Common Stock determined utilizing closing share price on August 19, 2011. |
| (2) | Deferred cash consideration was not discounted and the effect of discounting would have an immaterial effect as amounts will be paid at December 31, 2011. |
Note 5 – Assets Acquired and Liabilities Assumed
The following is a summary of the assets acquired and liabilities assumed by the Company in the Acquisition as if it had occurred on June 30, 2011:
| Fair Value of Assets Acquired and Liabilities Assumed: |
||||
| Cash and Cash Equivalents |
$ | 21,812 | ||
| Accounts Receivable |
7,821 | |||
| Prepaid Expenses |
11,627 | |||
| Fixed Assets |
429 | |||
| Other Assets |
964 | |||
| Intangible Assets |
7,164 | |||
| Current Liabilities |
(21,592 | ) | ||
| Long-term Debt |
(8,318 | ) | ||
|
|
|
|||
| Identifiable Net Assets |
$ | 19,907 | ||
|
|
|
Note 6 – Pro Forma Adjustments
Adjustments included in the column under the heading “Pro Forma Adjustments” represent the following:
| (a) | To reflect advisory and legal costs incurred, which are directly attributable to the Acquisition, but which are not expected to have a continuing impact on the combined company’s results, as a reduction from Acquisition and Transition Costs on the Statement of Operations of $850 for the six months ended June 30, 2011. |
| (b) | To reflect the estimate of forgone interest and investment income on the combined company’s cash and cash equivalents used to effect the Acquisition, for both the initial cash consideration paid as well as the cash used to redeem Lexicon’s capital notes, as a decrease in Other Revenue, Including Interest, on the Statement of Operations of $1,052 and $127 for the twelve months ended December 31, 2010 and six months ended June 30, 2011, respectively. These estimates were based on the actual yields earned on the Company’s cash and cash equivalents for the year ended December 31, 2010 and six months ended June 30, 2011. |
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NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
| (c) | To reflect the consideration transferred in conjunction with the Acquisition, Goodwill and Intangible Assets, based on a preliminary purchase price allocation. These adjustments resulted in a decrease to Cash and Cash Equivalents of $52,160, an increase in Goodwill of $42,163, an increase in Intangible Assets of $7,164, an increase to Other Current Liabilities of $9,274 and a net decrease to Additional Paid-in-Capital/Members’ Capital of $12,107, on the Statement of Financial Condition. |
| Amount | ||||
| Purchase Price: |
||||
| Cash Paid |
$ | 52,160 | ||
| Fair Value of Shares Issued |
636 | |||
| Fair Value of Deferred Cash Consideration |
9,274 | |||
|
|
|
|||
| Total Fair Value of Purchase Price |
62,070 | |||
|
|
|
|||
| Fair Value of Assets Acquired and Liabilities Assumed: |
||||
| Cash and Cash Equivalents |
21,812 | |||
| Accounts Receivable |
7,821 | |||
| Prepaid Expenses |
11,627 | |||
| Fixed Assets |
429 | |||
| Other Assets |
964 | |||
| Intangible Assets |
7,164 | |||
| Current Liabilities |
(21,592 | ) | ||
| Long-term Debt |
(8,318 | ) | ||
|
|
|
|||
| Identifiable Net Assets |
19,907 | |||
|
|
|
|||
| Goodwill Resulting from Business Combination |
$ | 42,163 | ||
|
|
|
|||
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NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
| (d) | To reflect compensation awarded in conjunction with the Acquisition on the Statement of Operations: |
| i. | Amortization of Restricted Stock and Deferred Cash Awards: |
| Amortization | ||||||||
| Twelve Months Ended December 31, 2010 |
Six Months Ended June 30, 2011 |
|||||||
| Restricted Stock Awards (1,883,493 shares at $22.735 per share) |
$ | 18,084 | $ | 7,980 | ||||
| Deferred Cash Awards (Total deferred cash awards of $14,733) |
$ | 6,762 | $ | 2,942 | ||||
Note: Awards vest under graded vesting in various installments over a four-year period. The Company utilized the average of the high and low share price on August 19, 2011.
| ii. | Amortization of Retention Awards: |
| Amortization | ||||||||
| Twelve Months Ended December 31, 2010 |
Six Months Ended June 30, 2011 |
|||||||
| Share-based Retention Awards (135,138 shares at $22.735 per share) |
$ | 1,419 | $ | 713 | ||||
| Cash-based Retention Awards (Total cash-based retention awards of $1,892) |
$ | 1,183 | $ | 420 | ||||
Note: Share-based Awards and Cash-based Awards vest over a four-year period and two-year period, respectively, from the date of the transaction. The Company utilized the average of the high and low share price on August 19, 2011.
| iii. | To reflect other compensation adjustments for Lexicon employees of approximately $7,248 and $3,624 for the twelve months ended December 31, 2010 and six months ended June 30, 2011, respectively. |
| (e) | To reflect in the Company’s weighted average shares of Class A common stock outstanding, 27,867 Class A Shares issued at closing as part of the purchase price, and the dilutive effects under the Treasury Stock Method of 1,883,493 deferred Class A Shares, which were issued to the sellers at closing as part of the initial consideration, treated as compensation, and 135,138 restricted stock units issued to Lexicon employees as retention awards, all of which are assumed outstanding for the full year ended December 31, 2010 and the six months ended June 30, 2011. |
| (f) | To reflect the redemption of Lexicon’s capital notes, resulting in a decrease in Cash and Cash Equivalents and Other Long-term Liabilities of $8,318 on the Statement of Financial Condition. |
| (g) | To reflect income tax adjustments associated with the Pro Forma Adjustments and the fact that Lexicon is now under a U.S. corporate holding company. The Company assumed a combined U.S. federal and state statutory rate of 40% and 41%, for the twelve months ended December 31, 2010 and six months ended June 30, 2011, respectively, when estimating all tax impacts of the acquisition. The effective tax rate of the combined company could be significantly different than the rates assumed for purposes of preparing these pro forma financials for a variety of factors, including post-acquisition activities. |
10
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
| (h) | To reflect the impact on Noncontrolling Interest for the Company’s immediate contribution of Lexicon to Evercore LP, a Delaware limited partnership, for which the Company’s economic interest was 67% and 80% for the twelve months ended December 31, 2010 and six months ended June 30, 2011, respectively. The Noncontrolling Interest adjustment is computed based on the after-tax effect of Lexicon’s earnings and the pro forma adjustments impacting Evercore LP and its subsidiaries. |
| (i) | To reflect expenses incurred in conjunction with the acquisition, and related tax effects, of $1,915 related to the payment of the cash-based retention awards, $1,895 related to an introducing fee and $2,800 related to other cash compensation adjustments. These expenses resulted in a decrease to Cash and Cash Equivalents of $6,610, an increase in Other Current Assets of $2,346, a decrease in Retained Earnings of $2,995 and a decrease in Noncontrolling Interest of $1,269 on the Statement of Financial Condition. |
Note 7 – Amortization of Intangible Assets
The above adjustments exclude the impact of amortization expenses of $7,164 associated with the intangible assets identified in connection with the Acquisition. The intangible assets acquired in the acquisition represent customer related intangible assets, which have an estimated useful life of six months.
11