e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2010.
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission file number
001-32147
GREENHILL & CO.,
INC.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
(State or Other Jurisdiction
of Incorporation or Organization)
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51-0500737
(I.R.S. Employer
Identification No.)
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300 Park Avenue
New York, New York
(Address of Principal Executive
Offices)
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10022
(ZIP Code)
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Registrants telephone number, including area code:
(212) 389-1500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes x No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes x No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes x No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer x
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No x
The aggregate market value of the common stock held by
non-affiliates of the registrant, computed by reference to the
closing price as of the last business day of the
registrants most recently completed second fiscal quarter,
June 30, 2010, was approximately $1.652 million. The
registrant has no non-voting stock.
As of February 23, 2011, 29,658,014 shares of the
Registrants common stock were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy statement to
be delivered to stockholders in connection with the 2011 annual
meeting of stockholders to be held on April 20, 2011 are
incorporated by reference in response to Part III of this
Report.
PART I
When we use the terms Greenhill, we,
us, our, the company, and
the firm, we mean Greenhill & Co., Inc., a
Delaware corporation, and its consolidated subsidiaries. Our
principal financial advisory subsidiaries are
Greenhill & Co., LLC, a registered broker-dealer
regulated by the Securities and Exchange Commission which
provides investment banking and capital advisory services in
North America; Greenhill & Co. International LLP,
which provides investment banking and capital advisory services
in Europe and is regulated by the United Kingdom Financial
Services Authority; Greenhill & Co. Europe LLP which
provides investment banking services in Europe and is regulated
by the United Kingdom Financial Services Authority; Greenhill
Caliburn Pty Limited, which provides investment banking services
in Australia and is regulated by the Australian Securities and
Investment Commission, and Greenhill & Co. Canada Ltd.
and Greenhill & Co. Japan Ltd., each of which provides
investment banking services in Canada and Japan, respectively.
Our principal merchant banking subsidiaries are Greenhill
Capital Partners, LLC and Greenhill Venture Partners, LLC, each
of which is a registered investment adviser regulated by the
Securities and Exchange Commission through which we conducted
our North American merchant banking business; and Greenhill
Capital Partners Europe LLP, an investment adviser regulated by
the United Kingdom Financial Services Authority though which we
conducted our European merchant banking business.
Overview
Greenhill is a leading independent investment bank focused on
providing financial advice on significant mergers, acquisitions,
restructurings, financings and capital raising to corporations,
partnerships, institutions and governments. We act for clients
located throughout the world from our offices in New York,
London, Frankfurt, Sydney, Tokyo, Toronto, Chicago, Dallas,
Houston, Los Angeles, Melbourne and San Francisco.
We were established in 1996 by Robert F. Greenhill, the former
President of Morgan Stanley and former Chairman and Chief
Executive Officer of Smith Barney. Since our founding, Greenhill
has grown steadily, recruiting a number of managing directors
from major investment banks (as well as senior professionals
from other institutions), with a range of geographic, industry
and transaction specialties as well as different sets of
corporate management and other relationships. As part of this
expansion, we opened a London office in 1998, opened a Frankfurt
office in 2000 and began offering financial restructuring advice
in 2001. On May 11, 2004, we converted from a limited
liability company to a corporation, and completed an initial
public offering of our common stock. We opened our Dallas office
in 2005 and our Toronto office in 2006. In 2008, we opened
offices in Chicago, San Francisco and Tokyo, and we entered
the private capital advisory business, which provides capital
raising and related services to private equity and real estate
funds. We opened our Houston and Los Angeles offices in 2009. In
2010, we acquired Caliburn Partnership Pty Limited
(Caliburn or Greenhill Caliburn), with
offices in Sydney and Melbourne.
Prior to 2011, we also managed merchant banking funds and
similar vehicles. We raised our first private equity fund in
2000, our first venture capital fund in 2006 and our first
European merchant banking fund in 2007. We completed the initial
public offering of our special purpose acquisition company, GHL
Acquisition Corp., in 2008, and that entity merged with Iridium
Communications, Inc. (Iridium) in 2009. Following
our exit from this business in 2010, we retain our historical
principal investments in the merchant banking funds and Iridium
and intend to liquidate those investments over time.
As of December 31, 2010, we had 323 employees
globally, including 65 managing directors and 11 senior
advisors who were all dedicated to our financial advisory
business.
1
Principal
Sources of Revenue
Our principal sources of revenues are financial advisory and,
historically, merchant banking.
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For the Year Ended December 31,
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2010
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2009
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2008
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2007
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2006
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(In millions)
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Financial advisory fees
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$
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252.2
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$
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216.0
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$
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218.2
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$
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366.7
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$
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209.8
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Merchant banking and other
revenues(1)(2)
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26.1
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82.6
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3.7
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33.7
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80.8
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Total revenues
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$
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278.3
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$
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298.6
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$
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221.9
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$
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400.4
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$
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290.6
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(1) |
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Effective at the close of business on December 31, 2010, we
completed our separation from the historic merchant banking
business and we ceased earning management fees. We retained our
existing portfolio of investments and consequently we will
continue to recognize gains and losses on those investments
until liquidated. |
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(2) |
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In addition to management fees, merchant banking and other
revenues includes (i) unrealized gains from our investment
in Iridium (formerly GHL Acquisition Corp.) of
$5.0 million, $42.2 million and $2.6 million in
2010, 2009 and 2008, respectively, (ii) gains of
$1.1 million and $21.8 million in 2010 and 2009,
respectively, from the sale of certain assets of the merchant
banking business, and (iii) interest income of
$0.4 million, $0.3 million, $3.6 million,
$5.4 million, and $3.1 million in 2010, 2009, 2008,
2007, and 2006 respectively. See Management Discussion and
Analysis of Financial Condition and Results of
Operations Results of Operations- Merchant Banking
and Other Investment Revenues. |
Financial
Advisory
We provide financial advisory services in connection with
mergers and acquisitions, financings, restructurings, and
capital raisings. For all of our financial advisory services, we
draw on the extensive experience, corporate relationships and
industry expertise of our managing directors and senior advisors.
On mergers and acquisitions engagements, we provide a broad
range of advice to global clients in relation to domestic and
cross-border mergers, acquisitions, and similar corporate
finance matters and are generally involved at each stage of
these transactions, from initial structuring to final execution.
Our focus is on providing high-quality advice to senior
executive management and boards of directors of prominent large
and mid-cap companies and governments in transactions that
typically are of the highest strategic and financial importance
to those organizations. We advise clients on strategic matters,
including acquisitions, divestitures, defensive tactics, special
committee projects and other important corporate events. We
provide advice on valuation, tactics, industry dynamics,
structuring alternatives, timing and pricing of transactions,
and financing alternatives. Where requested to do so, we may
provide an opinion regarding the fairness of a transaction.
In our financing advisory and restructuring practice, we advise
debtors, creditors and companies experiencing financial distress
as well as potential acquirers of distressed companies and
assets. We provide advice on valuation, restructuring
alternatives, capital structures, and sales or
recapitalizations. We also assist those clients who seek
court-assisted reorganizations by developing and seeking
approval for plans of reorganization as well as the
implementation of such plans.
In our private capital and real estate capital advisory business
we assist fund managers and sponsors in raising capital for new
funds and provide related advisory services to private equity
and real estate funds and other organizations globally.
Financial advisory revenues accounted for 91% and 72% of our
total revenues in 2010 and 2009, respectively.
Non-U.S. clients
are a significant part of our business, generating 46% and 38%
of our financial advisory revenues in 2010 and 2009,
respectively. We generate revenues from our financial advisory
services by charging our clients fees consisting principally of
fees paid upon the commencement of an engagement, fees paid upon
the announcement of a transaction, fees paid upon the
2
successful conclusion of a transaction or closing of a fund
(which generally represent the largest portion of our advisory
fees) and, in connection principally with restructuring
assignments, monthly retainer fees.
Merchant
Banking and Other Investments
We exited the merchant banking business on December 31,
2010. Prior to that time, our merchant banking activities
consisted primarily of management of and investment in
Greenhills merchant banking funds, Greenhill Capital
Partners I (or GCP I), Greenhill Capital
Partners II (or GCP II, and collectively with
GCP I, Greenhill Capital Partners or
GCP), Greenhill SAV Partners (or GSAVP)
and Greenhill Capital Partners Europe (or GCP
Europe), which are families of merchant banking funds.
Merchant banking funds are private investment funds raised from
contributions by qualified institutional investors and
financially sophisticated individuals that generally make
investments in non-public companies, typically with a view
toward divesting within 3 to 5 years. At the time of our
exit, GCP Capital Partners Holdings LLC (GCP
Capital), an entity which is independent from the firm,
took over the management of our merchant banking funds. The firm
retained its investments in the merchant banking funds and
Iridium.
Merchant banking and other investment revenues accounted for 9%
and 28% of our revenues in 2010 and 2009, respectively. In the
past, we generated merchant banking revenue from
(i) management fees paid by the funds we managed,
(ii) gains (or losses) on our investments in the merchant
banking funds and other investments, principally Iridium, and
(iii) merchant banking profit overrides. Beginning in 2011,
we no longer generate management fees; however, we will continue
to generate investment revenue principally from gains (or
losses) on the existing investments in the merchant banking
funds and Iridium until these investments are liquidated.
Employees
Our managing directors and senior advisors have an average of
25 years of relevant experience, which they use to advise
on mergers and acquisitions, financing advisory and
restructuring transactions, and capital raising. We spend
significant amounts of time training and mentoring our junior
professionals. We generally provide our junior professionals
with exposure to mergers and acquisitions and financing advisory
and restructurings to varying degrees, which provides us with
the flexibility to allocate resources depending on the economic
environment, and provides our bankers consistent transactional
experience and a wide variety of experiences to assist in the
development of business and financial judgment.
As of December 31, 2010, Greenhill employed a total of
323 people (including our managing directors and senior
advisors) in our financial advisory business, of which 180 were
located in our North American offices, 85 were based in our
European offices, 45 in our Australian offices, and 13 in our
Japanese office. In addition, during 2010 we had
28 employees dedicated to our merchant banking activities,
one of whom remains a senior advisor to Greenhill, and the
remainder of whom ceased to be our employees on January 1,
2011. The vast majority of our accounting, operational and
administrative employees are located in the United States. We
strive to maintain a work environment that fosters
professionalism, excellence, diversity, and cooperation among
our employees worldwide. We utilize a comprehensive evaluation
process at the end of each year to measure performance,
determine compensation and provide guidance on opportunities for
improved performance.
Competition
As an investment bank providing financial advisory services we
operate in a highly competitive environment where there are no
long-term contracted sources of revenue. Each revenue-generating
engagement is separately awarded and negotiated. Our list of
clients with whom there is an active revenue-generating
engagement changes continually. To develop new client
relationships, and to develop new engagements from historic
client relationships, we maintain a business dialogue with a
3
large number of clients and potential clients, as well as with
their financial and legal advisors, on an ongoing basis. We have
gained a significant number of new clients each year through our
business development initiatives, through recruiting additional
senior investment banking professionals who bring with them
client relationships and expertise in certain industry sectors
and through referrals from members of boards of directors,
attorneys and other parties with whom we have relationships. At
the same time, we lose clients each year as a result of the sale
or merger of a client, a change in a clients senior
management, competition from other investment banks and other
causes.
The financial services industry is intensely competitive, and we
expect it to remain so. Our competitors are global universal
banking firms, mid-sized full service financial firms and
specialized financial advisory firms. We compete with some of
our competitors globally and with others on a regional, product
or niche basis. We compete on the basis of a number of factors,
including transaction execution skills, our range of products
and services, innovation, reputation and price.
Over the years there has been substantial consolidation and
convergence among companies in the financial services industry.
In particular, a number of large commercial banks, insurance
companies and other broad-based financial services firms have
established or acquired broker-dealers or have merged with other
financial institutions. Many of these firms have the ability to
offer a wider range of products, from loans, deposit-taking and
insurance to brokerage, asset management and investment banking
services, which may enhance their competitive position. They
also have the ability to support their investment banking
operations with commercial banking, insurance and other
financial services revenues in an effort to gain market share,
which could result in pricing pressure in our businesses. This
trend toward consolidation and convergence has significantly
increased the capital base and geographic reach of our
competitors. In addition to our larger competitors, over the
last few years, a number of new, smaller independent boutique
investment banks have emerged which offer independent advisory
services on a model similar to ours and some of these firms have
grown rapidly.
We believe our primary competitors in securing mergers and
acquisitions and financing advisory and restructuring
engagements are diversified financial institutions including
Bank of America Corporation, Barclays Bank PLC, Citigroup Inc.,
Credit Suisse, Deutsche Bank AG, Goldman Sachs Group, Inc.,
JPMorgan Chase & Co., Morgan Stanley, UBS A.G. as well
as other investment banking firms such as Blackstone Group,
Evercore Partners Inc., Jefferies Group, Inc., Lazard Ltd. and
many closely held independent firms. We believe our primary
competitors in securing private capital advisory engagements are
Credit Suisse, Lazard Ltd., Park Hill, and UBS A.G.
Competition is also intense for the hiring and retention of
qualified employees. Our ability to continue to compete
effectively in our business will depend upon our ability to
attract new employees and retain and motivate our existing
employees.
Regulation
Our business, as well as the financial services industry
generally, is subject to extensive regulation in the United
States, Europe, Australia and elsewhere. As a matter of public
policy, regulatory bodies in the United States and the rest of
the world are charged with safeguarding the integrity of the
securities and other financial markets and with protecting the
interests of customers participating in those markets. In the
United States, the Securities and Exchange Commission
(SEC) is the federal agency responsible for the
administration of the federal securities laws.
Greenhill & Co., LLC, a wholly-owned subsidiary of
Greenhill through which we conduct our U.S. financial
advisory business, is registered as a broker-dealer with the SEC
and the Financial Industry Regulatory Authority
(FINRA), and is licensed in all 50 states and
the District of Columbia. Greenhill & Co., LLC is
subject to regulation and oversight by the SEC. In addition,
FINRA, a self-regulatory organization that is subject to
oversight by the SEC, adopts and enforces rules governing the
conduct, and examines the activities, of its member firms,
including Greenhill & Co., LLC. State and local
securities regulators also have regulatory or oversight
authority over Greenhill & Co., LLC.
Greenhill & Co. LLC is also registered as a municipal
advisor with the SEC and the Municipal Securities Rulemaking
Board.
4
Similarly, Greenhill & Co. International LLP and
Greenhill & Co. Europe LLP, our controlled affiliated
partnerships with offices in the United Kingdom and Germany,
respectively, through which we conduct our European financial
advisory business, are licensed by and also subject to
regulation by the United Kingdoms Financial Services
Authority (FSA). Greenhill Caliburn, our Australian
subsidiary, is licensed and subject to regulation by the
Australian Securities and Investment Commission
(ASIC). Our business may also be subject to
regulation by other governmental and regulatory bodies and
self-regulatory authorities in other countries where Greenhill
operates.
Broker-dealers are subject to regulations that cover all aspects
of the securities business, including sales methods, trade
practices among broker-dealers, use and safekeeping of
customers funds and securities, capital structure,
record-keeping, the financing of customers purchases and
the conduct and qualifications of directors, officers and
employees. Additional legislation, changes in rules promulgated
by self-regulatory organizations or changes in the
interpretation or enforcement of existing laws and rules, either
in the United States or elsewhere, may directly affect the mode
of operation and profitability of Greenhill.
The U.S. and
non-U.S. government
agencies and self-regulatory organizations, as well as state
securities commissions in the United States, are empowered to
conduct administrative proceedings that can result in censure,
fine, the issuance of
cease-and-desist
orders or the suspension or expulsion of a broker-dealer or its
directors, officers or employees.
In addition, Greenhill Capital Partners, LLC and Greenhill
Venture Partners, LLC, our wholly owned affiliates, which
operated as and will continue to operate as general partners of
GCP I, GCP II, and GSAVP, are registered investment
advisers under the Investment Advisers Act of 1940. As such,
they are subject to regulation and periodic examinations by the
SEC. Greenhill Capital Partners Europe LLP is licensed by and
subject to regulation by the FSA.
Where You
Can Find Additional Information
Greenhill & Co., Inc. files current, annual and
quarterly reports, proxy statements and other information
required by the Securities Exchange Act of 1934, as amended (the
Exchange Act), with the SEC. You may read and copy
any document the company files at the SECs public
reference room located at 100 F Street, N.E.,
Washington, D.C. 20549, U.S.A. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. The
firms SEC filings are also available to the public from
the SECs internet site at
http://www.sec.gov.
Copies of these reports, proxy statements and other information
can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005,
U.S.A.
Our public internet site is
http://www.greenhill.com.
We make available free of charge through our internet site, via
a link to the SECs internet site at
http://www.sec.gov,
our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements and Forms 3, 4 and 5 filed on behalf of
directors and executive officers and any amendments to those
reports filed or furnished pursuant to the Exchange Act as soon
as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Also posted on our
website in the Corporate Governance section, and
available in print upon request of any stockholder to our
Investor Relations Department, are charters for our Audit
Committee, Compensation Committee and Nominating &
Corporate Governance Committee, our Corporate Governance
Guidelines, Related Party Transaction Policy and Code of
Business Conduct & Ethics governing our directors,
officers and employees. You may need to have Adobe Acrobat
Reader software installed on your computer to view these
documents, which are in PDF format.
5
Our
ability to retain our senior managing directors is critical to
the success of our business
The success of our business depends upon the personal
reputation, judgment, business generation capabilities and
project execution skills of our managing directors and senior
advisors, particularly our senior managing directors. Founded in
1996, our business has a more limited operating history than
many of our competitors and, as a result, our managing
directors personal reputations and relationships with our
clients are a critical element in obtaining and maintaining
client engagements, and forming and investing merchant banking
funds. Accordingly, the retention of our managing directors is
particularly crucial to our future success. The departure or
other loss of Mr. Greenhill, our founder and Chairman,
Scott L. Bok, our Chief Executive Officer, the regional heads of
businesses in North America, Europe, Australia, or Japan,
or the departure or other loss of other senior managing
directors, each of whom manages substantial client relationships
and possesses substantial experience and expertise, could
materially adversely affect our ability to secure and
successfully complete engagements, which would materially
adversely affect our results of operations.
In addition, if any of our managing directors were to join an
existing competitor or form a competing company, some of our
clients could choose to use the services of that competitor
instead of our services. There is no guarantee that the
compensation arrangements and non-competition agreements we have
entered into with our managing directors are sufficiently broad
or effective to prevent our managing directors from resigning to
join our competitors or that the non-competition agreements
would be upheld if we were to seek to enforce our rights under
these agreements.
A
significant portion of our revenues are derived from financial
advisory fees
We have historically earned a significant portion of our
revenues from financial advisory fees paid to us by our clients,
in large part upon the successful completion of the
clients transaction, restructuring or fund raising.
Financial advisory revenues represented 91% and 72% of our total
revenues in 2010 and 2009, respectively. Unlike diversified
investment banks, which generate revenues from securities
trading and underwriting, our only other source of revenue is
gains or losses which we may generate from our investments in
merchant banking funds or Iridium, which will decline over time
as we liquidate our investments. As a result, a decline in our
financial advisory engagements or the market for advisory
services generally would have a material adverse effect on our
business and results of operations.
We
generate a significant portion of our revenues from our services
in connection with mergers and acquisitions and we have not
historically been able to offset a decline in revenues from
merger and acquisition services with revenues from our financing
advisory and restructuring services
During a period when mergers and acquisitions activity declines
and debt defaults increase, we increasingly rely on financing
advisory and restructuring and bankruptcy services as a source
of new business. We provide various restructuring and
restructuring-related advice to companies in financial distress
or their creditors or other stakeholders. A number of factors
affect demand for these advisory services, including general
economic conditions and the availability and cost of debt and
equity financing. Presently, our financing advisory and
restructuring business is significantly smaller than our mergers
and acquisitions advisory business, and we have been unable to
offset declines in mergers and acquisitions revenue with revenue
generated from financing advisory and restructuring assignments
and expect that we will be unlikely to do so in the foreseeable
future. Despite adverse market conditions, the number of debt
defaults has remained limited, diminishing our ability to
generate revenue from financing advisory and restructuring
activities. To the extent that there is limited debt default
activity our ability to generate revenue from financing advisory
and restructuring activities may be adversely affected.
6
Our
business has been adversely affected by difficult market
conditions and may continue to be adversely affected by market
uncertainty, disruptions in the credit markets and other
unfavorable economic, geopolitical or market
conditions
Adverse market or economic conditions would likely affect the
number, size and timing of transactions on which we provide
mergers and acquisitions advice and therefore adversely affect
our financial advisory fees. As demonstrated over the past few
years, economic uncertainty, slow economic growth and weak
financial markets negatively impact merger and acquisition
activity. Our clients engaging in mergers and acquisitions often
rely on access to the credit markets to finance their
transactions. The lack of available credit and the increased
cost of credit can adversely affect the size, volume, timing and
ability of our clients to successfully complete merger and
acquisition transactions and adversely affect our financial
advisory business. Furthermore, market volatility also affects
our clients ability and willingness to engage in
stock-for-stock
transactions.
While we operate in North America, Europe, Australia, and Asia
our operations in the United States and Europe historically
have provided most of our revenues and earnings. Consequently,
our revenues and profitability are particularly affected by
economic conditions in these locations.
Adverse market or economic conditions, including continuing
volatility in the commodities markets, limited access to credit
as well as a slowdown of economic activity could also adversely
affect the business operations of those companies in which we
have investments, and therefore, our earnings. In addition,
during a market downturn, there may be fewer opportunities to
exit and realize value from our investments in merchant banking
funds and Iridium.
Our
private capital and real estate capital advisory business is
dependent on the availability of private capital for deployment
in illiquid asset classes such as private equity and real estate
funds
In our private capital and real estate capital advisory business
we assist fund managers and sponsors in raising capital for new
funds. Our ability to find suitable engagements and earn fees in
this business depends on the availability of private and public
capital for investments in illiquid assets such as private
equity and real estate funds. Following the onset of the current
financial crisis, there has been a shortage of such capital, and
far fewer new funds are being raised today than in the period
preceding the crisis. In addition, new funds raised in the
current environment generally obtain smaller aggregate capital
commitments than in earlier years. To the extent private and
public capital focused on illiquid investment opportunities
remains limited, our ability to earn fees in the private capital
advisory business may be adversely affected.
Our
engagements are singular in nature and do not provide for
subsequent engagements
Our clients generally retain us on a non-exclusive, short-term,
engagement-by-engagement
basis in connection with specific merger or acquisition
transactions, financing advisory and restructuring projects, or
private equity or real estate capital raising assignment, rather
than under long-term contracts covering potential additional
future services. As these transactions are singular in nature
and our engagements are not likely to recur, we must seek out
new engagements when our current engagements are successfully
completed or are terminated. As a result, high activity levels
in any period are not necessarily indicative of continued high
levels of activity in the next-succeeding or any other period.
In addition, when an engagement is terminated, whether due to
the cancellation of a transaction due to market reasons or
otherwise, we may earn limited or no fees and may not be able to
recoup the costs that we incurred prior to that termination.
A high
percentage of our financial advisory revenues are derived from a
few clients and the termination of any one financial advisory
engagement could reduce our revenues and harm our operating
results
Each year, we advise a limited number of
clients. Our top ten client engagements accounted
for 36% of our total revenues in 2010 and 41% of our total
revenues in 2009. In 2010, we did not have
7
any client engagements that accounted for 10% or more of our
total revenue. In 2009, our single largest client engagement
(advice to Roche Holdings Ltd. in connection with its
acquisition of the outstanding publicly held interest in
Genentech, Inc.) accounted for approximately 10% of our 2009
total revenues. We earned $1 million or more from 57
clients in 2010, compared to 43 in 2009, of which 44% of the
clients were new to the firm in 2010. While the composition of
the group comprising our largest clients varies significantly
from year to year, we expect that our financial advisory
engagements will continue to be limited to a relatively small
number of clients and that an even smaller number of those
clients will account for a high percentage of revenues in any
particular year. As a result, the adverse impact on our results
of operation of one lost engagement or the failure of one
transaction or restructuring on which we are advising to be
completed can be significant.
Investment
gains from merchant banking funds and Iridium vary from period
to period; these gains may not recur and may not be replaced by
other gains; our investments may lose money
We retain certain principal investments in merchant banking
funds (which in turn have a limited number of investments in
portfolio companies) and Iridium. The fair value of these
investments may appreciate (or depreciate) at different rates
based on a variety of factors, including changes in the fair
value of such investments. Historically, gains (or losses) from
investments have been significantly impacted by market factors,
specific industry conditions and other factors beyond our
control, and we cannot predict the timing or size of any such
gains (or losses) in future periods. The lack of investment
gains (and any losses which may be attributable to the
investments in the merchant banking funds or in Iridium) and the
volatility of changes in investment values may adversely affect
our results of operations and our stock price. There were no
gains (or losses) from any single investment that accounted for
more than 10% of total revenues in 2010. In 2009, the firm
recognized a net gain from our investment in Iridium that
accounted for more than 10% of total revenues.
Our investment in Iridium was valued at $80.9 million at
December 31, 2010. Since September 2009, when Iridium
became publicly traded after the business combination with GHL
Acquisition Corp., its share price has ranged from a high of
$11.55 and a low of $6.36. Iridiums share price was $8.25
at December 31, 2010. A significant decline in the market
value of Iridium can give rise to significant losses and
adversely affect our revenue and earnings.
There
will not be a consistent pattern in our financial results from
quarter to quarter, which may result in increased volatility of
our stock price
We can experience significant variations in revenues and profits
during each quarterly period. These variations can generally be
attributed to the fact that our revenues are usually earned in
large amounts throughout the year upon the successful completion
of a transaction or restructuring or closing of a fund, the
timing of which is uncertain and is not subject to our control.
Moreover, the timing of our recognition of gains or losses from
our investment portfolio may vary significantly from period to
period and depends on a number of factors beyond our control,
including most notably market and general economic conditions.
Compared to our larger, more diversified competitors in the
financial services industry, we generally experience even
greater variations in our revenues and profits. This is due to
our dependence on a relatively small number of transactions for
most of our revenues, with the result that our earnings can be
significantly affected if any particular transaction is not
completed successfully, and to the fact that we lack other, more
stable sources of revenue in material amounts, such as brokerage
and asset management fees, which could moderate some of the
volatility in financial advisory revenues. In addition, we
report the value of our portfolio of investments at estimated
fair value at the end of each quarter. The value of our
investments may increase or decrease significantly depending
upon market factors that are beyond our control. As a result, it
may be difficult for us to achieve steady earnings growth on a
quarterly basis, which could adversely affect our stock price.
8
In many cases we are not paid for financial advisory engagements
that do not result in the successful consummation of a
transaction or restructuring or closing of a fund. As a result,
our business is highly dependent on market conditions and the
decisions and actions of our clients and interested third
parties. For example, a client could delay or terminate a
transaction because of a failure to agree upon final terms with
the counterparty, failure to obtain necessary regulatory
consents or board or shareholder approvals, failure to secure
necessary financing, or adverse market conditions. Anticipated
bidders for assets of a client during a restructuring
transaction may not materialize or our client may not be able to
restructure its operations or indebtedness due to a failure to
reach agreement with its principal creditors. Our clients may
not raise sufficient capital to start a new fund because
anticipated investors may decline to invest in such fund due to
lack of liquidity, change in strategic direction of the
investor, or other factors. In these circumstances, we may not
receive any financial advisory fees, other than the
reimbursement of certain out- of-pocket expenses. The failure of
the parties to complete a transaction on which we are advising,
and the consequent loss of revenue to us, could lead to large
adverse movements in our stock price.
Our
investment portfolio contains investments in high-risk, illiquid
assets
Given the nature of our investments, there is a significant risk
that we will be unable to realize our investment objectives by
sale or other disposition at attractive prices or will otherwise
be unable to complete any exit strategy. In particular, these
risks could arise from changes in the financial condition or
prospects of the company in which the investment is made,
changes in technology, changes in national or international
economic conditions or changes in laws, regulations, fiscal
policies or political conditions of countries in which
investments are made.
lsMerchant banking funds will typically invest in securities of
a class that are not publicly-traded. In many cases they may be
prohibited by contract or by applicable securities laws from
selling such securities for a period of time or otherwise be
restricted from disposing of such securities. The ability of
such funds to dispose of investments is heavily dependent on the
merger and acquisition environment and the initial public
offering market, which fluctuate in terms of both the volume of
transactions as well as the types of companies which are able to
access the market. Furthermore, the types of investments made
may require a substantial length of time to liquidate. We will
generally not be able to sell our investments in merchant
banking funds or control the disposition of securities in those
funds.
Moreover, in the case of Iridium, we may be further limited in
our ability to sell such securities as we sit on the board of
directors of the company.
Our investments are reported at estimated fair value at the end
of each quarter and our allocable share of these gains or losses
will affect our revenue, which could increase the volatility of
our quarterly earnings, even if such gains or losses may have no
cash impact. It generally takes a substantial period of time to
realize the cash value of our principal investments. Even if an
investment proves to be profitable, it may be several years or
longer before any profits can be realized in cash from such
investment.
We
value our investment portfolio each quarter using a fair value
methodology, which could result in gains or losses to the firm;
the fair value methodology may over- or under-state the ultimate
value we will realize
As of December 31, 2010, the value of the firms
portfolio of investments, including its investments in merchant
banking funds and Iridium, was $160.9 million. The value of our
investment in Iridium common stock is recorded at its
publicly traded market value. The value of our investments in
Iridium warrants and the merchant banking funds is recorded at
estimated fair value and is determined on a quarterly basis
after giving consideration to the cost of the security, the
pricing of other sales of securities by the portfolio company,
the price of securities of other companies comparable to the
portfolio company, purchase multiples paid in other comparable
third party transactions, the original purchase price multiple,
market conditions, liquidity, operating results and other
quantitative and qualitative factors, and in the case of
publicly traded securities, the closing price of the security on
the last day of
9
the relevant period discounted for any legal or contractual
restrictions on sale. Significant changes in the public equity
markets
and/or the
operating results of the portfolio companies of the merchant
banking funds and other principal investments may have a
material effect on the fair value of our principal investments
and therefore on our revenues and profitability during any
reporting period. The estimated fair value at which the
principal investments are carried on our books may vary
significantly from period to period depending on a number of
factors beyond our control. It may not be possible to sell these
investments at the estimated fair values attributed to them in
our financial statements.
A
significant deterioration in the credit markets or the failure
of one or more banking institutions could adversely affect our
liquidity
A significant portion of our assets consist of cash and cash
equivalents. We have invested these assets in instruments which
we believe are highly liquid, and monitor developments relating
to the liquidity of these investments on a regular basis. In the
event of a significant deterioration of the credit markets or
the failure of one or more banking institutions, there can be no
assurance that we will be able to liquidate these assets or
access our cash. Our inability to access our cash investments
could have a material adverse effect on our liquidity and result
in a charge to our earnings which could have a material adverse
effect on the value of our stock.
We have a $75.0 million revolving loan facility from a
U.S. commercial bank which currently expires on
April 30, 2011. At December 31, 2010 we had
$67.0 million drawn down from the facility. We utilize the
revolving loan facility primarily to provide for our domestic
cash needs, which include dividend payments, share repurchases,
and working capital needs.
We generally roll over the maturity date of our revolving loan
facility annually. Our inability to extend the maturity date of
the loan or renew the facility on acceptable terms with the
existing lender could require us to repay all or a portion of
the loan balance outstanding at maturity. There is no assurance,
if our credit facility is not renewed with the current lender,
that we would be able to obtain a new credit facility of a
similar size from a different lender. In order to repay the
outstanding balance of our credit facility, we could be required
to repatriate funds to the U.S., liquidate some of our principal
investments or issue debt or equity securities in the public or
private markets, in each case on terms which may not be
favorable to us. Our inability to refinance the loan facility
could have a material adverse effect on our liquidity and result
in our inability to meet our obligations, which could have a
material adverse effect on our stock price.
We
face strong competition from far larger firms and other
independent firms
The investment banking industry is intensely competitive and we
expect it to remain so. We compete on the basis of a number of
factors, including the quality of our advice and service,
innovation, reputation and price. We believe we may experience
pricing pressures in our areas of operation in the future as
some of our competitors seek to obtain market share by reducing
prices. We are a relatively small investment bank, with
323 employees (including managing directors and senior
advisors) as of December 31, 2010 and total revenues of
$278.3 million for the year ended December 31, 2010.
Most of our competitors in the investment banking industry have
a far greater range of products and services, greater financial
and marketing resources, larger customer bases, greater name
recognition, more managing directors to serve their
clients needs, greater global reach and more established
relationships with their customers than we have. These larger
and better capitalized competitors may be better able to respond
to changes in the investment banking market, to compete for
skilled professionals, to finance acquisitions, to fund internal
growth and to compete for market share generally.
The scale of our competitors has increased over the years as a
result of substantial consolidation among companies in the
investment banking industry. In addition, a number of large
commercial banks, insurance companies and other broad-based
financial services firms have established or acquired financial
advisory practices and broker-dealers or have merged with other
financial institutions. Many of these firms have the ability to
offer a wide range of products, from loans, deposit-taking and
10
insurance to brokerage, asset management and investment banking
services, which may enhance their competitive position. They
also have the ability to support investment banking with
commercial banking, insurance and other financial services
revenues in an effort to gain market share, which could result
in pricing pressure in our businesses. In particular, the
ability to provide financing as well as advisory services has
become an important advantage for some of our larger
competitors, and because we are unable to provide such financing
we may be unable to compete for advisory clients in a
significant part of the advisory market.
In addition to our larger competitors, over the last few years,
a number of new, smaller independent boutique investment banks
have emerged which offer independent advisory services on a
model similar to ours and some of these firms have grown
rapidly. As these independent firms seek to gain market share
there could be pricing pressure, which would adversely affect
our revenues and earnings.
Strategic
investments, acquisitions and joint ventures, or foreign
expansion may result in additional risks and uncertainties in
our business
We intend to grow our core business through both recruiting and
internal expansion and through strategic investments,
acquisitions or joint ventures. In the event we make strategic
investments or acquisitions or enter into joint ventures, such
as our recent investment in Caliburn, we face numerous risks and
uncertainties combining or integrating the relevant businesses
and systems, including the need to combine accounting and data
processing systems and management controls. In the case of joint
ventures, we are subject to additional risks and uncertainties
in that we may be dependent upon, and subject to liability,
losses or reputational damage relating to systems, controls and
personnel that are not under our control. In addition, conflicts
or disagreements between us and our joint venture partners may
negatively impact our business.
To the extent that we pursue business opportunities outside the
United States, we will be subject to political, economic, legal,
operational and other risks that are inherent in operating in a
foreign country, including risks of possible nationalization,
expropriation, price controls, capital controls, exchange
controls and other restrictive governmental actions, as well as
the outbreak of hostilities. In many countries, the laws and
regulations applicable to the financial services industries are
uncertain and evolving, and it may be difficult for us to
determine the exact requirements of local laws in every market.
Our inability to remain in compliance with local laws in a
particular foreign market could have a significant and negative
effect not only on our businesses in that market but also on our
reputation generally. To fund our growth we may consider a range
of financing alternatives. If we expand by recruiting new
managing directors, we will incur compensation, occupancy,
integration and business development costs. Depending upon the
extent of our recruiting, such costs may be funded from cash
from operations or other financing alternatives. If we expand by
strategic investment, acquisition or joint venture, depending
upon the size of the acquisition we may fund such expansion
through internally generated cash flow, proceeds from bank or
other borrowings, or the issuance of equity. There can be no
assurance that the firm will be able to generate or obtain
sufficient capital on acceptable terms to fund its expansion
needs which would limit the future growth of the business and
adversely affect our share price.
Expansion
of our business may increase our operating costs and funding
requirements in advance of, or in excess of, increases in
revenues
Since our establishment we have grown our business steadily.
Over the past five years we have increased our headcount from
151 to 323 employees. During that period we have expanded
our operations in the United States with the addition of four
new offices as well as overseas with the addition of offices in
Canada and Japan and two offices in Australia. This expansion
has increased our total operating expenses from
$131.2 million in 2005 to $219.4 million in 2010.
During that same period our total revenues increased from
$221.2 million in 2005 to $278.3 million in 2010. We
fund our operating costs through cash generated from operations
and the revolving loan facility. We generate cash from
operations principally from the successful completion of a
transaction or realized proceeds
11
from the sale of all or a portion of one of our principal
investments. The size and timing of increases in revenues may
lag behind the increases in costs associated with such
expansion. Because we lack a diversified base of revenues there
can be no assurance that the revenues we earn from our financial
advisory services will generate sufficient cash flow from
operations to fund our operating needs. In the event our cash
generated from operations were insufficient to meet our
operating needs we would be required to fund such shortfall by
borrowing additional amounts from our revolving loan facility,
liquidating our principal investments in the merchant banking
funds or Iridium, or accessing the debt or equity markets. On a
longer term basis we might be required to reduce our cost
structure by closing office locations and reducing headcount.
Greenhills
employees own a significant portion of the common stock of the
firm and their interests may differ from those of our public
shareholders
Our employees and their affiliated entities collectively own
approximately 14% of the total shares of common stock
outstanding at December 31, 2010. In addition, we have
issued restricted stock units to our employees which, if fully
vested as of December 31, 2010, would have resulted in our
employees and their affiliates owning approximately 22% of our
shares of common stock.
As a result of these shareholdings, our employees currently are
able to exercise significant influence over the election of our
entire board of directors, the management and policies of
Greenhill and the outcome of any corporate transaction or other
matter submitted to the shareholders for approval, including
mergers, consolidations and the sale of all or substantially all
of the assets of Greenhill.
Employee
misconduct could harm Greenhill and is difficult to detect and
deter
There have been a number of highly publicized cases involving
fraud, insider trading or other misconduct by employees in the
financial services industry in recent years and we run the risk
that employee misconduct could occur at our firm. For example,
misconduct by employees could involve the improper use or
disclosure of confidential information, which could result in
regulatory sanctions and serious reputational or financial harm.
Our financial advisory business often requires that we deal with
client confidences of the greatest significance to our clients,
improper use of which may have a material adverse impact on our
clients. Any breach of our clients confidences as a result
of employee misconduct may impair our ability to attract and
retain advisory clients. It is not always possible to deter
employee misconduct and the precautions we take to detect and
prevent this activity may not be effective in all cases.
We may
face damage to our professional reputation and legal liability
to our clients and affected third parties if our services are
not regarded as satisfactory
As an investment banking firm, we depend to a large extent on
our relationships with our clients and our reputation for
integrity and high-caliber professional services to attract and
retain clients. As a result, if a client is not satisfied with
our services, it may be more damaging in our business than in
other businesses. Moreover, our role as advisor to our clients
on important mergers and acquisitions or restructuring
transactions involves complex analysis and the exercise of
professional judgment, including rendering fairness
opinions in connection with mergers and other
transactions. Our activities may subject us to the risk of
significant legal liabilities to our clients and aggrieved third
parties, including shareholders of our clients who could bring
actions against us. In recent years, the volume of claims and
amount of damages claimed in litigation and regulatory
proceedings against financial intermediaries have been
increasing. These risks often may be difficult to assess or
quantify and their existence and magnitude often remain unknown
for substantial periods of time. Our engagements typically
include broad indemnities from our clients and provisions to
limit our exposure to legal claims relating to our services, but
these provisions may not protect us or may not be enforceable in
all cases. As a result, we may incur significant legal expenses
in defending against litigation. Substantial legal liability or
significant regulatory action against us could have material
adverse financial effects or cause significant reputational harm
to us, which could seriously harm our business prospects.
12
We are
subject to extensive regulation in the financial services
industry
We, as a participant in the financial services industry, are
subject to extensive regulation in the United States, Europe,
Australia and elsewhere. Any failure to comply with applicable
laws and regulations could result in fines, suspensions of
personnel or other sanctions, including revocation of our
registration or the registration of any of our regulated
subsidiaries. Even if a sanction imposed against us or our
personnel is small in monetary amount, the adverse publicity
arising from the imposition of sanctions against us by
regulators could harm our reputation and cause us to lose
existing clients or fail to gain new clients.
Our U.S. broker-dealer, and our U.K., Australian and German
investment banking affiliates are subject to periodic
examinations by regulatory authorities. We cannot predict the
outcome of any such examination.
In addition, as a result of recent highly publicized financial
scandals, the regulatory environment in which we operate may be
subject to further regulation. Further, financial services firms
are subject to numerous conflicts of interest or perceived
conflicts. While we have adopted various policies, controls and
procedures to address or limit actual or perceived conflicts,
these policies and procedures carry attendant costs and may not
be adhered to by our employees. Failure to adhere to these
polices and procedures may result in regulatory sanctions or
client litigation.
Change
in applicable law and regulatory schemes could adversely affect
our business
From time to time, the United States and other national
governments in the countries in which we operate and related
regulatory authorities may adopt new rules which affect our
business. In the United States, the Dodd-Frank Wall Street
Reform Act was adopted in 2010, bringing sweeping changes in the
regulations of financial institutions. It will take several
years for the rules under the Dodd-Frank Act to be written and
become effective, and the final scope and interpretations of
those rules, and their impact on our business, will not be fully
known for some time, but could well have implications for the
manner in which we conduct our business and, consequently, its
profitability. In addition, several states and municipalities in
the United States have recently adopted
pay-to-play
rules which will limit our ability to charge fees in connection
with certain of our private capital advisory engagements, and
could therefore limit the profitability of that portion of our
business.
Legal
restrictions on our clients may reduce the demand for our
services
New laws or regulations or changes in enforcement of existing
laws or regulations applicable to our clients may also adversely
affect our businesses. For example, changes in antitrust
enforcement could affect the level of mergers and acquisitions
activity and changes in regulation could restrict the activities
of our clients and their need for the types of advisory services
that we provide to them.
Fees
earned in connection with advisory assignments in the bankruptcy
context may be subject to challenge and reduction
In our financial advisory business we, from time to time, advise
debtors or creditors of companies which are involved in
bankruptcy proceedings in the United States Bankruptcy Courts.
Under the applicable rules of those courts, our fees are subject
to approval by the court and other interested parties have the
ability to challenge the payment of those fees. Fees earned and
reflected in our revenues may from time to time be subject to
successful challenges, which could result in a reduction of
revenues and affect our stock price adversely.
Our
share price may decline due to the large number of shares
eligible for future sale
Sales of substantial amounts of common stock by our managing
directors and other employees, or the possibility of such sales,
may adversely affect the price of the common stock and impede
our ability to raise capital through the issuance of equity
securities. As of December 31, 2010, there were
29,341,604 shares of common stock outstanding, which is net
of 5,775,752 shares of common stock held in treasury. Our
employees own 14% of our outstanding common stock and 22% on a
fully diluted
13
basis assuming all outstanding restricted stock units vested as
of December 31, 2010. There are no restrictions on the sale
of the shares held by our employees other than
black-out periods imposed by us between earnings
releases.
A
significant portion of the compensation of our managing
directors is paid in restricted stock units and the shares we
expect to issue on the vesting of those restricted stock units
could result in a significant increase in the number of shares
of common stock outstanding
We award restricted stock units, as part of the annual bonus and
incentive compensation, to managing directors and other
employees. We also award restricted stock units as a long term
incentive to new hires at the time they join the firm. At
December 31, 2010, 2,813,567 restricted stock units were
outstanding and an additional 919,768 restricted stock units
were granted to employees subsequent to year end as part of the
long-term incentive award component of our annual compensation
package. Each restricted stock unit represents the holders
right to receive one share of our common stock or a cash payment
equal to the fair value thereof, at our election, following the
applicable vesting date. Awards of restricted stock units to our
managing directors and other employees generally vest either
ratably over a five year period beginning on the first
anniversary of the grant date or do not vest until the fifth
anniversary of their grant date, when they vest in full. Shares
will be issued in respect of restricted stock units only under
the circumstances specified in the applicable award agreements
and the equity incentive plan, and may be forfeited in certain
cases. Assuming all of the conditions to vesting are fulfilled,
shares in respect of the 2,813,567 restricted stock units that
were outstanding as of December 31, 2010 would be issued as
follows: 695,855 shares in 2011, 438,865 shares in
2012, 452,582 shares in 2013, 853,880 shares in 2014,
and 372,385 shares in 2015. In addition, in connection with
the acquisition of Caliburn we granted 212,625 restricted stock
units of which 127,575 will vest in April 2013 and 85,050 will
vest in April 2015, subject to the achievement of certain
revenue performance targets. We have generally repurchased a
portion of the common stock issued to our employees upon vesting
of restricted stock units to permit the payment of tax
liabilities. Further, we have historically repurchased in the
open market and through privately negotiated transactions a
significant number of our shares of common stock. If we were to
cease to or were unable to repurchase shares of common stock,
the number of shares outstanding would increase over time,
diluting the ownership of our existing stockholders.
The
market price of our common stock may decline
The price of the common stock may fluctuate widely, depending
upon many factors, including the perceived prospects of
Greenhill and the financial services industry in general,
differences between our actual financial and operating results
and those expected by investors, the performance of our
investments in merchant banking funds and Iridium, changes in
general economic or market conditions and broad market
fluctuations. Since a significant portion of the compensation of
our managing directors and certain other employees is paid in
restricted stock units, a decline in the price of our stock may
adversely affect our ability to retain key employees, including
our managing directors. Similarly, our ability to recruit new
managing directors may be adversely affected by a decline in the
price of our stock.
We
have experienced rapid growth over the past several years, which
may be difficult to sustain and which may place significant
demands on our administrative, operational and financial
resources
Our future growth will depend, among other things, on our
ability to successfully identify practice groups and individuals
to join our firm. It may take more than one year for us to
determine whether new professionals will be effective. During
that time, we may incur significant expenses and expend
significant time and resources toward training, integration and
business development. If we are unable to hire and retain
successful professionals, we will not be able to implement our
growth strategy and our financial results may be materially
adversely affected.
Sustaining growth will also require us to commit additional
management, operational, and financial resources to this growth
and to maintain appropriate operational and financial systems to
adequately
14
support expansion. There can be no assurance that we will be
able to manage our expanding operations effectively or that we
will be able to maintain or accelerate our growth and any
failure to do so could adversely affect our ability to generate
revenue and control our expenses.
Cautionary
Statement Concerning Forward-Looking Statements
We have made statements under the captions Business,
Risk Factors, and Managements Discussion
and Analysis of Financial Condition and Results of
Operations and in other sections of this
Form 10-K
that are forward-looking statements. In some cases, you can
identify these statements by forward-looking words such as
may, might, will,
should, expect, plan,
anticipate, believe,
estimate, intend, predict,
potential or continue, the negative of
these terms and other comparable terminology. These
forward-looking statements, which are subject to risks,
uncertainties and assumptions about us, may include projections
of our future financial performance, based on our growth
strategies and anticipated trends in our business. These
statements are only predictions based on our current
expectations and projections about future events. There are
important factors that could cause our actual results, level of
activity, performance or achievements to differ materially from
the results, level of activity, performance or achievements
expressed or implied by the forward-looking statements. In
particular, you should consider the numerous risks outlined
under Risk Factors.
These risks are not exhaustive. Other sections of this Annual
Report on
Form 10-K
may include additional factors which could adversely impact our
business and financial performance. Moreover, we operate in a
very competitive and rapidly changing environment. New risk
factors emerge from time to time and it is not possible for our
management to predict all risk factors, nor can we assess the
impact of all factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements.
Although we believe the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility
for the accuracy or completeness of any of these forward-looking
statements. You should not rely upon forward-looking statements
as predictions of future events. We are under no duty to update
any of these forward-looking statements after the date of this
filing to conform our prior statements to actual results or
revised expectations.
Forward-looking statements include, but are not limited to, the
following:
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the statement about new managing directors over time adding
incrementally to our revenue and income growth potential in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Overview;
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the statements that we will continue to recruit senior bankers
on an opportunistic basis and that our priority in the near term
will be to realize the benefits of our expansion as transaction
activity rebounds and seek to return towards our historic cost
ratios in Managements Discussion and Analysis of
Financial Condition and Results of Operations
Business Environment;
|
|
|
|
the statement about our simple business model as an independent,
unconflicted advisor will continue to create opportunities for
us to attract new clients and increase our market share in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Business
Environment;
|
|
|
|
the statement about our belief that we are well positioned to
benefit once general transaction and fund raising activity
returns towards historic normal levels Managements
Discussion and Analysis of Financial Condition and Results of
Operations Business Environment;
|
|
|
|
the statement that unless there are significant gains in the
value of the portfolio companies in each fund it is not likely
that the profit thresholds for each fund will be exceeded and
accordingly is not likely that profit override revenue will be
recognized in Managements
|
15
|
|
|
|
|
Discussion and Analysis of Financial Condition and Results of
Operations Merchant Banking and Other Investment
Revenues;
|
|
|
|
|
|
the statement about our objective to return to our stated policy
of a ration of compensation to revenue not to exceed 50% in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Compensation and
Benefits Expenses;
|
|
|
|
the statement that over the long-term we expect that our
non-compensation costs, particularly occupancy, travel and
information services costs, will increase as we grow our
business and make strategic investments Managements
Discussion and Analysis of Financial Condition and Results of
Operations Non-Compensation Costs Expenses;
|
|
|
|
the statement that we believe that we will fully use our tax
loss carryforwards in Managements Discussion and
Analysis of Financial Condition and Results of
Operations Provision for Income Taxes;
|
|
|
|
the statement that unless the funds realize significant gains it
is not likely that the earnings of any funds will exceed their
profit thresholds and, therefore, we currently do not expect to
recognize any profit override revenue in future periods in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources;
|
|
|
|
the statement that we expect approximately $1.5 million of
the firms unfunded commitment to GCP II of
$7.9 million may be drawn down for follow-on investments
through June 2012 in Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources;
|
|
|
|
the statement that we generally roll over the maturity date of
our revolving loan facility annually and expect to do so on or
prior to the scheduled maturity of April 30, 2011 in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources;
|
|
|
|
the statement about the possibility that we could be required to
repatriate funds to the U.S, liquidate some of our principal
investments or issue additional securities, or a combination of
each, in each case in terms that may not be favorable to us in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources;
|
|
|
|
the statement that over the next five years we plan to liquidate
our investments in the merchant banking funds, Iridium and other
investments in Managements Discussion and Analysis
of Financial Condition and Results of Operation
Liquidity and Capital Resources;
|
|
|
|
the statement about our intention to monetize our position in
Iridium in a disciplined manner over time dependent on market
conditions in Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources;
|
|
|
|
the statement about our expectation to fund our repurchase of
shares as we realize proceeds from our investments
and/or
generate operating cash flow as transaction activity further
rebounds in Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources;
|
|
|
|
the statement that we believe that the cash generated from
operations and funds available from the revolving bank loan
facility will be sufficient to meet our expected operating
needs, commitments to our merchant banking activities, build-out
costs of new office space, tax obligations, share repurchases
and common dividends and we may adjust our variable expenses and
non-recurring disbursements, if necessary, to meet our liquidity
needs in Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources; and
|
|
|
|
the statement that in the event that we are not able to meet our
liquidity needs, we may consider a range of financing
alternatives to meet such needs in Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
|
16
|
|
Item 1B.
|
Unresolved
Staff Comments
|
There are no unresolved written comments that were received from
the SEC staff 180 days or more before the end of the year
relating to our periodic or current reports under the Securities
Act of 1934.
The firms principal offices consist of twelve offices all
of which are leased as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Square
|
|
|
|
|
|
|
Footage as of
|
Location
|
|
Owned/Leased
|
|
Lease Expiration
|
|
December 31, 2010
|
|
U.S. Locations
|
|
|
|
|
|
|
|
|
300 Park Avenue
New York, New York
(Global Headquarters)
|
|
Leased
|
|
|
2020
|
|
|
105,000 square feet
|
300 Crescent Court
Dallas, Texas
|
|
Leased
|
|
|
2013
|
|
|
6,000 square feet
|
One California Street
San Francisco, California
|
|
Leased
|
|
|
2011
|
|
|
4,000 square feet
|
155 North Wacker Drive
Chicago, Illinois
|
|
Leased
|
|
|
2019
|
|
|
8,000 square feet
|
10250 Constellation Boulevard
Los Angeles, California
|
|
Leased
|
|
|
2011
|
|
|
3,000 square feet
|
1301 McKinney Street
Houston, Texas
|
|
Leased
|
|
|
2015
|
|
|
5,000 square feet
|
International Locations
|
|
|
|
|
|
|
|
|
Lansdowne House
57 Berkeley Square
London
|
|
Leased
|
|
|
2013
|
|
|
19,000 square feet
|
Neue Mainzer Strasse
52-58
Frankfurt
|
|
Leased
|
|
|
2015
|
|
|
13,000 square feet
|
79 Wellington Street West
Toronto
|
|
Leased
|
|
|
2014
|
|
|
5,000 square feet
|
Marunouchi Building
Tokyo
|
|
Leased
|
|
|
2013
|
|
|
4,000 square feet
|
The Chiefley Tower
2 Chiefley Square
Sydney
|
|
Leased
|
|
|
2015
|
|
|
14,000 square feet
|
101 Collins Street
Melbourne
|
|
Leased
|
|
|
2018
|
|
|
7,000 square feet
|
Most of the lease arrangements listed above provide for renewal
options beyond the date of expiration.
In October 2010, we amended the Chicago lease agreement to
expand our space from 8,000 square feet to
12,000 square feet. We expect to occupy the expanded space
beginning in August 2011. In December 2010, we entered into a
lease agreement for approximately 7,000 square feet of office
space at 600 Montgomery Street in San Francisco which we
expect to occupy in April 2011.
Approximately 15,000 square feet of space at the New York
office has been sublet to GCP Capital beginning in 2011 for a
period of three to five years.
|
|
Item 3.
|
Legal
Proceedings
|
The firm is from time to time involved in legal proceedings
incidental to the ordinary course of its business. We do not
believe any such proceedings will have a material adverse effect
on our results of operations.
17
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
There were no matters submitted to a vote of security holders
during the fourth quarter of our fiscal year ended
December 31, 2010.
EXECUTIVE
OFFICERS AND DIRECTORS
Our executive officers are Scott L. Bok (Chief Executive
Officer), Richard J. Lieb (Chief Financial Officer), Harold J.
Rodriguez, Jr. (Chief Administrative Officer, Chief
Compliance Officer and Treasurer), and Ulrika Ekman (General
Counsel and Secretary). Set forth below is a brief biography of
each executive officer.
Scott L. Bok, 51, has served as our Chief Executive Officer
since April 2010, served as Co-Chief Executive Officer from
October 2007 until April 2010, served as our U.S. President
from January 2004 until October 2007 and has been a member of
our Management Committee since its formation in January 2004. In
addition, Mr. Bok has been a director of
Greenhill & Co., Inc. since its incorporation in March
2004. Mr. Bok joined Greenhill as a managing director in
February 1997. Before joining Greenhill, Mr. Bok was a
managing director in the mergers, acquisitions and restructuring
department of Morgan Stanley & Co., where he worked
from 1986 to 1997, based in New York and London. From 1984 to
1986, Mr. Bok practiced mergers and acquisitions and
securities law in New York with Wachtell, Lipton,
Rosen & Katz. Mr. Bok is a member of the board of
directors of Iridium Communications Inc. (f/k/a GHL Acquisition
Corp.). Mr. Bok served as Chief Executive Officer and
Chairman of the Board of GHL Acquisition Corp. from
2007-2009.
He has also served as a member of the Board of Directors of
Heartland Payment Systems (2001 2005) and
Republic Group Insurance (2003 2007).
Richard J. Lieb, 51, became Chief Financial Officer of Greenhill
in March 2008. Mr. Lieb has been a member of our Management
Committee since March 2008. Mr. Lieb joined Greenhill in
April 2005 as a Managing Director, having spent 20 years at
Goldman Sachs where he headed the real estate investment banking
department from 2000 to 2005.
Harold J. Rodriguez, Jr., 55, has served as our Chief
Administrative Officer since March 2008 and was Managing
Director Finance, Regulation and Operations from
January 2004 to March 2008. Mr. Rodriguez also serves as
Chief Compliance Officer and Treasurer and is a member of our
Management Committee. From November 2000 through December 2003,
Mr. Rodriguez was Chief Financial Officer of Greenhill.
Mr. Rodriguez has served as the Chief Financial Officer of
Greenhill Capital Partners since he joined Greenhill in June
2000. Mr. Rodriguez served as Chief Financial Officer of
GHL Acquisition Corp. from
2008-2009.
Prior to joining Greenhill, Mr. Rodriguez was Vice
President Finance and Controller of Silgan Holdings,
Inc., a major consumer packaging goods manufacturer, from 1987
to 2000. From 1978 to 1987, Mr. Rodriguez worked at
Ernst & Young, where he was a senior manager
specializing in taxation.
Ulrika Ekman, 48, has served as our General Counsel and
Secretary from May 2004 to March 2008 and again since July 2009.
Between April 2008 and July 2009, Ms. Ekman served as our
Co-Head of U.S. Mergers and Acquisitions. Ms. Ekman is
also a member of our Management Committee. Prior to joining
Greenhill, Ms. Ekman was a partner in the mergers and
acquisitions group of the corporate department of Davis
Polk & Wardwell, where she practiced law since 1990.
Our Board of Directors has six members, two of whom are
employees (Robert F. Greenhill and Scott L. Bok) and four of
whom are independent (Robert T. Blakely, John C. Danforth,
Steven F. Goldstone and Stephen L. Key). A brief biography
of each of Messrs. Blakely, Danforth, Greenhill, Goldstone
and Key is set forth below.
Robert F. Greenhill, 74, our founder, has served as our Chairman
since the time of our founding in 1996, served as Chief
Executive Officer from 1996 until October 2007 and was a member
of our Management Committee from its formation in January 2004
until October 2007. In addition, Mr. Greenhill has been a
director of Greenhill & Co., Inc. since its
incorporation in March 2004. Prior to founding and becoming
Chairman of Greenhill, Mr. Greenhill was chairman and chief
executive officer of Smith Barney Inc. and a
18
member of the board of directors of the predecessor to the
present Travelers Corporation (the parent of Smith Barney) from
June 1993 to January 1996. From January 1991 to June 1993,
Mr. Greenhill was president of, and from January 1989 to
January 1991, Mr. Greenhill was a vice chairman of, Morgan
Stanley Group, Inc. Mr. Greenhill joined Morgan Stanley in
1962 and became a partner in 1970. In 1972, Mr. Greenhill
directed Morgan Stanleys newly-formed mergers and
acquisitions department. In 1980, Mr. Greenhill was named
director of Morgan Stanleys investment banking division,
with responsibility for domestic and international corporate
finance, mergers and acquisitions, merchant banking, capital
markets services and real estate. Also in 1980,
Mr. Greenhill became a member of Morgan Stanleys
management committee.
Robert Blakely, 69, has served on our Board of Directors since
April 2009. Since 2008, Mr. Blakely has served as the
President of Performance Enhancement Group, a position he
previously held from 2002 to 2003. From February 2006 to January
2008, Mr. Blakely served as Executive Vice President of
Fannie Mae and from February 2006 to August 2007, as its Chief
Financial Officer. From 2003 to 2006, Mr. Blakely served as
Executive Vice President and Chief Financial Officer of MCI.
Mr. Blakely is a member of the board of directors of
Westlake Chemical Corporation, Natural Resource Partners L.P.
and Ally Financial Inc. (formerly GMAC Inc.). Mr. Blakely
is also Vice Chairman of the Board of Trustees of the Financial
Accounting Federation, the oversight body for the Financial
Accounting Standards Board.
John C. Danforth, 74, has served on our Board of Directors since
February 2005. He served as the United States Representative to
the United Nations between July 2004 and January 2005 and,
except during his service at the United Nations, has been a
Partner in the law firm of Bryan Cave LLP since 1995. He served
in the United States Senate from 1976 to 1995. Senator Danforth
is a director of Cerner Corporation. He is ordained to the
clergy of the Episcopal Church.
Steven F. Goldstone, 65, has served on our Board of Directors
since July 2004. He currently manages Silver Spring Group, a
private investment firm. From 1995 until his retirement in 2000,
Mr. Goldstone was Chairman and Chief Executive Officer of
RJR Nabisco, Inc. (which was subsequently named Nabisco Group
Holdings following the reorganization of RJR Nabisco, Inc.).
Prior to joining RJR Nabisco, Inc., Mr. Goldstone was a
partner at Davis Polk & Wardwell, a law firm in
New York City. He is also Non-Executive Chairman of ConAgra
Foods, Inc. and a director of Merck & Co.
Mr. Goldstone served as a member of the Board of Directors
of Trane, Inc. (f/k/a American Standards Companies, Inc.) from
2002 until 2008.
Stephen L. Key, 67, has served on our Board of Directors since
May 2004. Since 2003, Mr. Key has been the sole proprietor
of Key Consulting, LLC. From 1995 to 2001, Mr. Key was the
Executive Vice President and Chief Financial Officer of Textron
Inc., and from 1992 to 1995, Mr. Key was the Executive Vice
President and Chief Financial Officer of ConAgra, Inc. From 1968
to 1992, Mr. Key worked at Ernst & Young, serving
in various capacities, including as the Managing Partner of
Ernst & Youngs New York Office from 1988 to
1992. Mr. Key is a Certified Public Accountant in the State
of New York. Mr. Key is a member of the Board of Directors
of Forward Industries, Inc. and is also a member of the Board of
Directors of 1- 800 Contacts, Inc. Mr. Key
served as a member of the Board of Directors of Sitel, Inc. from
2007 until 2008.
19
PART II
Item 5. Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
The principal market on which our common stock (ticker: GHL) is
traded is the New York Stock Exchange. The following tables set
forth, for the fiscal quarters indicated, the high and low sales
prices per share of our common stock, as reported in the
consolidated transaction reporting system, and the quarterly
dividends declared.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
|
|
|
|
|
Dividends per
|
|
|
Sales Price
|
|
share of
|
|
|
High
|
|
Low
|
|
common stock
|
|
First quarter
|
|
$
|
88.33
|
|
|
$
|
70.04
|
|
|
$
|
0.45
|
|
Second quarter
|
|
|
89.16
|
|
|
|
60.73
|
|
|
|
0.45
|
|
Third quarter
|
|
|
82.39
|
|
|
|
60.80
|
|
|
|
0.45
|
|
Fourth quarter
|
|
|
84.51
|
|
|
|
74.21
|
|
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
Dividends per
|
|
|
Sales Price
|
|
share of
|
|
|
High
|
|
Low
|
|
common stock
|
|
First quarter
|
|
$
|
76.07
|
|
|
$
|
55.41
|
|
|
$
|
0.45
|
|
Second quarter
|
|
|
84.97
|
|
|
|
66.21
|
|
|
|
0.45
|
|
Third quarter
|
|
|
93.85
|
|
|
|
71.36
|
|
|
|
0.45
|
|
Fourth quarter
|
|
|
96.09
|
|
|
|
79.28
|
|
|
|
0.45
|
|
As of February 23, 2011, there were approximately 7 holders
of record of the firms common stock. The majority of our
shares are held in street name by diversified financial broker
dealers which are not counted as record holders.
On February 23, 2011, the last reported sales price for the
firms common stock on the New York Stock Exchange was
$71.00 per share.
20
The following performance graph and related information shall
not be deemed soliciting material or to be
filed with the Securities and Exchange Commission,
nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent we
specifically incorporate it by reference into such filing. Our
stock price performance shown in the graph below is not
indicative of future stock price performance.
COMPARES
5-YEAR
CUMULATIVE TOTAL RETURN AMONG GREENHILL & CO.,
INC., S&P MIDCAP 400 INDEX AND S&P MIDCAP 400
INVESTMENT BANKING
AND BROKERAGE INDEX
ASSUMES
$100 INVESTED ON DECEMBER 31, 2005
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 2010
21
The following table provides information as of December 31,
2010 regarding securities issued under our equity compensation
plans that were in effect during fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
Securities to be
|
|
|
Weighted-Average
|
|
|
for Future Issuance
|
|
|
|
|
|
Issued Upon
|
|
|
Exercise Price
|
|
|
Under Equity
|
|
|
|
|
|
Exercise of
|
|
|
of
|
|
|
Compensation Plans
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
(Excluding
|
|
|
|
|
|
Options,
|
|
|
Options,
|
|
|
Securities
|
|
|
|
|
|
Warrants and
|
|
|
Warrants
|
|
|
Reflected in the
|
|
|
|
Plan Category
|
|
Rights
|
|
|
and Rights
|
|
|
Second Column)
|
|
|
Equity compensation plans approved by security holders
|
|
Equity Incentive
Plan(1)
|
|
|
2,813,567
|
(3)
|
|
$
|
|
(2)
|
|
|
24,594,431
|
|
Equity compensation plans not approved by security holders
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
2,813,567
|
|
|
$
|
|
|
|
|
24,594,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our amended Equity Incentive Plan was approved by our security
holders in April 2009. See Note 12
Restricted Stock Units of the Consolidated Financial
Statements for a description of our Equity Incentive Plan. |
|
(2) |
|
The restricted stock units awarded under our Equity Incentive
Plan were granted at no cost to the persons receiving them and
do not have an exercise price. |
|
(3) |
|
Excludes 919,768 stock units granted to employees subsequent to
December 31, 2010 as part of our long term incentive awards
program. |
Share
Repurchases in the Fourth Quarter of 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Approximate Dollar
|
|
|
|
|
|
|
Shares Purchased as
|
|
Value of Shares
|
|
|
|
|
|
|
Part of Publicly
|
|
that May Yet Be
|
|
|
Total Number of
|
|
Average Price
|
|
Announced Plans or
|
|
Purchased under the
|
Period
|
|
Shares
Repurchased(1)
|
|
Paid Per Share
|
|
Programs
|
|
Plans or
Programs(2)
|
|
October 1 October 31
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
$
|
87,615,897
|
|
November 1 November 30
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
$
|
87,615,897
|
|
December 1 December 31
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
$
|
87,615,897
|
|
|
|
|
(1) |
|
Excludes 4,684 shares the firm is deemed to have
repurchased at $75.99 from employees in conjunction with the
payment of tax liabilities in respect of stock delivered to
employees in settlement of restricted stock units. |
|
(2) |
|
Effective April 22, 2010, the Board of Directors authorized
the repurchase of up to $100,000,000 of its common stock through
December 31, 2011. |
22
Item 6. Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands, except per share and number of employee
data)
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
278,329
|
|
|
$
|
298,646
|
|
|
$
|
221,873
|
|
|
$
|
400,422
|
|
|
$
|
290,646
|
|
% change from prior year
|
|
|
(7
|
%)
|
|
|
35
|
%
|
|
|
(45
|
%)
|
|
|
38
|
%
|
|
|
31
|
%
|
Employee compensation and benefit expense
|
|
|
159,882
|
|
|
|
138,298
|
|
|
|
102,050
|
|
|
|
183,456
|
|
|
|
134,134
|
|
Non-compensation expense
|
|
|
59,496
|
|
|
|
46,455
|
|
|
|
41,965
|
|
|
|
39,765
|
|
|
|
37,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
58,951
|
|
|
|
113,893
|
|
|
|
77,858
|
|
|
|
177,201
|
|
|
|
119,157
|
|
Provision for taxes
|
|
|
19,530
|
|
|
|
42,736
|
|
|
|
29,392
|
|
|
|
61,833
|
|
|
|
41,633
|
|
Net income allocated to common shareholders
|
|
|
34,526
|
|
|
|
71,240
|
|
|
|
48,978
|
|
|
|
115,276
|
|
|
|
75,666
|
|
Diluted average shares outstanding
|
|
|
30,776
|
|
|
|
29,754
|
|
|
|
28,214
|
|
|
|
28,728
|
|
|
|
29,628
|
|
Diluted earnings per share
|
|
|
1.12
|
|
|
|
2.39
|
|
|
|
1.74
|
|
|
|
4.01
|
|
|
|
2.55
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
508,678
|
|
|
$
|
334,160
|
|
|
$
|
265,779
|
|
|
$
|
374,213
|
|
|
$
|
297,731
|
|
Total liabilities
|
|
|
135,815
|
|
|
|
100,607
|
|
|
|
65,712
|
|
|
|
229,670
|
|
|
|
140,326
|
|
Stockholders equity
|
|
|
370,481
|
|
|
|
232,052
|
|
|
|
198,249
|
|
|
|
142,290
|
|
|
|
155,174
|
|
Noncontrolling interests
|
|
|
2,381
|
|
|
|
1,501
|
|
|
|
1,818
|
|
|
|
2,253
|
|
|
|
2,231
|
|
Total equity
|
|
|
372,863
|
|
|
|
233,553
|
|
|
|
200,067
|
|
|
|
144,543
|
|
|
|
157,405
|
|
Dividends declared per share
|
|
|
1.80
|
|
|
|
1.80
|
|
|
|
1.80
|
|
|
|
1.26
|
|
|
|
0.70
|
|
Selected Data and Ratios (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes as a percentage of revenues
|
|
|
21
|
%
|
|
|
38
|
%
|
|
|
35
|
%
|
|
|
44
|
%
|
|
|
41
|
%
|
Revenues per
employee(a)
|
|
$
|
908
|
|
|
$
|
1,140
|
|
|
$
|
991
|
|
|
$
|
1,930
|
|
|
$
|
1,651
|
|
Employees at
year-end(b)(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
180
|
|
|
|
187
|
|
|
|
150
|
|
|
|
131
|
|
|
|
116
|
|
Europe
|
|
|
85
|
|
|
|
93
|
|
|
|
81
|
|
|
|
83
|
|
|
|
85
|
|
Asia
|
|
|
13
|
|
|
|
10
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees
|
|
|
323
|
|
|
|
290
|
|
|
|
234
|
|
|
|
214
|
|
|
|
201
|
|
|
|
|
(a) |
|
Total revenues divided by average number of employees (including
managing directors and senior advisors) in each year. |
|
(b) |
|
Includes our managing directors and senior advisors. |
|
(c) |
|
Not including 28 employees in 2010 who were active in our
merchant banking business and separated from the firm on
December 31, 2010. |
23
Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Greenhill is a leading independent investment bank focused on
providing financial advice related to significant mergers,
acquisitions, restructurings, financings and capital raising to
corporations, partnerships, institutions and governments. We act
for clients located throughout the world from our offices in New
York, London, Frankfurt, Sydney, Tokyo, Toronto, Chicago,
Dallas, Houston, Los Angeles, Melbourne and
San Francisco.
Our revenues are principally derived from financial advisory
services on mergers and acquisitions, or M&A, and
restructurings and are primarily driven by total deal volume and
size of individual transactions. Additionally, our private
capital and real estate capital advisory groups provide fund
placement and other capital raising advisory services, where
revenues are driven primarily by the amount of capital raised.
On April 1, 2010, we acquired the Australian advisory firm
Caliburn, with six managing directors and 40 total employees at
that time. Caliburn has established a strong position in that
market over its 11 year history and operates in Australia
and New Zealand under the name Greenhill Caliburn. At the time
of its acquisition by the firm, Caliburn had advised on more
than AUS $170 billion of transactions since its founding in
1999, and had revenue for its fiscal years ended June 30,
2009, 2008 and 2007 of AUS $68.0 million, AUS
$80.9 million and AUS $80.8 million, respectively.
We have recruited and plan to continue to recruit new managing
directors to expand our industry sector and geographic coverage.
We expect these hires will, over time, add incrementally to our
revenue and income growth potential. In addition to the
acquisition of Caliburn we added five more managing directors in
2010, four dedicated to real estate capital advisory and one
focused on the European energy sector. Since January 1,
2008, we have increased the number of client-facing managing
directors by 2.4 times from 28 to 68 as of January 1, 2011.
Over that period we added managing directors with sector
experience in Consumer Goods, Financial Services, Gaming and
Hospitality, Energy, Forest Products, Healthcare, Industrials,
Infrastructure, Mining and Minerals, and Telecommunications as
well as a team of managing directors focused on private equity
capital advisory and another team focused on real estate capital
advisory. Additionally, over the past three years we
significantly increased our geographic reach by adding offices
in Sydney, Tokyo, Chicago, Houston, Los Angeles, Melbourne
and San Francisco.
We exited the merchant banking business in 2010 in order to
focus entirely on our financial advisory business. Prior to that
time, our merchant banking activities consisted primarily of
management of and investment in Greenhills historic
merchant banking funds. During a transition period in 2010 we
managed and administered the merchant banking funds and recorded
the revenue and expenses related to our management of the
merchant banking funds in our consolidated results. Under the
arrangement with GCP Capital (an entity which is independent
from the firm) for the year ended December 31, 2010 the
excess of the management fee revenue over the amount paid for
compensation and other operating costs associated with the
management of the funds accrued to the benefit of GCP Capital
and was distributed to GCP Capital. On January 1, 2011, GCP
Capital took over the management of the merchant banking funds.
As a result of our separation from the merchant banking
business, we no longer generate management fee revenue or incur
expenses from the management of the merchant banking funds.
While we no longer manage the merchant banking funds, we will
retain our existing investments in the merchant banking funds
and Iridium (NASDAQ: IRDM) and will continue to record realized
and unrealized changes in the fair value of our investments on a
quarterly basis until such investments are liquidated over time.
For the merchant banking funds the size and timing of changes in
the fair value are tied to a number of different factors,
including the performance of the particular portfolio companies,
general economic conditions in the debt and equity markets and
other factors which affect the industries in which the funds are
invested. Adverse changes in general economic conditions,
24
commodity prices, credit and public equity markets, could
negatively impact the amount of investment revenue realized by
the firm. See Item 2. Management Discussion and
Analysis of Financial Condition and Results of
Operations Merchant Banking and Other Investment
Revenues.
Our revenues can fluctuate materially depending on the number
and size of completed transactions on which we advised, the
number and size of our investment gains (or losses) and other
factors. Accordingly, the revenues and net income in any
particular year may not be indicative of future results.
Business
Environment
Economic and global financial market conditions can materially
affect our financial performance. See Risk Factors.
Revenues and net income in any period may not be indicative of
full-year results or the results of any other period and may
vary significantly from year to year and quarter to quarter.
Financial advisory revenues were $252.2 million in the year
ended December 31, 2010 compared to $216.0 million in
the year ended December 31, 2009, which represents an
increase of 17%. At the same time, worldwide completed M&A
volume increased by 2%, from $1,828.7 billion in 2009 to
$1,865.0 billion in
2010(1).
For the first year since 2007 worldwide completed M&A
volume increased. While we may be at the beginning stages of an
economic recovery, we continue to be impacted by a volatile and
uncertain environment for evaluating assets, securities and
companies, which has created a more difficult environment for
M&A and fundraising activity. Because we earn a majority of
our financial advisory revenue from fees that are dependent on
the successful completion of a merger, acquisition,
restructuring or similar transaction or the closing of a fund,
our financial advisory business has been negatively impacted
over the past few years by a reduction in total M&A
activity, a reduction in average deal size, and a lengthening of
the completion time of transactions.
During the three year period ended December 31, 2010 we
have substantially expanded our geographic reach, our industry
sector expertise and the total number of employees focused on
our financial advisory business. During that period we increased
our headcount from 234 to 323 employees resulting in an
increase in our base compensation costs and other
non-compensation costs, such as travel and information services.
Furthermore, our occupancy costs increased during that period as
we opened four offices in the United States, an office in Tokyo,
and two offices in Australia and undertook significant
expansions in our space in New York and London. This expansion,
combined with a very modest upturn in general completed
transaction activity, increased our cost ratios in 2010 as
compared to prior years. In 2010, for the first time since our
public offering in 2004, our ratio of compensation and benefits
expense to revenue exceeded our historic policy goal of
maintaining a ratio not to exceed 50%. Our pre-tax margin in
2010 was 21% compared to our historical range of 35% to 41%
during the years 2005 to 2009. While we will continue to recruit
senior bankers on an opportunistic basis, our priority in the
near term will be to realize the benefits of our expansion as
transaction activity rebounds and to seek to return towards our
historic cost ratios.
We are beginning to see the benefits of revenues from our
expansion. During 2010 we earned fees from 38% more clients than
in the prior year and recognized revenue from a record number of
transactions. Our new U.S. offices as well as the Japanese
and Australian businesses made significant contributions to our
revenues and our market share. We believe that our simple
business model as an independent, unconflicted adviser will
continue to create opportunities for us to attract new clients
and increase our market share. Furthermore, we believe that we
are well positioned to benefit once general transaction and fund
raising activity returns towards historic normal levels.
We generally experience significant variations in revenues and
profits during each quarterly period. These variations can
generally be attributed to the fact that our revenues are
usually earned in large
(1) Source:
Global M&A completed transaction volume for the year ended
December 31, 2010 as compared to the year ended
December 31, 2009. Source: Thompson Financial as of
January 25, 2011.
25
amounts throughout the year upon the successful completion of a
transaction or restructuring or closing of a fund, the timing of
which is uncertain and is not subject to our control. Moreover,
the timing of our recognition of gains or losses from our
investment portfolio may vary significantly from period to
period and depends on a number of factors beyond our control,
including most notably market and general economic conditions.
In addition, we report the value of our portfolio of investments
at estimated fair value at the end of each quarter. The value of
our investments may increase or decrease significantly depending
upon market factors that are beyond our control. As a result,
our quarterly results vary and our results in one period may not
be indicative of our results in any future period.
Results
of Operations
The following tables set forth data relating to the firms
sources of revenues:
Historical
Revenues by Source
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Financial advisory fees
|
|
$
|
252.2
|
|
|
$
|
216.0
|
|
|
$
|
218.2
|
|
|
$
|
366.7
|
|
|
$
|
209.8
|
|
Merchant banking & other investment revenues
|
|
|
26.1
|
|
|
|
82.6
|
|
|
|
3.7
|
|
|
|
33.7
|
|
|
|
80.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
278.3
|
|
|
$
|
298.6
|
|
|
$
|
221.9
|
|
|
$
|
400.4
|
|
|
$
|
290.6
|
|
Financial
Advisory Revenues
Historical
Financial Advisory Revenues by Client Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
North America
|
|
|
56
|
%
|
|
|
65
|
%
|
|
|
53
|
%
|
|
|
37
|
%
|
|
|
50
|
%
|
Europe
|
|
|
18
|
%
|
|
|
34
|
%
|
|
|
44
|
%
|
|
|
61
|
%
|
|
|
49
|
%
|
Australia
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia, Latin America & Other
|
|
|
11
|
%
|
|
|
1
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
1
|
%
|
Historical
Financial Advisory Revenues by Industry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
Communications & Media
|
|
|
7
|
%
|
|
|
1
|
%
|
|
|
11
|
%
|
|
|
12
|
%
|
|
|
15
|
%
|
Consumer Goods & Retail
|
|
|
6
|
%
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
20
|
%
|
|
|
4
|
%
|
Energy & Utilities
|
|
|
14
|
%
|
|
|
8
|
%
|
|
|
13
|
%
|
|
|
6
|
%
|
|
|
7
|
%
|
Financial Services
|
|
|
17
|
%
|
|
|
19
|
%
|
|
|
18
|
%
|
|
|
26
|
%
|
|
|
10
|
%
|
General Industrial & Other
|
|
|
39
|
%
|
|
|
36
|
%
|
|
|
34
|
%
|
|
|
28
|
%
|
|
|
35
|
%
|
Healthcare
|
|
|
7
|
%
|
|
|
16
|
%
|
|
|
8
|
%
|
|
|
1
|
%
|
|
|
21
|
%
|
Real Estate, Lodging & Leisure
|
|
|
6
|
%
|
|
|
2
|
%
|
|
|
8
|
%
|
|
|
5
|
%
|
|
|
4
|
%
|
Technology
|
|
|
4
|
%
|
|
|
10
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
We operate in a highly competitive environment where there are
no long-term contracted sources of revenue. Each
revenue-generating engagement is separately awarded and
negotiated. Our list of clients with whom there is an active
revenue-generating engagement changes continually. To develop
new client relationships, and to develop new engagements from
historic client relationships, we maintain a business dialogue
with a large number of clients and potential clients, as well as
with their
26
financial and legal advisors, on an ongoing basis. We have
gained a significant number of new clients each year through our
business development initiatives, through recruiting additional
senior investment banking professionals who bring with them
client relationships and through referrals from members of
boards of directors, attorneys and other parties with whom we
have relationships. At the same time, we lose clients each year
as a result of the sale or merger of a client, a change in a
clients senior management, competition from other
investment banks and other causes.
A majority of our financial advisory revenue is contingent upon
the closing of a merger, acquisition, financing, restructuring,
fund or similar transaction. A transaction can fail to be
completed for many reasons, including failure to agree upon
final terms with the counterparty, failure to secure necessary
board or shareholder approvals, failure to secure necessary
financing, failure to achieve necessary regulatory approvals and
adverse market conditions. In certain client engagements, often
those involving financially distressed companies, we earn a
significant portion of our revenue in the form of retainers and
similar fees that are contractually agreed upon with each client
for each assignment but are not necessarily linked to the end
result.
We do not allocate our financial advisory revenue by type of
advice rendered (M&A, financing advisory and restructuring,
capital advisory, or other) because of the complexity of the
assignments for which we earn revenue. For example, a
restructuring assignment can involve, and in some cases end
successfully in, a sale of all or part of the financially
distressed client. Likewise, an acquisition assignment can
relate to a financially distressed target involved in or
considering a restructuring. Finally, an M&A assignment can
develop from a relationship that we had on a prior restructuring
assignment, and vice versa.
2010 versus 2009. Financial advisory revenues
were $252.2 million for the year ended December 31,
2010 compared to $216.0 million for the year ended
December 31, 2009, which represents an increase of 17%. The
increase in our financial advisory fees in 2010 as compared to
2009 resulted from an increase in the volume of both completed
assignments and strategic advisory assignments with related
retainer fees, partially offset by a decrease in the typical
scale of the fees, which resulted from smaller average
transaction sizes.
Prominent financial advisory assignments completed in 2010
include:
|
|
|
|
|
the merger of Baker Hughes Incorporated with BJ Services Company;
|
|
|
|
the acquisition of Lihir Gold Limited by Newcrest Mining Ltd;
|
|
|
|
the acquisition by Emerson Electric Co. of Chloride Group plc;
|
|
|
|
the acquisition by Bucyrus International, Inc. of the mining
division of Terex Corporation;
|
|
|
|
the sale of USEN Corporations subsidiary Intelligence Ltd.
to Kohlberg Kravis Roberts & Co. L.P.;
|
|
|
|
the representation of the Pension Benefit Guaranty Corporation
in connection with its claims in various Chapter 11
proceedings;
|
|
|
|
the sale of Viridians regulated electricity transmission
and distribution business, Northern Ireland Electricity, to ESB;
|
|
|
|
the strategic alliance of Kohls Corporations private
label credit card business with Capital One Financial
Corporation;
|
|
|
|
the acquisition by AXA Private Equity of a portfolio of limited
partnership interests in private equity funds from Bank of
America; and
|
|
|
|
the sale by
Coca-Cola
Enterprises, Inc. of its North American bottling operations to
The
Coca-Cola
Company and concurrent acquisition of the bottling operations in
the Nordic region.
|
27
We earned advisory revenue from 108 different clients in 2010,
compared to 78 in 2009. We earned $1 million or more from
57 clients in 2010, compared to 43 in 2009, of which 44% were
new to the firm in 2010 compared to 47% in 2009. The ten largest
fee-paying clients contributed 36% and 41% to our total revenues
in 2010 and 2009, respectively, and only one of those clients
had in any prior year been among our ten largest fee-paying
clients. In 2010, we did not have any client engagements that
accounted for 10% or more of our total revenue. From a global
perspective in 2010 compared to 2009 our advisory revenues
increased in Australia, as a result of the acquisition of
Caliburn, and Japan and declined in North America. European
advisory remained relatively constant year to year.
2009 versus 2008. Financial advisory revenues
were $216.0 million for the year ended December 31,
2009 compared to $218.2 million for the year ended
December 31, 2008, which represents a decrease of 1%. The
slight decrease in our financial advisory fees in 2009 as
compared to 2008 resulted from a decrease in the scale of
completed assignments partially offset by an increase in the
volume of active engagements.
Prominent financial advisory assignments completed in 2009
include:
|
|
|
|
|
the acquisition by Roche Holding Ltd. of the outstanding
publicly held interest in Genentech, Inc;
|
|
|
|
the sale by TUI AG of its shipping
division Hapag-Lloyd
AG to Albert Ballin Holding GmbH & Co. KG;
|
|
|
|
the representation of The Dow Chemical Company during its
negotiations pertaining to the Rohm & Haas settlement
resolution;
|
|
|
|
the representation of BearingPoint, Inc. on the sale of
substantially all of its assets pursuant to a Section 363
process under Chapter 11;
|
|
|
|
the sale of nine of Dynegy Inc.s power plants to LS Power
Equity Partners;
|
|
|
|
the acquisition by Validus Holdings Ltd. of IPC Holdings Ltd.;
|
|
|
|
the acquisition by Emerson Electric Co. of Avocent Corporation;
|
|
|
|
the acquisition by Wells Fargo & Company of Prudential
Financials noncontrolling interest in their retail
brokerage joint venture; and
|
|
|
|
the financial restructuring of NCI Building Systems.
|
We earned financial advisory revenue from 78 different clients
in 2009, compared to 65 in 2008. We earned $1 million or
more from 43 clients in 2009, compared to 37 in 2008, of which
47% were new to the firm in 2009 compared to 24% in 2008. The
ten largest fee-paying clients contributed 41% and 54% to our
total revenues in 2009 and 2008, respectively, and only four of
those clients had in any prior year been among our ten largest
fee-paying clients. In 2009, we earned approximately 10% of our
total revenue from our single largest client engagement (advice
to Roche Holdings Ltd. in connection with its acquisition of the
outstanding publicly held interest in Genentech, Inc.). In 2008,
we earned approximately 10% of total revenues from our single
largest client engagement (advice to Delta Air Lines in
connection with it merger with Northwest Airlines). From a
global perspective in 2009 as compared to 2008 our advisory
revenues increased in North America and declined in Europe.
Merchant
Banking and Other Investment Revenues
In December 2009 we sold certain assets related to the merchant
banking business, including the right to raise subsequent
merchant banking funds and a non-controlling ownership interest
in our subsidiary, Greenhill Capital Partners II LLC
(GCP II LLC), to GCP Capital. During 2010, under the
terms of the separation agreement, GCP II LLC managed and
administered the merchant banking funds during a transition
period, which ended on December 31, 2010. Effective
January 1, 2011, GCP
28
Capital took over management of the merchant banking funds and
as a result we will no longer earn management fee revenue or
incur expenses related to that business.
During 2010 we recorded the revenues and expenses related to our
management of the merchant banking funds in our consolidated
results. During that period GCP Capital had a preferred economic
interest in the first $10.0 million of profits of GCP II
LLC and accordingly, the $4.9 million excess of management
fee revenue over amounts incurred for compensation and other
operating expenses that accrued to the benefit of GCP Capital,
was presented as noncontrolling interest expense, which had the
effect of reducing our net income allocated to common
shareholders. Effective January 1, 2011, we no longer
manage the merchant banking funds, however we retain our
existing investments in the merchant banking funds and will
continue to recognize gains and losses on our investments until
such investments are realized over time. See Item 2.
Management Discussion and Analysis of Financial Condition and
Results of Operations Liquidity and Capital
Resources.
For 2010 and prior years our merchant banking activities
consisted primarily of the management of and our investments in
Greenhills merchant banking funds and our investment in
Iridium. The following table sets forth additional information
relating to our merchant banking and other investment revenues:
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|
|
|
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|
|
For the Year Ended December 31,
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|
|
2010
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|
|
2009
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|
|
2008
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|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
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|
|
Management fees
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$
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12.9
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|
|
$
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17.4
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|
|
$
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19.2
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|
|
$
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17.3
|
|
|
$
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15.2
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Net realized and unrealized gains (losses) on investments in
merchant banking funds
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6.7
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|
|
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3.5
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|
|
|
(20.1
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)
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7.0
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|
|
|
27.1
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Net realized and unrealized merchant banking profit overrides
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0.2
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|
|
|
(0.7
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)
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|
|
(2.7
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)
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|
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1.8
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|
|
|
34.6
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|
Sale of certain merchant banking assets
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1.1
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|
|
21.8
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|
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|
|
|
|
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|
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Net unrealized gain (loss) in Iridium
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5.0
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42.2
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|
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2.6
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|
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|
|
|
|
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Other realized and unrealized investment income (loss)
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|
(0.2
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)
|
|
|
(1.9
|
)
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|
|
1.1
|
|
|
|
2.2
|
|
|
|
0.8
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|
Interest income
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|
|
0.4
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|
|
|
0.3
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|
|
|
3.6
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|
|
5.4
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|
|
3.1
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|
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|
|
|
|
|
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Total merchant banking and other investment revenues
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$
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26.1
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$
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82.6
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|
|
$
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3.7
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|
|
$
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33.7
|
|
|
$
|
80.8
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|
|
|
|
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|
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|
Through December 31, 2010 we generated merchant banking and
other investment revenue from (i) management fees paid by
the merchant banking funds, (ii) gains (or losses) on our
investments in the merchant banking funds, Iridium and similar
vehicles, and (iii) profit overrides. In addition, our
merchant banking and other investment revenues included the gain
related to our 2009 sale of certain merchant banking assets.
We earned management fees from the merchant banking funds
generally ranging from 1.5% to 2.5% of committed capital during
the 5 year commitment period and ranging from 1.0% to 2.0%
of invested capital after the termination of the applicable
commitment period. The amount of management fees earned from a
fund after the termination of the commitment period declines
because the fee percentage paid by limited partners is lower and
the fee calculation is based upon invested capital instead of
committed capital. Invested capital decreases as the investments
are liquidated.
We recognize revenue on investments in merchant banking funds
based on our allocable share of realized and unrealized gains
(or losses) reported by such funds on a quarterly basis. In
addition, we recognize the consolidated earnings of the general
partners of these funds in which we have a majority economic
interest, offset by allocated expenses of the funds. We also
recognize revenue based on the realized and unrealized gains (or
losses) from our investment in Iridium on a quarterly basis. We
record our investments at estimated fair value. The value of the
merchant banking fund investments in privately held companies is
determined on a quarterly basis by the general partner of the
fund after giving consideration to the cost of the security, the
pricing of other sales of securities by the portfolio company,
the price of securities of other companies comparable to the
portfolio company, purchase
29
multiples paid in other comparable third-party transactions, the
original purchase price multiple, market conditions, liquidity,
operating results and other quantitative and qualitative
factors. Discounts may be applied to the funds privately
held investments to reflect the lack of liquidity and other
transfer restrictions. Investments held by the merchant banking
funds as well as those held directly by us in publicly traded
securities are valued using quoted market prices discounted for
any legal or contractual restrictions on sale. Because of the
inherent uncertainty of valuations as well as the discounts
applied, the estimated fair values of investments in privately
held companies may differ significantly from the values that
would have been used had a ready market for the securities
existed. Furthermore, due to the volatility in general economic
conditions, stock markets and commodity prices we may record
significant changes in the fair value of the investments from
quarter to quarter. Significant changes in the estimated fair
value of our investments may have a material effect, positive or
negative, on our revenues and thus our results of operations.
See Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations
Critical Accounting Policies and
Estimates Revenue Recognition Merchant
Banking and Other Revenues.
Based on our original position as the general partner of the
existing merchant banking funds, we are entitled to receive an
override of the profits of the funds after certain performance
hurdles are met; whether these hurdles can be met will depend on
the underlying fair value of each portfolio company. Overrides
are generally calculated on a
deal-by-deal
basis but are subject to investment performance over the life of
each merchant banking fund. We may be required to repay a
portion of the overrides to the limited partners of the funds in
the event a profit override has been realized and paid to the
general partner and a minimum performance level is not achieved
by the fund as a whole (we refer to these potential repayments
as clawbacks). As of December 31, 2010, the net
internal rate of return of each investment in GCP II, GCP Europe
and GSAVP was negative. We have not recognized profit overrides
from these investments. Unless there are significant gains in
the value of the portfolio companies in each fund it is not
likely that the profit threshold for each fund will be exceeded
and accordingly is not likely that profit override revenue will
be recognized. In connection with the sale of the merchant
banking business the share of any profit overrides earned by the
merchant banking funds to which we will be entitled was reduced
for investments made by the merchant banking funds after
January 1, 2010 to 1 out of 20 points, or 5% of the profit
override earned, from 10 out of 20 points, or 50% of the profit
override earned from investments made prior to 2010.
We recognize gains or losses from our investment in Iridium
based on the fair market value of our investment as of the end
of any period. At of December 31, 2010 and 2009, we owned
8,924,016 shares of Iridium common stock and 4,000,000
Iridium $11.50 warrants (NASDAQ: IRDMZ), or approximately 12% of
the Iridiums common stock on a fully diluted basis. In
2010, the fair market value of our investment in Iridium
increased by $5.0 million. In 2009, we recorded an
unrealized gain of $42.2 million in our investment in
Iridium as a result of the business combination with GHL
Acquisition Corp.
At December 31, 2010, the firm had principal investments of
$160.9 million, including our investment in Iridium of
$80.9 million. Declines in the fair market value of the
merchant banking funds and particularly Iridium, because of the
relative size of that investment, may adversely affect the
amount of merchant banking and other investment revenues
recorded in any period.
In 2009, we recognized a gain of $21.8 million from the
sale of certain assets relating to our merchant banking business
to GCP Capital in exchange for 289,050 shares of the
firms common stock. In addition, approximately
$2.6 million of additional gain on the sale was deferred
and is being recognized principally over the two years following
the sale. In 2010 we recognized $1.1 million of the
$2.6 million deferred gain.
2010 versus 2009. For the year ended
December 31, 2010, the firm earned $26.1 million in
merchant banking and other investment revenues compared to
$82.6 million in the year ended December 31, 2009. The
decrease in 2010 merchant banking and other investment revenues
resulted
30
primarily from the absence of both the large 2009 unrealized
gain recorded in Iridium and the gain related to the sale of
certain merchant banking assets as part of our separation from
that business. Management fees declined in 2010 as compared to
the prior year as a result of the expiration of the commitment
period in June 2010 of GCP II. The firm had no gains (or losses)
from any single investment in 2010 that accounted for more than
10% of total revenues. The gain recognized by the firm on its
investment in Iridium in 2009 contributed more than 10% to total
revenues.
2009 versus 2008. For the year ended
December 31, 2009, the firm earned $82.6 million in
merchant banking and other revenues compared to
$3.7 million in 2008, an increase of $78.9 million.
The increase in merchant banking and other investment revenue
resulted primarily from the $42.2 million unrealized gain
on the firms investment in Iridium and the
$21.8 million gain related to the sale of certain merchant
banking assets in connection with the separation of the merchant
banking business. In 2009 there was a slight increase in the
fair market value of our investments in the merchant banking
funds as compared to a decline in the fair market value of the
merchant banking funds in 2008. The decrease in management fees
in 2009 as compared to 2008 related to the payment of a
transaction fee by a merchant banking portfolio company in 2008,
which offset management fees payable in 2009.
The investment gains or losses in our merchant banking and
other investment portfolio may fluctuate significantly over time
due to factors beyond our control, such as performance of each
company in the merchant banking portfolio, equity market
valuations, commodity prices and merger and acquisition
opportunities. Revenue recognized from gains (or losses)
recorded in any particular period are not necessarily indicative
of revenue that may be realized
and/or
recognized in future periods.
Operating
Expenses
For the year ended December 31, 2010, total operating
expenses were $219.4 million, compared to
$184.8 million for the same period in 2009. The increase of
$34.6 million, or 19%, results from increases in
compensation expense and non-compensation expenses, both related
to the expansion of the firm, as described in more detail below.
Similarly, as a result of relatively low revenue and an increase
in our operating costs, our 2010 pre-tax income margin was 21%
as compared to 38% in 2009.
We classify operating expenses as employee compensation and
benefits expense and non-compensation expenses. Operating
expenses apart from compensation historically have been modest
in proportion to revenues, as a result of the relatively small
number of staff and related costs (including travel, office
space, communications, information services, depreciation,
professional services and interest expense) that the firm bears.
A portion of certain costs are reimbursed by clients under the
terms of client engagements.
The following table sets forth information relating to our
operating expenses, which are reported net of reimbursements of
certain expenses by our clients and merchant banking portfolio
companies:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(in millions, except employee data)
|
|
Number of employees at year end
|
|
|
323
|
|
|
|
290
|
|
|
|
234
|
|
Employee compensation and benefits expense
|
|
$
|
159.9
|
|
|
$
|
138.3
|
|
|
$
|
102.0
|
|
% of revenues
|
|
|
57
|
%
|
|
|
46
|
%
|
|
|
46
|
%
|
Non-compensation expenses
|
|
|
59.5
|
|
|
|
46.5
|
|
|
|
42.0
|
|
% of revenues
|
|
|
21
|
%
|
|
|
16
|
%
|
|
|
19
|
%
|
Total operating expenses
|
|
|
219.4
|
|
|
|
184.8
|
|
|
|
144.0
|
|
% of revenues
|
|
|
79
|
%
|
|
|
62
|
%
|
|
|
65
|
%
|
Total income before tax
|
|
|
59.0
|
|
|
|
113.9
|
|
|
|
77.9
|
|
Pre-tax income margin
|
|
|
21
|
%
|
|
|
38
|
%
|
|
|
35
|
%
|
31
Compensation
and Benefits Expenses
The principal component of our operating expenses is employee
compensation and benefits expense. Since our IPO in 2004 we have
sought to keep our total compensation and benefits expense to a
ratio that would not exceed 50% of total revenues each year. For
the years 2005 through 2009 our ratio of compensation to
revenues was 46%. For the year ended December 31, 2010 the
ratio of compensation to revenues was 57% as more fully
described below. The actual compensation expense ratio is
determined by management in consultation with the Compensation
Committee and based on such factors as the relative level of
revenues, anticipated compensation requirements for our
employees, the level of recruitment of new managing directors in
any given period, the amount of compensation expense amortized
for restricted stock units and other relevant factors.
The compensation we pay to our employees consists of
(i) base salary and benefits, (ii) annual incentive
compensation payable as cash bonus awards and
(iii) long-term incentive compensation awards of restricted
stock units. Base salary and benefits are paid ratably
throughout the year. Awards of restricted stock units are
discretionary and are amortized into compensation expense (based
upon the fair value of the award at the time of grant) during
the service period over which the award vests, which is
generally five years. As we expense these awards, the restricted
stock units recognized are recorded within stockholders
equity. Cash bonuses, which are accrued each quarter, are
discretionary and dependent upon a number of factors, including
the performance of the firm, and are generally paid in February
in respect of the preceding year.
Our base compensation increased from $50.0 million in 2008
to $81.3 million in 2010. The increase in base compensation
reflects the addition of approximately 90 new employees over
that period and an increase in the base amount paid to our
professional employees who were not managing directors
consistent with increases made to such employees by our
competitors.
Awards of restricted stock units are charged to expense during
the service period over which the award vests, which is
generally five years with nearly 90% of the award (for an award
which vests ratably over the period) expensed within three years
of the grant. Amortization of restricted stock awards amounted
to $32.2 million in 2008, $40.5 million in 2009 and
$53.6 million in 2010. In February 2011, our employees were
granted 919,768 restricted stock units as part of the long-term
incentive award program. In conjunction with the acquisition of
Caliburn we awarded 212,685 restricted stock units of which
127,575 will vest in April 2013 and 85,050 will vest in April
2015 subject to the achievement of certain revenue performance
targets. We will begin to amortize these awards over the
remaining vesting period when (if ever) it is probable that the
performance targets will be met.
The discretionary cash bonus payments generally represent the
excess amount of the compensation pool over the amount of base
compensation and amortization of restricted stock awards. Cash
bonus payments of $21.0 million, $37.0 million and
$24.9 million were paid
and/or
accrued in 2008, 2009 and 2010, respectively. The majority of
the payments in each of the last three years were made to
professional employees who were not managing directors,
consistent with our philosophy of providing our senior bankers a
greater share of their compensation in the form of long term
incentive compensation.
The increase in the 2010 ratio of compensation and benefits
expense to revenue as compared to the ratio in prior periods
principally resulted from an increase in base compensation
costs, which was mainly attributable to employees added with the
acquisition of Caliburn, the addition of a significant number of
new senior bankers, and increased amortization of restricted
stock awards related to both new hires who joined us in the past
few years and annual long term compensation awards, compared to
a more modest increase in our revenues since 2008. Historically,
our growth in revenues has lagged our growth in headcount. In
addition, our third year of significant personnel expansion
occurred in a period during which M&A volume declined and
our financial advisory revenues grew only modestly. It is our
objective to return towards our stated policy of a ratio of
compensation to revenue not to exceed 50%. We will balance this
policy goal with our objective of retaining our core personnel
and compensating
32
them at prevailing market rates, and of continuing to expand our
industry expertise and geographic reach.
2010 versus 2009. Our employee compensation
and benefits expenses were $159.9 million for the year
ended December 31, 2010 as compared to $138.3 million
of compensation and benefits expense for the same period in
2009. The increase of $21.6 million, or 16%, principally
results from the significant recruitment of managing directors
during 2010, including those who joined us as a result of the
acquisition of Caliburn. For 2010, the ratio of compensation to
revenues was 57% as compared to 46% in 2009.
2009 versus 2008. For the year ended
December 31, 2009, our employee compensation and benefits
expenses were $138.3 million, which compares to
$102.0 million of compensation and benefits expense for the
year ended December 31, 2008. The increase of
$36.3 million, or 36%, is due to the higher level of
revenues in 2009 compared to 2008. For the year ended
December 31, 2009, the ratio of compensation to revenues
was 46%, which was the same as 2008.
Our compensation expense is generally based upon revenue and
can fluctuate materially in any particular year depending upon
the increase in headcount, amount of revenue recognized as well
as other factors. Accordingly, the amount of compensation
expense recognized in any particular year may not be indicative
of compensation expense in a future period.
Non-Compensation
Expenses
Our non-compensation expenses include the costs for occupancy
and equipment rental, communications, information services,
professional fees, recruiting, travel and entertainment,
insurance, depreciation, interest expense and other operating
expenses. Reimbursed client expenses are netted against
non-compensation expenses.
Over the long-term we expect that our non-compensation costs,
particularly occupancy, travel and information services costs,
will increase as we grow our business and make strategic
investments. The amount of such increases will be dependent
mostly on our geographic expansion to new locations and to a
much lesser extent on our increase in headcount within our
existing locations. Since 2008 our non-compensation costs
increased by $17.5 million, of which $10.0 million
relates to our expansion in Japan and Australia. The remaining
cost increases relate principally to occupancy costs for new
U.S. offices, greater travel costs associated with business
development by a greater number of employees, and professional
fees related to the acquisition of Caliburn.
2010 versus 2009. For the year ended
December 31, 2010, our non-compensation expenses were
$59.5 million, compared to $46.5 million for the same
period in 2009, reflecting an increase of $13 million or
28%. The increase in non-compensation expenses includes costs
from our recently acquired Australian business of
$6.7 million, including $2.4 million related to the
amortization of acquired intangible assets. As compared to 2009
the remainder of the increase in costs related to higher
occupancy, travel, and other costs related to the increase in
personnel and transaction costs incurred for the Australian
acquisition. Interest expense increased due to higher average
borrowings outstanding in 2010 as compared to 2009.
Non-compensation expenses as a percentage of revenues were 21%
and 16% for the years ended December 31, 2010 and 2009,
respectively. This increase in non-compensation expenses as a
percentage of revenue in the year ended December 31, 2010
as compared to the prior year reflects higher expenses spread
over lower revenues.
2009 versus 2008. For the year ended
December 31, 2009, our non-compensation expenses were
$46.5 million, which compared to $42.0 million for the
year ended December 31, 2008, representing an increase of
$4.5 million, or 11%. The increase is principally related
to the absence of foreign currency gains compared with 2008,
higher professional fees attributable to the sale of certain
merchant banking assets and an advisory assignment, higher
occupancy costs related to the addition of new offices,
partially offset by decreased interest expense due to lower
average borrowings outstanding.
33
Non-compensation expenses as a percentage of revenues were 16%
and 19% for the years ended December 31, 2009 and 2008,
respectively. The decrease in non-compensation expenses as a
percentage of revenue in the year ended December 31, 2009
as compared to the prior year reflects higher expenses spread
over significantly higher revenues.
The firms non-compensation expenses as a percentage of
revenue can vary as a result of a variety of factors including
fluctuation in annual revenue amounts, the increase in
headcount, the amount of recruiting and business development
activity, the amount of office expansion, the amount of
reimbursement of engagement-related expenses by clients, the
amount of our short term borrowings, interest rate and currency
movements and other factors. Accordingly, the non-compensation
expenses as a percentage of revenue in any particular year may
not be indicative of the non-compensation expenses as a
percentage of revenue in future years.
Provision
for Income Taxes
We are subject to federal, foreign and state and local corporate
income taxes in the United States. In addition, our
non-U.S. subsidiaries
are subject to income taxes in their local jurisdictions.
2010 versus 2009. For the year ended
December 31, 2010, the provision for taxes was
$19.5 million, which reflects an effective tax rate on
income allocated to common stockholders of 36%. This compares to
a provision for taxes for the year ended December 31, 2009
of $42.7 million, which reflects an effective tax rate of
38% for the year. The decrease in the provision for taxes is
attributable to lower pre-tax income. The decrease in the
effective tax rate primarily resulted from relatively lower
state taxes during the year ended December 31, 2010 as
compared to 2009.
In 2010 we incurred tax losses in Europe, Canada and Japan which
in aggregate totaled $23.6 million. The losses attributable
to each jurisdiction may be carried forward for twenty years and
longer to offset future taxable income in these respective
jurisdictions. Based upon the historic profitability of our
business in Europe and Canada as well as revenues we expect to
generate from current assignments in each jurisdiction, we
believe that we will fully utilize our tax loss carryforwards.
2009 versus 2008. For the year ended
December 31, 2009, the provision for taxes was
$42.7 million, which reflects an effective tax rate of 38%.
This compares to a provision for taxes for the year ended
December 31, 2008 of $29.4 million, which also
reflects an effective tax rate of 38% for the year. The increase
in the provision for income taxes in 2009 as compared to 2008
principally results from higher pre-tax income. The effective
tax rate for 2009 reflected the benefit of the sale of certain
merchant banking assets, which was structured as a tax-free
transaction, offset by a significantly greater portion of our
2009 earnings generated in the U.S., a jurisdiction that has a
relatively high corporate tax rate.
The effective tax rate can fluctuate as a result of
variations in the relative amounts of financial advisory and
investment income earned in the tax jurisdictions in which the
firm operates and invests. Accordingly, the effective tax rate
in any particular year may not be indicative of the effective
tax rate in future years.
Noncontrolling
interest
As part of our historical involvement in the merchant banking
funds we control the general partners of GCP I, GCP II,
GSAVP and GCP Europe (collectively the General
Partners), and we have a majority of the economic interest
in those entities. We did not sell our interest in the General
Partners in conjunction with our exit from the merchant banking
business and we continue to control them after our separation.
We also control GCP LLC II (the Interim Manager)
although GCP Capital has a preferred economic interest in the
first $10.0 million of its 2010 profits. In accordance with
our arrangement with GCP Capital, which we entered into as part
of the separation of our merchant banking business, we managed
and administered the merchant banking funds through the Interim
Manager during a transition period from December 22, 2009
through December 31, 2010. During that period the excess
34
of management fees revenue over amounts paid for compensation
and other operating costs associated with the management of the
merchant funds accrued to the benefit of the GCP Capital.
In accordance with the applicable accounting guidance for
variable interest entities, because we controlled the Interim
Manager during 2010 and the General Partners during 2010 and in
prior years, we included all revenues and expenses of such
entities in our consolidated results. The allocable portion of
the economic profit that was not attributable to the firm was
recorded as net income allocated to noncontrolling interests and
reduced or increased net income allocated to our common
shareholders depending upon whether the entities generated
earnings or incurred a loss.
Effective December 31, 2010 we no longer control the
Interim Manager and accordingly we will no longer generate
revenues or expenses related to the management of the merchant
banking funds. As a result, we will no longer recognize in our
future financial results net income allocable to noncontrolling
interests from the Interim Manager. We will, however, continue
to control the General Partners although we do not expect to
recognize on a
year-to-year
basis any significant gain or loss from them unless we realize
profit overrides from the investments. Accordingly, we do not
expect the amount of general partner earnings or loss allocable
to noncontrolling interests to be significant. See
Management Discussion and Analysis Liquidity
and Capital Resources.
2010 versus 2009. For the year ended
December 31, 2010, net income allocated to noncontrolling
interests was $4.9 million, which reduced net income
allocable to our common shareholders by that amount. For the
year ended December 31, 2009, the net loss allocable to
noncontrolling interests was $0.1 million, which increased
net income allocable to our common shareholders by that amount.
The increase in the amount of net income allocable to
noncontrolling interests in 2010 was entirely related to the
preferred economic interest due GCP Capital for the excess of
management fee revenue over costs associated earned by the
Interim Manager. For 2010 there was not any income or loss
realized by the General Partners.
2009 versus 2008. For the years ended
December 31, 2009 and 2008, our noncontrolling interests
recognized losses of $0.1 million and $0.5 million,
respectively, which increased net income allocable to our common
shareholders in each year. The noncontrolling interest losses
recognized in 2009 and 2008 arose from the portion of the losses
of the merchant banking funds allocated to the General Partners,
which were not attributable to the firm.
Net
Income and Earnings Per Share
2010 versus 2009. For the year ended
December 31, 2010, net income allocated to common
stockholders was $34.5 million, or $1.12 per diluted share,
as compared to net income allocated to common stockholders of
$71.2 million, or $2.39 per diluted share, in 2009. The
decrease in earnings per share principally resulted from the
increase in both compensation and non-compensation costs as
described above as well as the decrease in total revenues.
During 2010 our fully diluted average shares outstanding
increased to 30.8 million from 29.8 million in 2009.
The increase in our average shares outstanding principally
related to the issuance of 1.1 million shares in connection
with the acquisition of Caliburn in April 2010 and the
recognition of 0.4 million restricted stock unit awards,
net of shares deemed repurchased by the firm for the settlement
of employee tax liabilities arising upon the vesting of the
awards, partially offset by both open market repurchases of
0.2 million shares and 0.3 million shares received in
December 2009 from certain employees in conjunction with the
sale of the merchant banking business. The average shares
outstanding at December 31, 2010 does not include an
additional 1.1 million contingent convertible preferred
shares issued to the founding partners of Cailburn, which may be
converted to an equal number of common shares of the firm in the
event certain performance targets are achieved in the future.
See Note 3 Acquisition,
Note 9 Equity and Note 10
Earnings Per Share of the Consolidated Financial
Statements for a description of the convertible preferred shares.
2009 versus 2008. For the year ended
December 31, 2009, net income allocated to common
stockholders was $71.2 million, or $2.39 per diluted share,
as compared to net income allocated to
35
common stockholders of $49.0 million, or $1.74 per diluted
share, in 2008. The increase in earnings per share principally
resulted from the increase in revenue as described above.
During 2009 our fully diluted average shares outstanding
increased to 29.8 million from 28.2 million in 2008.
The increase in our average shares outstanding principally
related to weighted average impact of the issuance of
1.3 million shares issued by us in a primary offering in
November 2008 and the recognition of 0.3 million restricted
stock unit awards, net of shares deemed repurchased by the firm
for the settlement of employee tax liabilities arising upon the
vesting of the awards. In 2009 we did not make any open market
share repurchases. In 2008 we made open market repurchases of
0.1 million shares.
Geographic
Data
For a summary of the total revenues, income before taxes and
total assets by geographic region, see
Note 16 Business Information to the
Consolidated Financial Statements.
Liquidity
and Capital Resources
Our liquidity position is monitored by our Management Committee,
which generally meets monthly. The Management Committee monitors
cash, other significant working capital assets and liabilities,
debt, principal investment commitments and other matters
relating to liquidity requirements. As cash accumulates, it is
retained in financial institutions with high credit ratings
and/or
invested in short-term investments which are expected to provide
significant liquidity.
We generate cash from our operating activities principally in
the form of financial advisory fees and our investment
activities in the form of distributions of investment proceeds.
We use our cash primarily for operating purposes, compensation
of our employees, payment of income taxes, the funding of our
commitments to the merchant banking funds, payment of dividends,
repurchase of shares of our stock (both in open market purchases
and repurchases from our employees in conjunction with the
payment of taxes liabilities incurred on the vesting of
restricted stock awards) and leasehold improvements.
Because a portion of the compensation we pay to our employees is
distributed in annual bonus awards in February of each year, our
net cash balance is typically at its lowest level during the
first quarter and generally accumulates from our operating
activities throughout the remainder of the year. In general, we
collect our accounts receivable within 60 days except for
certain restructuring transactions, where collections may take
longer due to court-ordered holdbacks, and fees generated
through our private equity and real estate capital advisory
services, which are generally paid in installments over a period
of three years. Our liabilities typically consist of accounts
payable, which are generally paid monthly, accrued compensation,
which includes accrued cash bonuses that are generally paid in
the first quarter of the following year to the large majority of
our employees, and taxes payable. In February 2011, cash bonuses
and accrued benefits of $17.6 million relating to 2010
compensation were paid to our employees. In addition, we expect
to pay approximately $7.3 million in early 2011 related to
income taxes owed in the United States and Australia for the
year ended December 31, 2010.
Our deferred tax liabilities may increase or decrease from
period to period depending upon the change in the fair value of
our investments in the merchant banking funds and other
principal investments. Our current tax liability will increase
at the time we realize investment gains. In the event we realize
losses on our investments, such losses will only be available to
offset realized investment gains in the current or future
periods.
We historically earned fees from the management of our merchant
banking funds. For the years ended December 31, 2010, 2009
and 2008, those fees totaled $12.9 million,
$17.4 million and $19.2 million, respectively. On
December 31, 2010, we exited the merchant banking business.
Prior to that time, our merchant banking activities consisted
primarily of management of and investment in our historic
36
merchant banking funds. During a transition period in 2010 we
managed and administered the merchant banking funds and recorded
the revenue and expenses related to our management of the
merchant banking funds in our consolidated results and
distributed the excess of the management fee revenue over the
amount paid for compensation and other operating costs
associated with the management of the funds to GCP Capital. On
January 1, 2011, GCP Capital took over the management of
the merchant banking funds and as a result, we no longer earn
management fee revenue or incur associated costs related to the
management of the merchant banking business.
Although we no longer manage the merchant banking funds, we
retained our existing principal investments in the merchant
banking funds as well as our investment in Iridium. We also
retained our allocation of profit override for investments made
prior to 2010. However, unless the funds realize significant
gains it is not likely that the earnings of any of the funds
will exceed their profit thresholds and therefore, we currently
do not expect to recognize any profit override revenue in future
periods.
At December 31, 2010 we had unfunded commitments to the
existing merchant banking funds of approximately
$34.6 million, of which we expect up to $28.2 million
will be drawn down in the next few years. We expect that
approximately $1.5 million of the firms unfunded
commitment to GCP II of $7.9 million may be drawn down for
follow-on investments through June 2012, the termination date of
the funds extended commitment period, with the remaining
commitment to be undrawn. Our unfunded commitments to GSAVP, GCP
Europe, Greenhill Capital Partners III were
$3.4 million, $19.0 million (£12.2 million),
and $4.3 million, respectively, as of December 31,
2010 and may be drawn on through September 2011, December 2012,
and November 2015, respectively. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Contractual Obligations.
To provide for working capital needs and other general corporate
purposes we have a $75.0 million revolving bank loan
facility. Borrowings under the facility are secured by any cash
distributed in respect of our investment in the U.S. based
merchant banking funds and cash distributions from
Greenhill & Co. LLC, and is subject to a borrowing
base limitation. Interest on borrowings is based on the higher
of the Prime Rate or 4.0%. The maturity date of the facility is
April 30, 2011. At December 31, 2010, we had
$67.0 million of borrowings outstanding on the revolving
bank loan facility. The revolving loan facility has a
prohibition on the incurrence of additional indebtedness without
the prior approval of the lenders and requires that we comply
with certain financial and liquidity covenants. At
December 31, 2010, the firm was compliant with all loan
covenants.
We generally roll over the maturity date of our revolving loan
facility annually and expect to do so on or prior to the
scheduled maturity date of April 30, 2011. Our inability to
extend the maturity date of the loan or renew the facility on
acceptable terms with the existing lender could require us to
repay all or a portion of the loan balance outstanding at
maturity. There is no assurance, if our credit facility is not
renewed with the current lender, that we would be able to obtain
a new credit facility from a different lender or raise debt
securities in the public or private markets. In order to repay
the outstanding balance of our credit facility, or if we are
unable to renew our credit facility, we could be required to
repatriate funds to the U.S., liquidate some of our principal
investments or issue additional securities, or a combination of
each, in each case on terms which may not be favorable to us.
As a result of our decision to separate from the merchant
banking business we are focused entirely on our advisory
business. Over the next five years we plan to liquidate our
investments in the merchant banking funds, Iridium, and other
investments, which had an estimated fair market value of
$160.9 million as of December 31, 2010. While we will
continue to fund the remaining commitments to the existing
merchant banking funds, we have substantially reduced our
commitments to successor funds and do not expect to make other
fund commitments.
The merchant banking funds typically invest in privately held
companies. The ability of the merchant banking funds to sell or
dispose of the securities they own depends on a number of
factors beyond the control of the funds, including general
economic and sector conditions, stock market conditions,
commodity prices, and the availability of financing to potential
buyers of such securities, among other issues. As a result we
consider our investments illiquid for the short term.
37
Our investments in Iridium, which represent approximately 12% of
Iridiums fully diluted common stock, had a value of
$80.9 million as of December 31, 2010. In 2010 all
contractual restrictions on the sale of our investments in
Iridium lapsed. Our ability to sell all or a portion of our
investments in Iridium at a value that is attractive to us is
subject to factors such as general economic, sector and stock
market conditions, and other factors, which we cannot control.
Moreover, we may be limited in our ability to sell our
investment in Iridium because we sit on the board of directors
of the company. It is our intention to monetize our position in
a disciplined manner over time dependent on market conditions.
We generally use a portion of our cash reserves to repurchase
shares of our common stock, pay dividends and fund capital
commitments. In April 2010, our Board of Directors authorized
the repurchase of up to $100 million of our common stock
through the period ending December 31, 2011. We expect to
fund our repurchase of shares as we realize proceeds from our
investments
and/or
generate operating cash flow as transaction activity further
rebounds. Our remaining commitments to our merchant banking
funds may require us to fund capital calls on short notice. We
are unable to predict the timing or magnitude of share
repurchase opportunities, capital calls or distribution of
investment proceeds.
During the year ended December 31, 2010 the firm
repurchased 181,550 shares of its common stock in open
market purchases at an average price of $68.21. As of
February 23, 2011 we had remaining authorization to
repurchase up to $87.6 million. Additionally, during the
year ended December 31, 2010, the firm is deemed to have
repurchased 317,554 shares of its common stock at an
average price of $78.18 per share (for a total cost of
$24.8 million) in conjunction with the payment of tax
liabilities in respect of stock delivered to its employees in
settlement of restricted stock units. Based upon the number of
restricted stock unit grants outstanding at December 31,
2010, we expect to fund repurchases of our common stock from our
employees in conjunction with the cash settlement of tax
liabilities incurred on vesting of restricted stock units of
approximately $91.5 million (as calculated based upon the
closing share price as of February 7, 2011) over the
next five years, of which approximately $22.6 million will
be payable in 2011, $14.3 million will be payable in 2012,
$14.7 million will be payable in 2013, $27.8 million
will be payable in 2014, and $12.1 million will be payable
in 2015 (assuming tax rates remain at the current levels). We
will realize a corporate income tax benefit concurrently with
the cash settlement payments.
Our acquisition of Caliburn was funded with the issuance of
1,099,874 shares of our common stock and 1,099,877
contingent convertible preferred shares. The contingent
convertible preferred shares do not pay dividends and will
convert to shares of the firms common stock in tranches of
659,926 shares and 439,951 shares on the third and
fifth anniversary of the closing of the acquisition,
respectively, if certain revenue targets are achieved. If the
performance target for a tranche are not achieved the contingent
convertible preferred shares in such tranche will be cancelled.
In addition to the equity issued to the sellers, the selling
shareholders and certain other non-founding partners received a
post closing distribution of profits accrued prior to the
acquisition date of approximately $6.9 million. In
connection with the acquisition we assumed Caliburns
deferred compensation plan and acquired a corresponding amount
of both cash and equity mutual fund investments of approximately
$11.3 million. The amount payable under such plan will be
funded through the liquidation of the cash and equity mutual
fund investments in the plan principally over the period ending
2013.
As of December 31, 2010 we had cash and cash equivalents on
hand of $78.2 million, of which $50.0 million were
held outside the U.S. We are currently subject to federal
income tax on our domestic earnings and that portion of our
foreign earnings which we repatriate. It has been our policy to
retain approximately 50% of our foreign earnings within our
foreign operating units to minimize our global tax burden and to
fund our foreign investment needs. However, in the event our
cash needs in the U.S. exceed our cash reserves and
availability under the revolving loan facility, we may
repatriate additional cash from our foreign operations, which
could result in an incremental tax liability.
38
We evaluate our cash operating position on a regular basis in
light of current market conditions. Our recurring monthly
operating disbursements consist of base compensation expense and
other operating expenses, which principally include costs for
occupancy, information services, professional fees, travel and
entertainment, interest expense and other general expenses,
which amounted to $134.9 million in 2010. Our recurring
quarterly and annual disbursements consist of tax payments,
dividend distributions, repurchases of our common stock from our
employees in conjunction with the payment of tax liabilities
incurred on vesting of restricted stock units and cash bonus
payments. These amounts vary depending upon our profitability
and other factors. We incur non-recurring disbursements for our
investments in the merchant banking funds, leasehold
improvements and share repurchases. While we believe that the
cash generated from operations and funds available from the
revolving bank loan facility will be sufficient to meet our
expected operating needs, commitments to the merchant banking
activities, build-out costs of new office space, tax
obligations, share repurchases and common dividends, we may
adjust our variable expenses and non-recurring disbursements, if
necessary, to meet our liquidity needs. In the event that we are
not able to meet our liquidity needs, we may consider a range of
financing alternatives to meet any such needs.
Cash
Flows
2010. Cash and cash equivalents increased by
$3.8 million in 2010, including an increase of
$5.1 million resulting from the effect of the translation
of foreign currency amounts into U.S. dollars at the
year-end foreign currency conversion rates. We generated
$68.2 million in operating activities, including
$83.4 million from net income after giving effect to the
non-cash items and a net decrease in working capital of
$15.2 million (principally from a decrease in financial
advisory fees receivable, offset by an increase in other assets
and a decrease in accrued compensation payable). We used
$6.8 million in investing activities, including
$16.2 million related to the funding of commitments in the
merchant banking funds and other investments, $8.1 million
for the build-out of new office space and purchases of other
equipment, $3.0 million for the payment of post closing
working capital distribution to the founders of Caliburn,
partially offset by $20.6 million of distributions received
from merchant banking investments. We used $62.7 million
for financing activities, including $24.8 million for the
repurchase of our common stock from employees in conjunction
with the payment of tax liabilities in settlement of vested
restricted stock units, $12.4 million for the repurchase of
our common stock in the open market, $4.2 million of excess
profit distributions to GCP Capital and $56.9 million for
the payment of dividends, partially offset by $29.9 million
of net borrowings from our revolving loan facility.
2009. Cash and cash equivalents increased by
$11.6 million in 2009, including an increase of
$2.1 million resulting from the effect of the translation
of foreign currency amounts into U.S. dollars at the
year-end foreign currency conversion rates. We generated
$61.4 million in operating activities, including
$62.1 million from net income after giving effect to the
non-cash items and a net decrease in working capital of
$0.7 million (principally from a decrease in taxes payable
offset by an increase in accrued compensation payable). We
generated $0.2 million in investing activities, including
$12.4 million related to distributions received from
merchant banking investments partially offset by
$7.5 million in new investments in merchant banking funds
and other investments and $4.7 million for the build-out of
new office space. We used $52.1 million for financing
activities, including $9.6 million for the repurchase of
our common stock from employees in conjunction with the payment
of tax liabilities in settlement of vested restricted stock
units and $53.6 million for the payment of dividends,
partially offset by $10.7 million of net borrowings from
our revolving loan facility.
2008. Cash and cash equivalents decreased by
$128.8 million in 2008, including a $12.9 million
reduction resulting from the effect of the translation of
foreign currency amounts into U.S. dollars at the year end
foreign currency conversion rates. We used $13.9 million
from operating activities, including $84.8 million from net
income after giving effect to the non-cash items offset by a net
decrease in working capital of $98.7 million (principally
from the payment of both accrued year-end 2007 bonuses and
corporate income taxes). We used $37.2 million from
investing activities, including $30.2 million for
investments in merchant banking funds, $8.0 million in
GHLAC, $2.2 million in
39
Barrow Street Capital III, LLC and $22.9 million in Iridium
and $2.8 million for the build-out of new office space,
offset by $17.7 million related to distributions received
from merchant banking investments and proceeds of
$11.2 million from the sale of investments. We used
$64.8 million for financing activities, including
$60.0 million for the net repayment of our revolving loan
facility, $21.8 million for the repurchase in the open
market of our common stock, $50.0 million for the payment
of dividends and $1.4 million for the repayment of prior
undistributed earnings to GCIs U.K. members offset by
$67.3 million from the issuance of common stock.
Contractual
Obligations
The following table sets forth information relating to our
contractual obligations as of December 31, 2010:
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Payment Due by Period
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Less than
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More than
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Contractual Obligations
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Total
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1 year
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|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
|
(in millions)
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|
|
Operating lease obligations
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|
$
|
109.8
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|
|
$
|
13.3
|
|
|
$
|
27.7
|
|
|
$
|
23.2
|
|
|
$
|
45.6
|
|
Revolving loan facility
|
|
|
67.0
|
|
|
|
67.0
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|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant banking and other
commitments(a)
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|
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34.9
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|
|
17.8
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|
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15.4
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|
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1.7
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Total(b)
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$
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211.7
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$
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98.1
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$
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43.1
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$
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24.9
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$
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45.6
|
|
|
|
|
(a) |
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We may be required to substantially fund our merchant banking
commitments at any time through 2015, depending on the timing
and level of investments by GCP II, Greenhill Capital
Partners III LP (GCP III), GCP Europe, GSAVP
and other merchant banking funds , although we do not expect
these commitments to be drawn in full. Since the merchant
banking commitments can be drawn at any time over the life of
the commitment period, the amounts above are shown as if spread
ratably over the life of the primary commitment period. The
commitment period for GCP II expired in June 2010 and up to 15%
of the commitment may be drawn for follow-on investments over
the two year period after the expiration of the commitment
period. The remaining commitment outstanding to GCP Europe has
been converted from pounds sterling to U.S. dollars at the
effective rate as of December 31, 2010 for purposes of
inclusion in this table. |
|
(b) |
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Total contractual obligations have not been reduced by
approximately $3.4 million in minimum sublease rentals due
during the period 2011 to 2014 under a noncancelable sublease
from GCP Capital. |
Market
Risk
We limit our investments to (1) short-term cash
investments, which we believe do not face any material interest
rate risk, equity price risk or other market risk and
(2) principal investments made in GCP, GSAVP, GCP Europe
and other merchant banking funds, Iridium and other investments.
We maintain our cash and cash equivalents with financial
institutions with high credit ratings. We may maintain deposits
in federally insured financial institutions in excess of
federally insured (FDIC) limits. However, management believes
that the firm is not exposed to significant credit risk due to
the financial position of the depository institutions in which
those deposits are held. We monitor the quality of these
investments on a regular basis and may choose to diversify such
investments to mitigate perceived market risk. Our short term
cash investments are denominated in U.S. dollars,
Australian dollars, Canadian dollars, pound sterling, euros, and
yen, and we face modest foreign currency risk in our cash
balances held in accounts outside the United States due to
potential currency movements and the associated foreign currency
translation accounting requirements. We may hedge our foreign
currency exposure if we expect we will need to
fund U.S. dollar obligations with foreign currency.
40
With regard to our investments in both merchant banking funds
and Iridium we face exposure to changes in the estimated fair
value of the companies in which we have directly or indirectly
invested, which historically has been volatile. Significant
changes in the public equity markets may have a material effect
on our results of operations. Volatility in the general equity
markets would impact our operations primarily because of changes
in the fair value of our merchant banking or principal
investments that are publicly traded securities. Volatility in
the availability of credit would impact our operations primarily
because of changes in the fair value of merchant banking or
principal investments that rely upon a portion of leverage to
operate. We have analyzed our potential exposure to general
equity market risk by performing sensitivity analyses on those
investments held by us and in the merchant banking funds which
consist of publicly traded securities. This analysis showed that
if we assume that at December 31, 2010, the market prices
of all public securities, including Iridium, were 10% lower, the
impact on our operations would be a decrease in revenues of
$8.4 million. We meet on a quarterly basis to determine the
fair value of the investments held in the merchant banking
portfolio and to discuss the risks associated with those
investments. The respective Investment Committees manage the
risks associated with the merchant banking portfolio by closely
monitoring and managing the types of investments made as well as
the monetization and realization of existing investments.
In addition, the reported amounts of our revenues may be
affected by movements in the rate of exchange between the
Australian dollar, Canadian dollar, pound sterling, euro, and
yen (in which collectively 38% of our revenues for the year
ended December 31, 2010 were denominated) and the
U.S. dollar, in which our financial statements are
denominated. We do not currently hedge against movements in
these exchange rates. We analyzed our potential exposure to a
decline in exchange rates by performing a sensitivity analysis
on our net income. During the year ended December 31, 2010
as compared to 2009 the value of the U.S. dollar remained
relatively constant to the pound sterling and the euro. On the
other hand, the U.S. dollar weakened, on weighted average
basis, relative to the Canadian dollar and yen in 2010
(currencies in which we generated approximately 5% of our
revenue) as compared to the same period in 2009. Accordingly,
our earnings in 2010 were slightly higher than they would have
been in the same period in the prior year had the value of the
U.S. dollar relative to those other currencies remained
constant. While our earnings are subject to volatility from
foreign currency changes we do not believe we face any material
risk in this respect.
Critical
Accounting Policies and Estimates
We believe that the following discussion addresses
Greenhills most critical accounting policies, which are
those that are most important to the presentation of our
financial condition and results of operations and require
managements most difficult, subjective and complex
judgments.
Basis
of Financial Information
These consolidated financial statements are prepared in
conformity with accounting principles generally accepted
(GAAP) in the United States, which require
management to make estimates and assumptions regarding future
events that affect the amounts reported in our financial
statements and footnotes, including investment valuations,
compensation accruals and other matters. Management believes
that the estimates used in preparing its consolidated financial
statements are reasonable and prudent. Actual results could
differ materially from those estimates.
The consolidated financial statements of the firm include all
consolidated accounts of Greenhill & Co., Inc. and all
other entities in which the firm has a controlling interest
after eliminations of all significant inter-company accounts and
transactions. In accordance with the accounting pronouncements
on the consolidation of variable interest entities, the firm
consolidates the general partners of the merchant banking funds
in which it has a majority of the economic interest. The general
partners account for their investments in the merchant banking
funds under the equity method of accounting. As such, the
general partners record their proportionate shares of income
(loss) from the underlying merchant banking funds. As the
merchant banking funds follow investment company accounting, and
generally record all their assets and liabilities at fair value,
the general partners investment in
41
merchant banking funds represents an estimation of fair value.
The firm does not consolidate the merchant banking funds since
the firm through its general partner and limited partner
interests, does not have a majority of the economic interest in
such funds and the limited partners have certain rights to
remove the general partner by a simple majority vote of
unaffiliated third-party investors.
Noncontrolling
Interests
The firm records the noncontrolling interests of other
consolidated entities as equity in the consolidated statements
of financial condition. Additionally, the consolidated
statements of income separately present income allocated to both
noncontrolling interests and common stockholders.
The portion of the consolidated interests in the general
partners of the merchant banking funds, the majority of which
are held directly by GCP Capital, an entity not controlled by
the firm, are presented as noncontrolling interest in equity.
Revenue
Recognition
Financial
Advisory Fees
The firm recognizes financial advisory fee revenue for mergers
and acquisitions or financing advisory and restructuring
engagements when the services related to the underlying
transactions are completed in accordance with the terms of the
engagement letter. The firm recognizes private equity and real
estate capital advisory fees at the time of the clients
acceptance of capital or capital commitments in accordance with
the terms of the engagement letter. Retainer fees are recognized
as financial advisory fee revenue over the period in which the
related service is rendered.
The firms clients reimburse certain expenses incurred by
the firm in the conduct of financial advisory engagements.
Expenses are recorded net of such client reimbursements.
Merchant
Banking and Other Investment Revenues
Merchant banking revenues consist of (i) management fees
derived from merchant banking activities, (ii) gains (or
losses) on the firms investments in merchant banking funds
and other principal investment activities, and if any,
(iii) merchant banking profit overrides.
Management fees earned from merchant banking activities are
recognized over the period of related service.
The firm recognizes revenue on its investments in the merchant
banking funds based on its allocable share of realized and
unrealized gains (or losses) reported by such funds. Investments
held by the merchant banking funds and certain other investments
are recorded at estimated fair value. The value of the merchant
banking funds investments in privately held companies is
determined by the general partner of the fund after giving
consideration to the cost of the security, the pricing of other
sales of securities by the portfolio company, the price of
securities of other companies comparable to the portfolio
company, purchase multiples paid in other comparable third-party
transactions, the original purchase price multiple, market
conditions, liquidity, operating results and other qualitative
and quantitative factors. Discounts may be applied to the
funds privately held investments to reflect the lack of
liquidity and other transfer restrictions. Investments in
publicly traded securities are valued using quoted market prices
discounted for any legal or contractual restrictions on sale.
Because of the inherent uncertainty of valuations as well as the
discounts applied, the estimated fair values of investments in
privately held companies may differ significantly from the
values that would have been used had a ready market for the
securities existed. The values at which the firms
investments are carried on consolidated statements of financial
condition are adjusted to estimated fair value at the end of
each quarter and the volatility in general economic conditions,
stock markets and commodity prices may result in significant
changes in the estimated fair value of the investments from
period to period.
42
If certain financial returns are achieved over the life of the
fund, the firm recognizes merchant banking profit overrides at
the time that certain financial returns are achieved. Profit
overrides are generally calculated as a percentage of the
profits over a specified threshold earned by each fund on
investments managed on behalf of unaffiliated investors, except
the firm. When applicable, the profit overrides earned by the
firm are recognized on an accrual basis throughout the year. In
accordance with the relevant guidance, the firm records as
revenue the amount that would be due pursuant to the fund
agreements at each period end as if the fund agreements were
terminated at that date. Overrides are generally calculated on a
deal-by-deal
basis but are subject to investment performance over the life of
each merchant banking fund. We may be required to repay a
portion of the overrides paid to the limited partners of the
funds in the event a minimum performance level is not achieved
by the fund as a whole (we refer to these potential repayments
as clawbacks). The firm would be required to
establish a reserve for potential clawbacks if we were to
determine that the likelihood of a clawback is probable and the
amount of the clawback can be reasonably estimated. As of
December 31, 2010, the firm believes it is more likely than
not that the amount of profit overrides recognized as revenue
will be realized and accordingly, the firm has not reserved for
any clawback obligations under applicable fund agreements.
Investments
The firms investments in the merchant banking funds are
recorded under the equity method of accounting based upon the
firms proportionate share of the fair value of the
underlying merchant banking funds net assets. The
firms other investments, which consider the firms
influence or control of the investee, are recorded at estimated
fair value or under the equity method of accounting based, in
part, upon the firms proportionate share of the
investees net assets.
Derivative
Instruments
The firm accounts for warrants under the guidance for accounting
for derivative instruments and hedging activities. In accordance
with that guidance, the firm records warrants at estimated fair
value in the consolidated statements of financial condition with
changes in estimated fair value during the period recorded in
merchant banking and other investment revenues in the
consolidated statements of income. The warrants held by the firm
are not designated as hedging instruments.
Restricted
Stock Units
The firm accounts for its share-based compensation payments
under which the fair value of restricted stock units granted to
employees with future service requirements is recorded as
compensation expense and generally amortized over a five-year
service period following the date of grant. Compensation expense
is determined based upon the fair market value of the
firms common stock at the date of grant. As the firm
expenses the awards, the restricted stock units recognized are
recorded within equity. The restricted stock units are reclassed
into common stock and additional paid-in capital upon vesting.
The firm records dividend equivalent payments, net of estimated
forfeitures, on outstanding restricted stock units as a dividend
payment and a charge to equity.
Earnings
per Share
The firm calculates basic earnings per share (EPS)
by dividing net income allocated to common stockholders by the
weighted average number of shares outstanding for the period.
Diluted EPS includes the determinants of basic EPS plus the
dilutive effect of the common stock deliverable pursuant to
restricted stock units for which future service is required as a
condition to the delivery of the underlying common stock.
Under the treasury method, the number of shares issuable upon
the vesting of restricted stock units included in the
calculation of diluted earnings per share is the excess, if any,
of the number of shares expected to be issued, less the number
of shares that could be purchased by the firm with the
43
proceeds to be received upon settlement at the average market
closing price during the reporting period. The denominator for
basic EPS includes the number of shares deemed issuable due to
the vesting of restricted stock units for accounting purposes.
Effective on January 1, 2009, the firm adopted the
accounting guidance for determining whether instruments granted
in share-based payment transactions are participating
securities. Under that guidance the firm evaluated whether
instruments granted in share-based payment transactions are
participating securities prior to vesting and therefore need to
be included in the earnings allocation in calculating EPS.
Additionally, the two-class method requires unvested share-based
payment awards that have non-forfeitable rights to dividend or
dividend equivalents to be treated as a separate class of
securities in calculating earnings per share. The adoption of
this pronouncement did not have a material effect in calculating
earnings per share.
Goodwill
Goodwill is the cost in excess of the fair value of identifiable
net assets at acquisition date. The firm tests its goodwill for
impairment at least annually. An impairment loss is triggered if
the estimated fair value of an operating unit is less than
estimated net book value. Such loss is calculated as the
difference between the estimated fair value of goodwill and its
carrying value.
Goodwill is translated at the rate of exchange prevailing at the
end of the periods presented in accordance with the accounting
guidance for foreign currency translation. Any translation gain
or loss is included in the foreign currency translation
adjustment included as a component of other comprehensive income
(loss) in the consolidated statements of changes in equity.
Business
Combinations
Business combinations are accounted for in accordance with the
guidance for business combinations. The firm uses a fair value
approach to measure the assets acquired and liabilities assumed
in a business combination. Assets acquired and liabilities
assumed in a business combination are valued at fair value,
regardless of the purchasers cost of acquisition. Any
associated transaction costs are expensed as incurred.
Provision
for Taxes
The firm accounts for taxes in accordance with the guidance for
income taxes which requires the recognition of tax benefits or
expenses on the temporary differences between the financial
reporting and tax bases of its assets and liabilities.
The firm follows the guidance for income taxes in recognizing,
measuring, presenting and disclosing in its financial statements
uncertain tax positions taken or expected to be taken on its
income tax returns. Income tax expense is based on pre-tax
accounting income, including adjustments made for the
recognition or derecognition related to uncertain tax positions.
The recognition or derecognition of income tax expense related
to uncertain tax positions is determined under the guidance.
Deferred tax assets and liabilities are recognized for the
future tax attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in earnings
in the period of change. Management applies the
more-likely-than-not criteria when determining tax
benefits.
Cash
and Cash Equivalents
The firm considers all highly liquid investments with a maturity
date of three months or less, when purchased, to be cash
equivalents. Cash equivalents primarily consist of money market
funds and overnight deposits.
44
Financial
Instruments and Fair Value
The firm accounts for financial instruments measured at fair
value in accordance with accounting guidance for fair value
measurements and disclosures which establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 measurements) and
the lowest priority to unobservable inputs (level 3
measurements). The three levels of the fair value hierarchy
under the pronouncement are described below:
Basis of
Fair Value Measurement
Level 1 Unadjusted quoted prices in active
markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not
active or financial instruments for which all significant inputs
are observable, either directly or indirectly; and
Level 3 Prices or valuations that require
inputs that are both significant to the fair value measurement
and unobservable.
A financial instruments level within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. In determining the
appropriate levels, the firm performs a detailed analysis of the
assets and liabilities that are subject these disclosures. At
each reporting period, all assets and liabilities for which the
fair value measurement is based on significant unobservable
inputs or instruments which trade infrequently and therefore
have little or no price transparency are classified as
Level 3. Transfers between levels are recognized as of the
end of the period in which they occur.
Accounting
Developments
In January 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
No. 2010-06,
Improving Disclosures about Fair Value Measurements.
ASU
No. 2010-06
provides amended disclosure requirements related to fair value
measurements and specifically require entities to disclose
i) the amounts of significant transfers between
Level 1 and Level 2 of the fair value hierarchy and
the reasons for the transfers; ii) the reasons for any
transfers in or out of Level 3; and iii) information
in the reconciliation of recurring Level 3 measurements
about purchases, sales issuances and settlements on a gross
basis. These amended principles require only disclosures
concerning fair value measurements and adoption did not and will
not affect the firms financial condition, results of
operation or cash flows.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
We do not believe we face any material interest rate risk,
foreign currency exchange risk, equity price risk or other
market risk. See Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operation Market Risk above for a discussion
of market risks.
Item 8. Financial
Statements and Supplementary Data
The financial statements required by this item are listed in
Item 15. Exhibits and Financial Statement
Schedules.
Item 9. Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
45
Item 9A. Controls
and Procedures
Based upon their evaluation of the firms disclosure
controls and procedures pursuant to Exchange Act
Rule 13a-15
as of the end of the year covered by this 2010
Form 10-K,
the firms Chief Executive Officer and Chief Financial
Officer have concluded that such controls and procedures are
effective. There were no significant changes in the firms
internal controls or in other factors that could significantly
affect such internal controls subsequent to the date of their
evaluation.
Managements report on the firms internal control
over financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act), and the related report of our independent
public accounting firm, are included on pages F-2
F-4 of this report.
In addition, on May 19, 2010 our Chief Executive Officer
certified to the New York Stock Exchange (NYSE) that
he was not aware of any violation by the firm of the NYSEs
corporate governance listing standards. We have filed as an
exhibit to this
Form 10-K
the certifications of our Chief Executive Officer and Chief
Financial Officer pursuant to
Rule 13a-14(a)
or 15d-14(a)
of the Securities Exchange Act of 1934 (as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002).
Item 9B. Other
Information
None.
46
PART III
Item 10. Directors,
Executive Officers and Corporate Governance
Information regarding members of the Board of Directors and
Greenhills Corporate Governance will be presented in
Greenhills definitive proxy statement for its 2011 annual
meeting of stockholders, which will be held on April 20,
2011, and is incorporated herein by reference. Information
regarding our executive officers is included in Part I of
this
Form 10-K
under the caption Executive Officers and Directors.
Item 11. Executive
Compensation
Information regarding executive compensation will be presented
in Greenhills definitive proxy statement for its 2011
annual meeting of stockholders, which will be held on
April 20, 2011, and is incorporated herein by reference.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information regarding security ownership of certain beneficial
owners and management and related stockholder matters will be
presented in Greenhills definitive proxy statement for its
2010 annual meeting of stockholders, which will be held on
April 20, 2011, and is incorporated herein by reference.
Item 13. Certain
Relationships and Related Transactions, and Director
Independence
Information regarding certain relationships and related party
transactions, and director independence will be presented in
Greenhills definitive proxy statement for its 2011 annual
meeting of stockholders, which will be held on April 20,
2011, and is incorporated herein by reference.
Item 14. Principal
Accounting Fees and Services
Information regarding principal accountant fees and services
will be presented in Greenhills definitive proxy statement
for its 2011 annual meeting of stockholders, which will be held
on April 20, 2011, and is incorporated herein by reference.
47
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)
INDEX TO
FINANCIAL STATEMENTS
Consolidated
Financial Statements of Greenhill & Co., Inc. and
Subsidiaries
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
|
|
|
F-10
|
|
F-1
Managements
Report on Internal Control over Financial Reporting
Management of Greenhill & Co., Inc. and subsidiaries
(the Company), is responsible for establishing and
maintaining adequate internal control over financial reporting.
The Companys internal control over financial reporting is
a process designed under the supervision of the Companys
principal executive and principal financial officers to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of the Companys financial
statements for external reporting purposes in accordance with
generally accepted accounting principles in the United States of
America.
As of December 31, 2010, management conducted an assessment
of the effectiveness of the Companys internal control over
financial reporting based on the framework established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based upon this assessment, management has
determined that the Companys internal control over
financial reporting as of December 31, 2010 was effective.
The Companys internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the Companys assets that could have a
material effect on the financial statements.
The Companys independent registered public accounting firm
has issued their auditors report appearing on
page F-4
which expresses an unqualified opinion on the effectiveness of
the Companys internal control over financial reporting.
F-2
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Greenhill & Co., Inc.
We have audited the accompanying consolidated statements of
financial condition of Greenhill & Co., Inc. and
subsidiaries as of December 31, 2010 and 2009, and the
related consolidated statements of income, comprehensive income,
changes in equity, and cash flows for each of the three years in
the period ended December 31, 2010. These financial
statements are the responsibility of Greenhill & Co.,
Inc.s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Greenhill & Co., Inc. and
subsidiaries at December 31, 2010 and 2009, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2010, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Greenhill & Co., Inc.s internal control over
financial reporting as of December 31, 2010, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 28, 2011
expressed an unqualified opinion thereon.
New York, New York
February 28, 2011
F-3
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Greenhill & Co., Inc.
We have audited Greenhill & Co., Inc.s internal
control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Greenhill & Co., Inc.s management is responsible
for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Greenhill & Co., Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statements of financial condition as of
December 31, 2010 and 2009, and the related consolidated
statements of income, comprehensive income, changes in equity,
and cash flows for each of the three years in the period ended
December 31, 2010 of Greenhill & Co., Inc. and
subsidiaries and our report dated February 28, 2011,
expressed an unqualified opinion thereon.
New York, New York
February 28, 2011
F-4
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents ($7.7 million and
$1.0 million restricted from use at December 31, 2010
and 2009, respectively)
|
|
$
|
78,227,209
|
|
|
$
|
74,473,459
|
|
Financial advisory fees receivable, net of allowance for
doubtful accounts of $0.0 million at December 31, 2010
and 2009, respectively
|
|
|
30,187,204
|
|
|
|
26,021,124
|
|
Other receivables
|
|
|
2,899,309
|
|
|
|
9,739,755
|
|
Property and equipment, net of accumulated depreciation of
$45.8 million and $39.8 million at December 31,
2010 and 2009, respectively
|
|
|
17,563,099
|
|
|
|
12,794,680
|
|
Investments in merchant banking funds
|
|
|
73,532,503
|
|
|
|
71,844,438
|
|
Other investments
|
|
|
87,372,799
|
|
|
|
78,516,718
|
|
Due from affiliates
|
|
|
|
|
|
|
233,617
|
|
Goodwill
|
|
|
162,507,267
|
|
|
|
18,721,430
|
|
Deferred tax asset
|
|
|
47,842,045
|
|
|
|
40,101,916
|
|
Other assets
|
|
|
8,546,405
|
|
|
|
1,713,352
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
508,677,840
|
|
|
$
|
334,160,489
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Compensation payable
|
|
$
|
30,515,366
|
|
|
$
|
31,855,992
|
|
Accounts payable and accrued expenses
|
|
|
13,123,718
|
|
|
|
13,066,863
|
|
Bank loan payable
|
|
|
67,000,000
|
|
|
|
37,150,000
|
|
Deferred tax liability
|
|
|
25,031,882
|
|
|
|
18,141,138
|
|
Due to affiliates
|
|
|
144,365
|
|
|
|
393,288
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
135,815,331
|
|
|
|
100,607,281
|
|
Common stock, par value $0.01 per share; 100,000,000 shares
authorized, 35,117,356 and 33,254,271 shares issued as of
December 31, 2010 and 2009, respectively; 29,341,604 and
27,977,623 shares outstanding as of December 31, 2010
and 2009, respectively
|
|
|
351,174
|
|
|
|
332,543
|
|
Contingent convertible preferred stock, par value $0.01 per
share; 10,000,000 shares authorized, 1,099,877 shares
issued and outstanding as of December 31, 2010
|
|
|
46,950,226
|
|
|
|
|
|
Restricted stock units
|
|
|
89,365,292
|
|
|
|
81,219,868
|
|
Additional paid-in capital
|
|
|
368,090,229
|
|
|
|
237,716,672
|
|
Exchangeable shares of subsidiary; 257,156 shares issued as
of December 31, 2010 and 2009; 110,191 and
132,955 shares outstanding as of December 31, 2010 and
2009, respectively
|
|
|
6,578,403
|
|
|
|
7,937,414
|
|
Retained earnings
|
|
|
184,621,197
|
|
|
|
206,974,630
|
|
Accumulated other comprehensive income (loss)
|
|
|
5,127,132
|
|
|
|
(8,737,728
|
)
|
Treasury stock, at cost, par value $0.01 per share; 5,775,752
and 5,276,648 shares as of December 31, 2010 and 2009,
respectively
|
|
|
(330,602,168
|
)
|
|
|
(293,391,405
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
370,481,485
|
|
|
|
232,051,994
|
|
Noncontrolling interests
|
|
|
2,381,024
|
|
|
|
1,501,214
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
372,862,509
|
|
|
|
233,553,208
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
508,677,840
|
|
|
$
|
334,160,489
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial advisory fees
|
|
$
|
252,201,299
|
|
|
$
|
215,993,403
|
|
|
$
|
218,196,923
|
|
Merchant banking and other investment revenues
|
|
|
25,680,717
|
|
|
|
82,300,303
|
|
|
|
121,203
|
|
Interest income
|
|
|
447,238
|
|
|
|
352,028
|
|
|
|
3,554,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
278,329,254
|
|
|
|
298,645,734
|
|
|
|
221,873,047
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
159,882,352
|
|
|
|
138,297,822
|
|
|
|
102,049,624
|
|
Occupancy and equipment rental
|
|
|
15,749,998
|
|
|
|
11,705,610
|
|
|
|
10,640,820
|
|
Depreciation and amortization
|
|
|
5,986,064
|
|
|
|
4,117,499
|
|
|
|
4,592,176
|
|
Information services
|
|
|
6,805,000
|
|
|
|
5,703,865
|
|
|
|
5,671,879
|
|
Professional fees
|
|
|
7,329,075
|
|
|
|
6,755,764
|
|
|
|
4,784,812
|
|
Travel related expenses
|
|
|
10,129,217
|
|
|
|
7,773,539
|
|
|
|
6,999,759
|
|
Interest expense
|
|
|
2,076,778
|
|
|
|
1,294,804
|
|
|
|
3,580,292
|
|
Other operating expenses
|
|
|
11,419,593
|
|
|
|
9,103,528
|
|
|
|
5,695,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
219,378,077
|
|
|
|
184,752,431
|
|
|
|
144,014,685
|
|
Income before taxes
|
|
|
58,951,177
|
|
|
|
113,893,303
|
|
|
|
77,858,362
|
|
Provision for taxes
|
|
|
19,530,433
|
|
|
|
42,735,740
|
|
|
|
29,391,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
39,420,744
|
|
|
|
71,157,563
|
|
|
|
48,466,400
|
|
Less: Net income (loss) allocated to noncontrolling interests
|
|
|
4,894,833
|
|
|
|
(82,451
|
)
|
|
|
(511,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common stockholders
|
|
$
|
34,525,911
|
|
|
$
|
71,240,014
|
|
|
$
|
48,978,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,726,628
|
|
|
|
29,663,616
|
|
|
|
28,166,520
|
|
Diluted
|
|
|
30,776,034
|
|
|
|
29,753,609
|
|
|
|
28,214,015
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.12
|
|
|
$
|
2.40
|
|
|
$
|
1.74
|
|
Diluted
|
|
$
|
1.12
|
|
|
$
|
2.39
|
|
|
$
|
1.74
|
|
Dividends declared and paid per share
|
|
$
|
1.80
|
|
|
$
|
1.80
|
|
|
$
|
1.80
|
|
See accompanying notes to consolidated financial
statements.
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Consolidated net income
|
|
$
|
39,420,744
|
|
|
$
|
71,157,563
|
|
|
$
|
48,466,400
|
|
Currency translation adjustment, net of tax
|
|
|
13,864,860
|
|
|
|
8,670,986
|
|
|
|
(22,135,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
53,285,604
|
|
|
|
79,828,549
|
|
|
|
26,330,561
|
|
Less: Net income (loss) allocated to noncontrolling interests
|
|
|
4,894,833
|
|
|
|
(82,451
|
)
|
|
|
(511,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income allocated to common stockholders
|
|
$
|
48,390,771
|
|
|
$
|
79,911,000
|
|
|
$
|
26,842,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Common stock, par value $0.01 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, beginning of the year
|
|
$
|
332,543
|
|
|
$
|
328,304
|
|
|
$
|
312,322
|
|
Common stock issued
|
|
|
18,631
|
|
|
|
4,239
|
|
|
|
15,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, end of the year
|
|
|
351,174
|
|
|
|
332,543
|
|
|
|
328,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent convertible preferred stock, par value $0.01 per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent convertible preferred stock, beginning of the year
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent convertible preferred stock issued
|
|
|
46,950,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent convertible preferred stock, end of the year
|
|
|
46,950,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units, beginning of the year
|
|
|
81,219,868
|
|
|
|
59,525,357
|
|
|
|
42,743,802
|
|
Restricted stock units recognized
|
|
|
43,214,505
|
|
|
|
40,526,780
|
|
|
|
32,196,650
|
|
Restricted stock units delivered
|
|
|
(35,069,081
|
)
|
|
|
(18,832,269
|
)
|
|
|
(15,415,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units, end of the year
|
|
|
89,365,292
|
|
|
|
81,219,868
|
|
|
|
59,525,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital, beginning of the year
|
|
|
237,716,672
|
|
|
|
213,365,812
|
|
|
|
126,268,395
|
|
Common stock issued
|
|
|
125,850,372
|
|
|
|
23,603,749
|
|
|
|
85,940,317
|
|
Restricted stock unit cash settlement
|
|
|
(1,010,273
|
)
|
|
|
|
|
|
|
|
|
Tax benefit from the delivery of restricted stock units
|
|
|
5,533,458
|
|
|
|
747,111
|
|
|
|
1,157,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital, end of the year
|
|
|
368,090,229
|
|
|
|
237,716,672
|
|
|
|
213,365,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable shares of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable shares of subsidiary, beginning of the year
|
|
|
7,937,414
|
|
|
|
12,442,555
|
|
|
|
15,352,213
|
|
Exchangeable shares of subsidiary delivered
|
|
|
(1,359,011
|
)
|
|
|
(4,505,141
|
)
|
|
|
(2,909,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable shares of subsidiary, end of the year
|
|
|
6,578,403
|
|
|
|
7,937,414
|
|
|
|
12,442,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings, beginning of the year
|
|
|
206,974,630
|
|
|
|
189,357,441
|
|
|
|
190,416,057
|
|
Dividends
|
|
|
(56,879,344
|
)
|
|
|
(53,622,825
|
)
|
|
|
(50,036,686
|
)
|
Net income allocated to common stockholders
|
|
|
34,525,911
|
|
|
|
71,240,014
|
|
|
|
48,978,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings, end of the year
|
|
|
184,621,197
|
|
|
|
206,974,630
|
|
|
|
189,357,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), beginning of the
year
|
|
|
(8,737,728
|
)
|
|
|
(17,408,714
|
)
|
|
|
4,727,125
|
|
Currency translation adjustment, net of tax
|
|
|
13,864,860
|
|
|
|
8,670,986
|
|
|
|
(22,135,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), end of the year
|
|
|
5,127,132
|
|
|
|
(8,737,728
|
)
|
|
|
(17,408,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, at cost, par value $0.01 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, beginning of the year
|
|
|
(293,391,405
|
)
|
|
|
(259,361,550
|
)
|
|
|
(237,529,448
|
)
|
Repurchased
|
|
|
(37,210,763
|
)
|
|
|
(9,645,599
|
)
|
|
|
(21,832,102
|
)
|
Sale of certain merchant banking assets
|
|
|
|
|
|
|
(24,384,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, end of the year
|
|
|
(330,602,168
|
)
|
|
|
(293,391,405
|
)
|
|
|
(259,361,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
370,481,485
|
|
|
|
232,051,994
|
|
|
|
198,249,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests, beginning of the year
|
|
|
1,501,214
|
|
|
|
1,817,595
|
|
|
|
2,253,128
|
|
Net income (loss) allocated to noncontrolling interests
|
|
|
4,894,833
|
|
|
|
(82,451
|
)
|
|
|
(511,670
|
)
|
Contributions from noncontrolling interests
|
|
|
163,761
|
|
|
|
34,406
|
|
|
|
318,095
|
|
Distributions to noncontrolling interests
|
|
|
(4,178,784
|
)
|
|
|
(268,336
|
)
|
|
|
(241,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests, end of the year
|
|
|
2,381,024
|
|
|
|
1,501,214
|
|
|
|
1,817,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
372,862,509
|
|
|
$
|
233,553,208
|
|
|
$
|
200,066,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
$
|
39,420,744
|
|
|
$
|
71,157,563
|
|
|
$
|
48,466,400
|
|
Adjustments to reconcile consolidated net income to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash items included in consolidated net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,986,064
|
|
|
|
4,117,499
|
|
|
|
4,592,176
|
|
Net investment (gains) losses
|
|
|
(11,723,577
|
)
|
|
|
(43,080,243
|
)
|
|
|
19,087,179
|
|
Restricted stock units recognized and common stock issued
|
|
|
53,800,414
|
|
|
|
40,802,528
|
|
|
|
32,554,053
|
|
Deferred taxes
|
|
|
(2,984,779
|
)
|
|
|
10,939,879
|
|
|
|
(19,904,419
|
)
|
Deferred gain on sale of certain merchant banking assets
|
|
|
(1,099,730
|
)
|
|
|
(21,823,909
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial advisory fees receivable
|
|
|
(2,018,897
|
)
|
|
|
234,871
|
|
|
|
497,583
|
|
Due to (from) affiliates
|
|
|
(15,306
|
)
|
|
|
615,286
|
|
|
|
(378,529
|
)
|
Other receivables and assets
|
|
|
8,403,448
|
|
|
|
(954,822
|
)
|
|
|
(2,841,866
|
)
|
Compensation payable
|
|
|
(8,705,835
|
)
|
|
|
12,407,479
|
|
|
|
(88,612,338
|
)
|
Accounts payable and accrued expenses
|
|
|
(3,980,492
|
)
|
|
|
(12,969,723
|
)
|
|
|
(7,405,607
|
)
|
Settlement of restricted stock units in cash
|
|
|
(8,926,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
68,155,783
|
|
|
|
61,446,408
|
|
|
|
(13,945,368
|
)
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of merchant banking investments
|
|
|
(16,007,697
|
)
|
|
|
(7,029,955
|
)
|
|
|
(30,197,302
|
)
|
Purchases of other investments
|
|
|
(208,026
|
)
|
|
|
(525,000
|
)
|
|
|
(33,062,500
|
)
|
Caliburn acquisition, net of cash received
|
|
|
(3,029,527
|
)
|
|
|
|
|
|
|
|
|
Proceeds from investments
|
|
|
|
|
|
|
|
|
|
|
11,232,727
|
|
Distributions from investments
|
|
|
20,614,753
|
|
|
|
12,448,563
|
|
|
|
17,699,255
|
|
Purchases of property and equipment
|
|
|
(8,126,842
|
)
|
|
|
(4,674,386
|
)
|
|
|
(2,848,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(6,757,339
|
)
|
|
|
219,222
|
|
|
|
(37,176,804
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving bank loan
|
|
|
116,175,000
|
|
|
|
106,025,000
|
|
|
|
111,925,000
|
|
Repayment of revolving bank loan
|
|
|
(86,325,000
|
)
|
|
|
(95,375,000
|
)
|
|
|
(171,875,000
|
)
|
Repayment of notes to UK members
|
|
|
|
|
|
|
|
|
|
|
(1,445,044
|
)
|
Proceeds from the issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
67,274,143
|
|
Contributions from noncontrolling interests
|
|
|
163,761
|
|
|
|
34,406
|
|
|
|
318,095
|
|
Distributions to noncontrolling interests
|
|
|
(4,178,784
|
)
|
|
|
(268,336
|
)
|
|
|
(241,958
|
)
|
Dividends paid
|
|
|
(56,879,344
|
)
|
|
|
(53,622,825
|
)
|
|
|
(50,036,686
|
)
|
Purchase of treasury stock
|
|
|
(37,210,763
|
)
|
|
|
(9,645,599
|
)
|
|
|
(21,832,102
|
)
|
Net tax benefit from the delivery of restricted stock units and
payment of dividend equivalents
|
|
|
5,533,458
|
|
|
|
747,111
|
|
|
|
1,157,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(62,721,672
|
)
|
|
|
(52,105,243
|
)
|
|
|
(64,756,452
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
5,076,978
|
|
|
|
2,064,417
|
|
|
|
(12,943,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,753,750
|
|
|
|
11,624,804
|
|
|
|
(128,821,861
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
74,473,459
|
|
|
|
62,848,655
|
|
|
|
191,670,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
78,227,209
|
|
|
$
|
74,473,459
|
|
|
$
|
62,848,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,438,309
|
|
|
$
|
1,253,309
|
|
|
$
|
3,444,615
|
|
Cash paid for taxes, net of refunds
|
|
$
|
12,194,592
|
|
|
$
|
41,708,166
|
|
|
$
|
54,371,677
|
|
Supplemental disclosure of non-cash information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock proceeds from the sale of certain merchant banking
assets
|
|
$
|
|
|
|
$
|
24,384,256
|
|
|
$
|
|
|
See accompanying notes to consolidated financial
statements.
F-9
Greenhill & Co., Inc., a Delaware corporation,
together with its subsidiaries (collectively, the
Company), is an independent investment banking firm.
The Company acts for clients located throughout the world from
offices located in New York, London, Frankfurt, Sydney, Tokyo,
Toronto, Chicago, Dallas, Houston, Los Angeles, Melbourne, and
San Francisco.
The Companys activities as an investment banking firm
constitute a single business segment, with two principal sources
of revenue:
|
|
|
|
|
Financial advisory, which includes engagements relating to
mergers and acquisitions, financing advisory and restructuring,
and private equity and real estate capital advisory
services; and
|
|
|
|
Merchant banking which includes the management of outside
capital invested in affiliated merchant banking funds, and the
Companys principal investments in the merchant banking
funds, Iridium Communications Inc. (Iridium) and
other investments.
|
The Companys U.S. and international wholly-owned
subsidiaries that provide financial advisory services include
Greenhill & Co., LLC (G&Co),
Greenhill & Co. International LLP (GCI),
Greenhill & Co. Europe LLP (GCEI),
Greenhill & Co. Japan Ltd. (GCJ),
Greenhill & Co. Canada Ltd. (GCC) and
Greenhill Caliburn Pty Limited (Greenhill Caliburn).
G&Co is a registered broker-dealer under the Securities
Exchange Act of 1934, as amended, and is registered with the
Financial Industry Regulation Authority. G&Co is also
registered as a municipal advisor with the Securities and
Exchange Commission (SEC) and the Municipal
Securities Rulemaking Board. G&Co is engaged in investment
banking activities principally in North America. GCI and GCEI
are engaged in investment banking activities, in the U.K. and
Europe, respectively, and are subject to regulation by the U.K.
Financial Services Authority (FSA).
On April 1, 2010, Greenhill acquired all of the outstanding
capital stock of Caliburn Partnership Pty Limited
(Caliburn, which was renamed Greenhill Caliburn Pty
Limited), an Australian-based independent financial advisory
firm. The Company, through Greenhill Caliburn, engages in
investment banking activities in Australia and New Zealand. See
Note 3 Acquisition. Greenhill
Caliburn is licensed and subject to regulation by the Australian
Securities and Investment Commission (ASIC).
Greenhill Aviation Co., LLC (GAC), a wholly-owned
subsidiary of the Company, owns and operates an aircraft, which
is used for the exclusive benefit of the Companys
employees and their immediate family members.
The Companys U.S and international wholly-owned
subsidiaries that provide merchant banking services include
Greenhill Capital Partners, LLC (GCPLLC), Greenhill
Venture Partners, LLC (GVP) and Greenhill Capital
Partners Europe LLP (GCPE). The Company also owns a
majority of the interests in Greenhill Capital Partners II, LLC
(GCPII LLC).
The Company separated from the merchant banking business on
December 31, 2010. Prior to that time, the merchant banking
activities consisted primarily of the management of and the
investment in Greenhills merchant banking funds; Greenhill
Capital Partners (GCP I), Greenhill Capital
Partners II (GCP II), Greenhill Capital
Partners Europe (GCP Europe), and Greenhill SAV
Partners (GSAVP together with GCP I, GCP II,
and GCP Europe, the Merchant Banking Funds), which
are families of merchant banking funds.
GCPLLC is an investment adviser registered under the Investment
Advisers Act of 1940 (IAA). GCPLLC provides
investment advisory services to GCP I and GCP II, the
U.S.-based
private equity funds that invest in a diversified portfolio of
private equity and equity-related investments. GCPII LLC acts as
manager for GCPI, GCP II and GSAVP. The majority of the
investors in GCP I and GCP II
F-10
are unaffiliated third parties; however, the Company and its
employees have also made investments in GCP I and GCP II.
GVP is an investment adviser registered under the IAA. GVP
provides investment advisory services to GSAVP, a venture fund
that invests in early growth stage companies in the tech-enabled
and business information services industries. The majority of
the investors in GSAVP are unaffiliated third parties; however,
the Company and its employees have also made investments in
GSAVP.
GCPE is regulated by the FSA and provides investment advisory
services to GCP Europe, an affiliated U.K. based private equity
fund that invests in a diversified portfolio of private equity
and equity-related investments in mid-market companies located
primarily in the United Kingdom and Continental Europe. The
majority of the investors in GCP Europe are unaffiliated third
parties; however the Company and its employees have also made
investments in GCP Europe.
The Company owns an interest in Iridium, formerly GHL
Acquisition Corp., a blank check company (GHLAC).
See Note 3 Acquisition and
Note 4 Investments.
|
|
Note 2
|
Summary
of Significant Accounting Policies
|
Basis
of Financial Information
These consolidated financial statements are prepared in
conformity with accounting principles generally accepted
(GAAP) in the United States, which require
management to make estimates and assumptions regarding future
events that affect the amounts reported in our financial
statements and these footnotes, including investment valuations,
compensation accruals and other matters. Management believes
that the estimates used in preparing its consolidated financial
statements are reasonable and prudent. Actual results could
differ materially from those estimates. Certain
reclassifications have been made to prior year information to
conform to current year presentation.
The consolidated financial statements of the Company include all
consolidated accounts of Greenhill & Co., Inc. and all
other entities in which the Company has a controlling interest
after eliminations of all significant inter-company accounts and
transactions. In accordance with the accounting pronouncements
related to the consolidation of variable interest entities, the
Company consolidates the general partners of the Merchant
Banking Funds in which it has a majority of the economic
interest and control. The general partners account for their
investments in the Merchant Banking Funds under the equity
method of accounting. As such, the general partners record their
proportionate shares of income (loss) from the underlying
Merchant Banking Funds. As the Merchant Banking Funds follow
investment company accounting, and generally record all their
assets and liabilities at fair value, the general partners
investment in the Merchant Banking Funds represents an
estimation of fair value. The Company does not consolidate the
Merchant Banking Funds since the Company, through its general
partner and limited partner interests, does not have a majority
of the economic interest in such funds and the limited partners
have certain rights to remove the general partner by a simple
majority vote of unaffiliated third-party investors.
Noncontrolling
Interests
The Company records the noncontrolling interests of other
consolidated entities as equity in the consolidated statements
of financial condition. Additionally, the consolidated
statements of income separately present income allocated to both
noncontrolling interests and common stockholders.
The portion of the consolidated interests in the general
partners of the Companys Merchant Banking Funds, the
majority of which are held directly by GCP Capital Partners
Holdings LLC (GCP Capital), an entity not controlled
by the Company, are presented as noncontrolling interest in
equity. See Note 4
Investments Affiliated Merchant Banking Funds.
F-11
Revenue
Recognition
Financial
Advisory Fees
The Company recognizes financial advisory fee revenue for
mergers and acquisitions or financing advisory and restructuring
engagements when the services related to the underlying
transactions are completed in accordance with the terms of the
engagement letter. The Company recognizes private equity and
real estate capital advisory fees at the time of the
clients acceptance of capital or capital commitments in
accordance with the terms of the engagement letter. Retainer
fees are recognized as financial advisory fee revenue over the
period in which the related service is rendered.
The Companys clients reimburse certain expenses incurred
by the Company in the conduct of financial advisory engagements.
Expenses are reported net of such client reimbursements. Client
reimbursements totaled $5.9 million, $4.3 million and
$4.5 million for the years ended December 31, 2010,
2009, and 2008, respectively.
Merchant
Banking and Other Investment Revenues
Merchant banking revenues consist of (i) management fees on
the Companys merchant banking activities, (ii) gains
(or losses) on the Companys investments in the Merchant
Banking Funds, Iridium and other principal investment
activities, and if any, (iii) profit overrides from the
Merchant Banking Funds. See Note 4
Investments Affiliated Merchant Banking Funds.
Management fees earned from the Merchant Banking Funds are
recognized over the period of related service.
The Company recognizes revenue on its investments in the
Merchant Banking Funds based on its allocable share of realized
and unrealized gains (or losses) reported by such funds.
Investments held by the Merchant Banking Funds and certain other
investments are recorded at estimated fair value. The value of
the Merchant Banking Funds investments in privately held
companies is determined by the general partner of the fund after
giving consideration to the cost of the security, the pricing of
other sales of securities by the portfolio company, the price of
securities of other companies comparable to the portfolio
company, purchase multiples paid in other comparable third-party
transactions, the original purchase price multiple, market
conditions, liquidity, operating results and other qualitative
and quantitative factors. Discounts may be applied to the
funds privately held investments to reflect the lack of
liquidity and other transfer restrictions. Investments in
publicly traded securities are valued using quoted market prices
discounted for any legal or contractual restrictions on sale.
Because of the inherent uncertainty of valuations as well as the
discounts applied, the estimated fair values of investments in
privately held companies may differ significantly from the
values that would have been used had a ready market for the
securities existed. The values at which the Companys
investments are carried on consolidated statements of financial
condition are adjusted to estimated fair value at the end of
each quarter and the volatility in general economic conditions,
stock markets and commodity prices may result in significant
changes in the estimated fair value of the investments from
period to period.
The Company recognizes profit overrides related to the Merchant
Banking Funds at the time certain performance hurdles are
achieved. Profit overrides are generally calculated as a
percentage of the profits over a specified threshold earned by
each fund on investments managed on behalf of unaffiliated
investors, except the Company. When applicable, the profit
overrides earned by the Company are recognized on an accrual
basis throughout the year. In accordance with the relevant
guidance, the Company records as revenue the amount that would
be due pursuant to the fund agreements at each period end as if
the fund agreements were terminated at that date. Overrides are
generally calculated on a
deal-by-deal
basis but are subject to investment performance over the life of
each merchant banking fund. The Company may be required to repay
a portion of the overrides it realized in the event a minimum
performance level is not achieved by the fund as a whole (we
refer to these potential repayments as clawbacks).
The Company would be required to establish a reserve for
potential clawbacks if we were to determine that the likelihood
of a clawback is probable and the
F-12
amount of the clawback can be reasonably estimated. As of
December 31, 2010, the Company believes it is more likely
than not that the amount of profit overrides recognized as
revenue will be realized and accordingly, the Company has not
reserved for any clawback obligations under applicable fund
agreements. See Note 4
Investments Affiliated Merchant Banking Funds
for further discussion of the merchant banking revenues
recognized.
Investments
The Companys investments in the Merchant Banking Funds are
recorded under the equity method of accounting based upon the
Companys proportionate share of the fair value of the
underlying merchant banking funds net assets. The
Companys other investments, which consider the
Companys influence or control of the investee, are
recorded at estimated fair value or under the equity method of
accounting based, in part, upon the Companys proportionate
share of the investees net assets.
Gains and losses on investment positions held, which arise from
sales or changes in the fair value of the investments are not
predictable and can cause periodic fluctuations in net income
and therefore subject the Company to market and credit risk.
Financial
Advisory Fees Receivables
Receivables are stated net of an allowance for doubtful
accounts. The estimate for the allowance for doubtful accounts
is derived by the Company by utilizing past client transaction
history and an assessment of the clients creditworthiness.
The Company did not record bad debt expense for the years ended
December 31, 2010 and 2009 and recorded $0.3 million
for the year ended December 31, 2008.
Credit risk related to financial advisory fees receivable is
disbursed across a large number of number of customers located
in various geographic areas.
Restricted
Stock Units
The Company accounts for its share-based compensation payments
under which the fair value of restricted stock units granted to
employees with future service requirements is recorded as
compensation expense and generally amortized over a five-year
service period following the date of grant. Compensation expense
is determined based upon the fair market value of the
Companys common stock at the date of grant. As the Company
expenses the awards, the restricted stock units recognized are
recorded within equity. The restricted stock units are
reclassified into common stock and additional paid-in capital
upon vesting. The Company records dividend equivalent payments,
net of estimated forfeitures, on outstanding restricted stock
units as a dividend payment and a charge to equity.
Earnings
per Share
The Company calculates basic earnings per share
(EPS) by dividing net income allocated to common
stockholders by the weighted average number of shares
outstanding for the period. Diluted EPS includes the
determinants of basic EPS plus the dilutive effect of the common
stock deliverable pursuant to restricted stock units for which
future service is required as a condition to the delivery of the
underlying common stock.
Under the treasury method, the number of shares issuable upon
the vesting of restricted stock units included in the
calculation of diluted earnings per share is the excess, if any,
of the number of shares expected to be issued, less the number
of shares that could be purchased by the Company with the
proceeds to be received upon settlement at the average market
closing price during the reporting period. The denominator for
basic EPS includes the number of shares deemed issuable due to
the vesting of restricted stock units for accounting purposes.
F-13
Effective on January 1, 2009, the Company adopted the
accounting guidance for determining whether instruments granted
in share-based payment transactions are participating
securities. Under that guidance the Company evaluated whether
instruments granted in share-based payment transactions are
participating securities prior to vesting and therefore need to
be included in the earnings allocation in calculating EPS.
Additionally, the two-class method requires unvested share-based
payment awards that have non-forfeitable rights to dividend or
dividend equivalents to be treated as a separate class of
securities in calculating earnings per share. The adoption of
this pronouncement did not have a material effect in calculating
earnings per share.
Foreign
Currency Translation
Assets and liabilities denominated in foreign currencies have
been translated at rates of exchange prevailing at the end of
the periods presented in accordance with the accounting guidance
for foreign currency translation. Income and expenses transacted
in foreign currency have been translated at average monthly
exchange rates during the period. Translation gains and losses
are included in the foreign currency translation adjustment,
which is included as a component of other comprehensive income
(loss) in the consolidated statement of changes in equity.
Foreign currency transaction gains and losses are included in
the consolidated statement of income.
Goodwill
Goodwill is the cost in excess of the fair value of identifiable
net assets at acquisition date. The Company tests its goodwill
for impairment at least annually. An impairment loss is
triggered if the estimated fair value of an operating unit is
less than estimated net book value. Such loss is calculated as
the difference between the estimated fair value of goodwill and
its carrying value.
Goodwill is translated at the rate of exchange prevailing at the
end of the periods presented in accordance with the accounting
guidance for foreign currency translation. Any translation gain
or loss is included in the foreign currency translation
adjustment, which is included as a component of other
comprehensive income (loss) in the consolidated statements of
changes in equity.
Business
Combinations
Business combinations are accounted for in accordance with the
guidance for business combinations. The Company uses a fair
value approach to measure the assets acquired and liabilities
assumed in a business combination. Assets acquired and
liabilities assumed in a business combination are valued at fair
value, regardless of the purchasers cost of acquisition.
Any associated transaction costs are expensed as incurred.
Property
and Equipment
Property and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation is computed using
the straight-line method over the life of the assets.
Amortization of leasehold improvements is computed using the
straight-line method over the lesser of the life of the asset or
the remaining term of the lease. Estimated useful lives of the
Companys fixed assets are generally as follows:
Aircraft 7 years
Equipment 4 years
Furniture and fixtures 7 years
Leasehold improvements the lesser of 10 years
or the remaining lease term
F-14
Provision
for Taxes
The Company accounts for taxes in accordance with the accounting
guidance for income taxes which requires the recognition of tax
benefits or expenses on the temporary differences between the
financial reporting and tax bases of its assets and liabilities.
The Company follows the guidance for income taxes in
recognizing, measuring, presenting and disclosing in its
financial statements uncertain tax positions taken or expected
to be taken on its income tax returns. Income tax expense is
based on pre-tax accounting income, including adjustments made
for the recognition or derecognition related to uncertain tax
positions. The recognition or derecognition of income tax
expense related to uncertain tax positions is determined under
the guidance.
Deferred tax assets and liabilities are recognized for the
future tax attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in earnings
in the period of change. Management applies the
more-likely-than-not criteria when determining tax
benefits.
Cash
and Cash Equivalents
The Companys cash and cash equivalents consist of
(i) cash held on deposit with financial institutions,
(ii) cash equivalents and (iii) restricted cash.
At December 31, 2010 and 2009, the Company had
$78.2 million and $74.5 million of cash and cash
equivalents. The Company considers all highly liquid investments
with a maturity date of three months or less, when purchased, to
be cash equivalents. Cash equivalents primarily consist of money
market funds and overnight deposits. At December 31, 2010
and 2009, the carrying value of the Companys cash
equivalents amounted to $9.4 million and
$17.9 million, respectively, which approximated fair value,
and are included in total cash and cash equivalents.
Also included in the total cash and cash equivalents balance at
December 31, 2010 and 2009 was $7.7 million (including
$3.3 million restricted for the payout of the Greenhill
Caliburn deferred compensation plan) and $1.0 million,
respectively, of restricted cash. See
Note 3 Acquisition and
Note 13 Commitments and
Contingencies.
The Company maintains its cash and cash equivalents with
financial institutions with high credit ratings. The Company
maintains deposits in federally insured financial institutions
in excess of federally insured (FDIC) limits. However,
management believes that the Company is not exposed to
significant credit risk due to the financial position of the
depository institutions in which those deposits are held.
Financial
Instruments and Fair Value
The Company accounts for financial instruments measured at fair
value in accordance with accounting guidance for fair value
measurements and disclosures which establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 measurements) and
the lowest priority to unobservable inputs (level 3
measurements). The three levels of the fair value hierarchy
under the pronouncement are described below:
Basis of
Fair Value Measurement
Level 1 Unadjusted quoted prices in active
markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not
active or financial instruments for which all significant inputs
are observable, either directly or indirectly; and
F-15
Level 3 Prices or valuations that require
inputs that are both significant to the fair value measurement
and unobservable.
A financial instruments level within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. In determining the
appropriate levels, the Company performs an analysis of the
assets and liabilities that are subject these disclosures. At
each reporting period, all assets and liabilities for which the
fair value measurement is based on significant unobservable
inputs or instruments which trade infrequently and therefore
have little or no price transparency are classified as
Level 3. Transfers between levels are recognized as of the
end of the period in which they occur.
Derivative
Instruments
The Company accounts for warrants under the guidance for
accounting for derivative instruments and hedging activities. In
accordance with that guidance, the Company records warrants at
estimated fair value in the consolidated statements of financial
condition with changes in estimated fair value during the period
recorded in merchant banking and other investment revenues in
the consolidated statements of income. The warrants held by the
Company are not designated as hedging instruments.
Subsequent
Events
The Company evaluates subsequent events through the date on
which financial statements are issued.
Accounting
Developments
In January 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
No. 2010-06,
Improving Disclosures about Fair Value Measurements.
ASU
No. 2010-06
provides amended disclosure requirements related to fair value
measurements and specifically requires entities to disclose
i) the amounts of significant transfers between
Level 1 and Level 2 of the fair value hierarchy and
the reasons for the transfers; ii) the reasons for any
transfers in or out of Level 3; and iii) information
in the reconciliation of recurring Level 3 measurements
about purchases, sales issuances and settlements on a gross
basis. These amended principles require only disclosures
concerning fair value measurements and adoption did not and will
not affect the Companys financial condition, results of
operation or cash flows.
On April 1, 2010, pursuant to the Share Sale Agreement, the
Company acquired 100% ownership of Caliburn from its founding
partners (the Acquisition) in exchange for
(i) 1,099,874 shares of Greenhill common stock, with
an Acquisition date fair value of $90.2 million and
(ii) 1,099,877 shares of contingent convertible
preferred stock (Performance Stock). The Performance
Stock does not pay dividends and will convert to shares of the
Companys common stock in tranches of 659,926 and
439,951 shares on the third and fifth anniversaries of
closing, respectively, if certain revenue targets are achieved.
If those revenue targets are not achieved, the Performance Stock
will be cancelled for each such period as of the third and fifth
anniversaries of closing, respectively. The fair value of the
Performance Stock on the Acquisition date was $47.0 million
and has been recorded as a component of equity.
The Acquisition has been accounted for using the purchase method
of accounting and the results of operations for Greenhill
Caliburn have been included in the consolidated statement of
income from the date of acquisition. The Company incurred
$1.2 million of costs related to the Acquisition which have
been included as a component of professional fees in the
consolidated statements of income for the year ended
December 31, 2010.
F-16
The total purchase price of $137.2 million (AUS
$149.6 million) has been allocated to the assets acquired
and liabilities assumed based on their estimated fair values as
of April 1, 2010, the date of the acquisition, as follows
(USD in thousands, unaudited):
Assets acquired and liabilities assumed:
|
|
|
|
|
Assets:
|
|
|
|
|
Cash
|
|
$
|
4,712
|
|
Other current assets
|
|
|
3,887
|
|
Property and equipment
|
|
|
643
|
|
Deferred compensation plan investments
|
|
|
11,295
|
|
Deferred tax assets
|
|
|
3,756
|
|
Identifiable intangible assets
|
|
|
8,568
|
|
Goodwill
|
|
|
127,972
|
|
|
|
|
|
|
Total assets
|
|
|
160,833
|
|
Liabilities:
|
|
|
|
|
Other current liabilities
|
|
|
5,438
|
|
Deferred compensation payable
|
|
|
11,295
|
|
Due to affiliates
|
|
|
6,861
|
|
|
|
|
|
|
Total liabilities
|
|
|
23,594
|
|
|
|
|
|
|
Purchase price
|
|
$
|
137,239
|
|
|
|
|
|
|
The excess of the purchase price over the fair value of net
assets acquired has been recorded as goodwill. Therefore, the
Company recognized $128.0 million (AUS $139.0 million)
of goodwill as a result of the Acquisition. Goodwill is
translated at the rate of exchange prevailing at the end of each
period. The Company expects significant synergies which will
contribute to our global brand and relationships. The
Acquisition provided for an in-place workforce which allows the
Company to continue serving its existing client base, begin
marketing to potential clients and avoid significant costs in
reproducing our workforce.
The fair value of the identifiable intangible assets acquired,
which consist of the trade name, the backlog of investment
banking client assignments that existed at the time of the
closing, and customer relationships, is based, in part, on a
valuation using an income approach, market approach or cost
approach, as appropriate, and has been included in other assets
on the consolidated statement of financial condition. The
estimated fair value ascribed to the identifiable intangible
assets is amortized on a straight-line basis over the estimated
remaining useful life of each asset over periods ranging between
2 to 3 years. For the year ended December 31, 2010,
the Company recorded $2.4 million of amortization expense
in respect of these assets.
In addition to the equity consideration provided to the sellers,
under the terms of the Share Sale Agreement, the selling
shareholders and certain other non-founding partners received
post closing distributions of profits accrued prior to the
acquisition date of approximately $6.9 million (AUS
$7.6 million).
In connection with the Acquisition the Company assumed amounts
due under Caliburns deferred compensation plan and
acquired a corresponding amount of investments of approximately
$11.3 million (AUS $12.3 million). Under this plan a
portion of certain employees compensation was deferred and
invested in cash or, at the election of each respective
employee, in certain mutual fund investments. The cash and
mutual fund investments will be distributed to those employees
of Greenhill Caliburn, who were employed on the date of
acquisition, over a 7 year period ending in 2016. As of
December 31, 2010 distributions of $3.9 million (AUS
$5.2 million) were made from the mutual fund investments
since the date of the acquisition in accordance with the terms
of the plan. The invested assets relating
F-17
to this plan have been recorded on the consolidated statement of
financial condition as components of both cash and cash
equivalents and other investments. The deferred compensation
liability relating to the plan has been recorded on the
consolidated statement of financial condition as a component of
compensation payable. Subsequent to the Acquisition the Company
has discontinued future participation in the plan. See
Note 2 Summary of Significant Accounting
Policies Cash and Cash Equivalents and
Note 4 Investments Other
Investments.
In conjunction with the Acquisition, the Company granted at
closing 275,130 restricted stock units to current employees of
Greenhill Caliburn. These awards will vest ratably over five
years from the date of grant subject to continued employment and
will amortize over the service period. In addition, the Company
granted at closing 212,625 performance based restricted stock
units (Performance RSUs). The Performance RSUs will
vest on the third and fifth anniversaries of the closing subject
to the achievement of the same revenue targets as the
Performance Stock. Amortization of each tranche of the
Performance RSUs will begin at the time it is deemed probable
that the revenue targets will be achieved and the value of the
award at that date will be amortized over the remaining vesting
period of each award. If the performance requirements for the
Performance RSUs are not achieved, the Performance RSUs will be
cancelled and no amount will be expensed. No amounts were
expensed for the year ended December 31, 2010.
Set forth below are the Companys summary unaudited pro
forma results of operations for the year ended December 31,
2010 and 2009. The unaudited pro forma results of operations for
the year ended December 31, 2010 include the historical
results of the Company and give effect to the Acquisition as if
it had occurred on January 1, 2010. These pro forma results
include the actual Caliburn results from January 1, 2010
through March 31, 2010. For the period April 1, 2010
through December 31, 2010, Caliburns results were
included in the consolidated results of the Company. The
unaudited results of operations for the year ended
December 31, 2009 include the historical results of the
Company and give effect to the Acquisition as if it had occurred
on January 1, 2009. These pro forma figures include actual
Caliburn results for the year ended December 31, 2009.
The unaudited pro forma results of operations do not purport to
represent what the Companys results of operations would
actually have been had the Acquisition occurred as of
January 1, 2010 or January 1, 2009, as the case may
be, or to project the Companys results of operations for
any future period. Actual future results may vary considerably
based on a variety of factors beyond the Companys control.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in millions, unaudited)
|
|
|
|
(pro forma)
|
|
|
Revenues
|
|
$
|
282.7
|
|
|
$
|
341.7
|
|
Income before taxes
|
|
|
59.0
|
|
|
|
128.8
|
|
Net income allocated to common stockholders
|
|
|
34.6
|
|
|
|
81.7
|
|
Diluted earnings per share
|
|
$
|
1.12
|
|
|
$
|
2.65
|
|
The pro forma results include (i) compensation expense
calculated based upon a compensation ratio of 46%, the rate used
by the Company in the pro forma period presented, (ii) the
elimination of professional fees of $1.4 million incurred
by Caliburn in connection with the Acquisition in the three
months ended March 31, 2010, and (iii) the recording
of income tax expense resulting from the pro forma adjustments
before tax at the Australian effective tax rate of 30%. The
calculation of pro forma diluted earnings per share includes
1,099,874 common shares issued to the selling shareholders. The
calculation of pro forma diluted shares does not include the
Performance Stock which may be converted in aggregate to
1,099,877 common shares in the event that Greenhill Caliburn
achieves the three and five year revenue targets. See
Note 10 Earnings Per Share.
F-18
Affiliated
Merchant Banking Funds
In connection with its plan to separate from the merchant
banking business, in December 2009 the Company sold certain
assets related to the merchant banking business, including the
right to raise subsequent merchant banking funds and a 24%
ownership interest in GCPII LLC to GCP Capital, an entity not
controlled by the Company. The Company retained a 76% interest
in GCPII LLC. Under the terms of the separation agreement, the
general partners of the Merchant Banking Funds delegated to
GCPII LLC their obligation to manage and administer the Merchant
Banking Funds during a transition period, which ended
December 31, 2010.
During 2010 the Company recorded the revenues and expenses
related to management of the Merchant Banking Funds in its
consolidated results. However, during that period GCP Capital
had a preferred economic interest in the first
$10.0 million of profits of GCP II LLC and accordingly, the
excess of management fee revenue over amounts incurred for
compensation and other operating expenses during 2010 that
accrued to the benefit of GCP Capital is presented as
noncontrolling interest expense, which reduced net income
allocated to common shareholders.
Effective January 1, 2011, the Company no longer manages
the Merchant Banking Funds but will retain its existing
investments in and will continue to retain a majority economic
interest as the general partner of the Merchant Banking Funds.
In addition to recording its direct investments in the
affiliated funds, the Company consolidates each general partner
in which it has a majority economic interest.
The Companys management fee income consists of fees paid
by the Merchant Banking Funds and other transaction fees paid by
the portfolio companies.
Investment gains or losses from merchant banking and other
investment activities are comprised of investment income,
realized and unrealized gains or losses from the Companys
investment in the Merchant Banking Funds, Iridium, certain other
investments, and the consolidated earnings of the general
partner in which it has a majority economic interest, offset by
allocated expenses of the funds. That portion of the earnings or
losses of the general partner, not attributable to the Company,
is recorded as net income (loss) allocated to noncontrolling
interests.
As the general partner, the Company makes investment decisions
for the Merchant Banking Funds and is entitled to receive from
the funds an override of the profits realized for investments
made prior to 2010. The Company recognizes profit overrides
related to the Merchant Banking Funds at the time certain
performance hurdles are achieved.
As consideration for the sale of the merchant banking business,
the Company received 289,050 shares of its common stock
with a value of $24.4 million. The Company recognized a
gain of $21.8 million in 2009 and deferred a
$2.6 million gain on the sale related to non-compete and
trademark licensing agreements, which will be amortized over a
five year period ending in 2014. For the year ended
December 31, 2010 deferred gains of $1.1 million were
recognized.
F-19
The Companys merchant banking and other investment
revenues, by source, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Management fees
|
|
$
|
12,857
|
|
|
$
|
17,396
|
|
|
$
|
19,208
|
|
Net realized and unrealized gains (losses) on investments in
merchant banking funds
|
|
|
6,742
|
|
|
|
3,474
|
|
|
|
(17,543
|
)
|
Net realized and unrealized merchant banking profit overrides
|
|
|
188
|
|
|
|
(738
|
)
|
|
|
(2,700
|
)
|
Net unrealized gain (loss) on investment in Iridium
|
|
|
5,044
|
|
|
|
42,180
|
|
|
|
2,634
|
|
Other realized and unrealized investment income
|
|
|
(250
|
)
|
|
|
(1,836
|
)
|
|
|
(1,478
|
)
|
Sale of certain merchant banking assets
|
|
|
1,100
|
|
|
|
21,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total merchant banking and other investment revenues
|
|
$
|
25,681
|
|
|
$
|
82,300
|
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of the Companys investments in the
Merchant Banking Funds are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Investment in GCP I
|
|
$
|
3,289
|
|
|
$
|
3,147
|
|
Investment in GCP II
|
|
|
46,533
|
|
|
|
51,189
|
|
Investment in Greenhill Capital Partners III (GCP
III)
|
|
|
713
|
|
|
|
|
|
Investment in GSAVP
|
|
|
4,726
|
|
|
|
3,867
|
|
Investment in GCPE
|
|
|
18,271
|
|
|
|
13,641
|
|
|
|
|
|
|
|
|
|
|
Total investments in the Merchant Banking Funds
|
|
$
|
73,532
|
|
|
$
|
71,844
|
|
|
|
|
|
|
|
|
|
|
The investment in GCP I included $0.3 million at
December 31, 2010 and 2009, related to the noncontrolling
interests in the managing general partner of GCP I held directly
by the limited partners of its General Partner. The investment
in GCP II included $1.1 million and $1.2 million at
December 31, 2010 and 2009, respectively, related to the
noncontrolling interests in the general partner of GCP II.
During 2010, the excess of GCPII LLC and GCPEs management
fee revenue over the amounts incurred for compensation and other
operating expenses, of $4.9 million, accrued to the benefit
of GCP Capital, is presented as net income allocated to
noncontrolling interest. During 2010 the Company made
distributions of $4.2 million to GCP Capital.
Approximately $0.3 million of the Companys
compensation payable related to profit overrides for unrealized
gains of the Merchant Banking Funds at December 31, 2010
and 2009. This amount may increase or decrease depending on the
change in the fair value of the Merchant Banking Funds
portfolio, and is payable, subject to clawback, at the time cash
proceeds are realized.
At December 31, 2010, the Company had unfunded commitments
of $34.6 million to certain Merchant Banking Funds, which
included unfunded commitments to GSAVP of $3.4 million,
which may be drawn through September 2011,and unfunded
commitments to GCP Europe of $19.0 million (or
£12.2 million), which may be drawn through December
2012. In addition, the Company committed $5.0 million to
GCP III, of which $4.3 million is unfunded at
December 31, 2010 and may be drawn through November 2015.
The Company had unfunded commitments of $7.9 million to GCP
II. For each of the Merchant Banking Funds up to 15% of the
commitment amount may be drawn for follow-on investments over
the two year period after the expiration of the commitment
period. The commitment period for GCP II ended in June 2010;
however, the Company expects that an additional
$1.5 million will be drawn down for follow-on investments
through June 2012.
F-20
Other
Investments
The Company has other investments including investments in
Iridium, other merchant banking funds and other investments. The
Companys other investments are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Iridium Common Stock (formerly GHLAC Common Stock)
|
|
$
|
73,623
|
|
|
$
|
68,077
|
|
Iridium $11.50 Warrants
|
|
|
7,280
|
|
|
|
8,015
|
|
Barrow Street Capital III, LLC
|
|
|
2,383
|
|
|
|
2,425
|
|
Deferred compensation plan investments
|
|
|
4,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other investments
|
|
$
|
87,373
|
|
|
$
|
78,517
|
|
|
|
|
|
|
|
|
|
|
Iridium
In 2007, the Company purchased 11,500,000 units of GHLAC
for $25,000. In 2008, the Company completed the initial public
offering of units in GHLAC, and in conjunction therewith
forfeited 3,130,437 units. Each unit consisted of one share
of GHLACs common stock (GHLAC Common Stock)
and one warrant (the Founder Warrants). At the time
of the public offering, the Company purchased 8,000,000 private
placement warrants for a purchase price of $8.0 million
(the GHLAC Private Placement Warrants, together with
the Founder Warrants, the GHLAC Warrants). In 2008,
GCE invested $22.9 million in Iridium Holdings LLC in the
form of a convertible subordinated note (the Iridium
5% Convertible Note), which was unsecured and accrued
interest at the rate of 5% per annum starting six months after
the date of issuance and had a maturity date of October 24,
2015. In September 2009, GHLAC completed its acquisition of
Iridium Holdings LLC. The combined company was renamed Iridium
Communications Inc., and in October 2009, the Company converted
the Iridium 5% Convertible Note into 1,995,629 common
shares of Iridium (Iridium Common Stock) (NASDAQ:
IRDM).
Prior to the completion of the acquisition of Iridium by GHLAC,
the Companys fully diluted ownership in GHLAC was
approximately 17%. Effective upon the closing of the acquisition
of Iridium by GHLAC, the Company agreed to (1) forfeit
1,441,176 shares of GHLAC common stock, (2) forfeit
8,369,563 Founder Warrants, (3) forfeit 4,000,000 GHLAC
Private Placement Warrants, and (4) exchange 4,000,000
GHLAC Private Placement Warrants for restructured warrants with
a strike price of $11.50 per share and an expiration date of
February 15, 2015.
At December 31, 2010 and 2009, the Company owned
8,924,016 shares of Iridium Common Stock and warrants to
purchase 4,000,000 additional shares of Iridium Common Stock at
$11.50 per share (Iridium $11.50 Warrants) (NASDAQ:
IRDMZ). The Companys fully diluted ownership in Iridium
was approximately 12% at December 31, 2010. Both the
Iridium Common Stock and the Iridium $11.50 Warrants were
restricted from sale until March 29, 2010. During the
period March 30, 2010 through September 29, 2010, the
Company was permitted to sell its investment in Iridium as part
of a registered secondary offering if authorized by
Iridiums board of directors. As of September 29,
2010, all contractual restrictions on the sale of the
Companys investments in Iridium lapsed.
At December 31, 2010, the carrying value of the investment
in Iridium Common Stock was valued at its closing quoted market
price. At December 31, 2009, the carrying value of the
investments in Iridium Common Stock was valued at its closing
market price discounted for legal and contractual restrictions.
Prior to the acquisition of Iridium, the Companys interest
in GHLAC Common Stock was accounted for under the equity method
as the Company maintained and exercised significant influence
over the entity. Upon closing of the acquisition of Iridium by
GHLAC, the Company relinquished certain GHLAC board and
management positions to Iridium. As such, the Company was no
longer
F-21
deemed to maintain or exercise significant influence over GHLAC
and therefore changed its method of accounting for its
investment in GHLAC from the equity method to fair value as
trading securities. The Company recognized unrealized investment
income from its investment in Iridium of $5.0 million,
$42.2 million, and $2.6 million in 2010, 2009 and
2008,respectively, which is included in merchant banking and
other investment revenues in the consolidated statements of
income.
Since the closing of the acquisition of Iridium, an active
trading market has not existed for the Iridium $11.50 warrants
and accordingly, at December 31, 2010 and 2009, the Company
used an internally developed model to value such warrants, which
takes into account various standard option valuation
methodologies, including Black Scholes modeling. Selected inputs
for the Companys model include: (i) the terms of the
warrants, including exercise price, exercisability threshold and
expiration date; and (ii) externally observable factors
including the trading price of Iridium shares, yields on
U.S. Treasury obligations and various equity volatility
measures, including historical volatility of broad market
indices.
Barrow
Street Capital III LCC
The Company committed $5.0 million to Barrow Street Capital
III, LLC (Barrow Street III), a real estate
investment fund, of which $0.3 million remains unfunded at
December 31, 2010. The unfunded amount may be called at any
time prior to the expiration of the fund in 2013 to preserve or
enhance the value of existing investments.
Other
Investments
In connection with the Acquisition, the Company acquired mutual
fund investments related to Caliburns deferred
compensation plan. See Note 3
Acquisition.
In 2008, GCP LLC received distributions in kind from GCP I of
marketable securities of two of its portfolio companies: Crown
Castle International Corp. and Heartland Payment Systems, Inc.
in the amounts of $5.5 million and $1.6 million,
respectively. The Company sold these investments in 2008 for
$5.2 million and $1.7 million, respectively.
Fair
Value Hierarchy
The following tables set forth by level assets and liabilities
measured at fair value on a recurring basis. Assets and
liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement.
Assets
Measured at Fair Value on a Recurring Basis as of
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Balance as of
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
December 31,
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iridium Common Stock
|
|
$
|
73,623
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
73,623
|
|
Iridium $11.50 Warrants
|
|
|
|
|
|
|
|
|
|
|
7,280
|
|
|
|
7,280
|
|
Deferred compensation plan investments
|
|
|
|
|
|
|
4,087
|
|
|
|
|
|
|
|
4,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
73,623
|
|
|
$
|
4,087
|
|
|
$
|
7,280
|
|
|
$
|
84,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
Assets
Measured at Fair Value on a Recurring Basis as of
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Balance as of
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
December 31,
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iridium Common Stock
|
|
$
|
|
|
|
$
|
68,077
|
|
|
$
|
|
|
|
$
|
68,077
|
|
Iridium $11.50 Warrants
|
|
|
|
|
|
|
|
|
|
|
8,015
|
|
|
|
8,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
|
|
|
$
|
68,077
|
|
|
$
|
8,015
|
|
|
$
|
76,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
Gains and Losses
The following table sets forth a summary of changes in the fair
value of the Companys level 1 investments for the
year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
Net
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Realized
|
|
|
Unrealized
|
|
|
Sales, Other
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
January 1,
|
|
|
Gains
|
|
|
Gains or
|
|
|
Settlements and
|
|
|
in and/or
|
|
|
December 31,
|
|
|
|
2010
|
|
|
or (Losses)
|
|
|
(Losses)
|
|
|
Issuances, Net
|
|
|
Out of Level 1
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iridium Common Stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,249
|
|
|
$
|
|
|
|
$
|
72,374
|
|
|
$
|
73,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,249
|
|
|
$
|
|
|
|
$
|
72,374
|
|
|
$
|
73,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2010, the legal and contractual restrictions on sale
lapsed and the Company recorded its investment in Iridium at
December 31, 2010 as a Level 1 investment. At
December 31, 2009, the Company valued the Iridium Common
Stock at its quoted market price, discounted for legal and
contractual restrictions on sale, and accordingly it was
recorded as Level 2 investments. There were no investments
classified as a level 1 in 2009.
Level 2
Gains and Losses
The following table sets forth a summary of changes in the fair
value of the Companys Level 2 investments for the
year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Sales, Other
|
|
|
Net
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Realized
|
|
|
Unrealized
|
|
|
Settlements
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
January 1,
|
|
|
Gains
|
|
|
Gains or
|
|
|
and
|
|
|
in and/or
|
|
|
December 31,
|
|
|
|
2010
|
|
|
or (Losses)
|
|
|
(Losses)
|
|
|
Issuances, Net
|
|
|
Out of Level 2
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iridium Common Stock
|
|
$
|
68,077
|
|
|
$
|
|
|
|
$
|
4,297
|
|
|
$
|
|
|
|
$
|
(72,374
|
)
|
|
$
|
|
|
Deferred compensation plan investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,087
|
|
|
|
|
|
|
|
4,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
68,077
|
|
|
$
|
|
|
|
$
|
4,297
|
|
|
$
|
4,087
|
|
|
$
|
(72,374
|
)
|
|
$
|
4,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The value of the deferred compensation plan investments assumed
in the Acquisition consist of mutual fund investments, which
have been recorded at net asset value, and have been recorded as
a Level 2 investment. See Note 3
Acquisition.
F-23
The following table sets forth a summary of changes in the fair
value of the Companys Level 2 investments for the
year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Sales, Other
|
|
|
Net
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Realized
|
|
|
Unrealized
|
|
|
Settlements
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
January 1,
|
|
|
Gains
|
|
|
Gains or
|
|
|
and
|
|
|
in and/or
|
|
|
December 31,
|
|
|
|
2009
|
|
|
or (Losses)
|
|
|
(Losses)
|
|
|
Issuances, Net
|
|
|
Out of Level 2
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iridium Common Stock
|
|
$
|
22,900
|
|
|
$
|
|
|
|
$
|
45,107
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
68,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
22,900
|
|
|
$
|
|
|
|
$
|
45,107
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
68,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
Gains and Losses
The following table sets forth a summary of changes in the fair
value of the Companys Level 3 investments for the
year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Sales, Other
|
|
|
Net
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Realized
|
|
|
Unrealized
|
|
|
Settlements
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
January 1,
|
|
|
Gains
|
|
|
Gains or
|
|
|
and
|
|
|
in and/or
|
|
|
December 31,
|
|
|
|
2010
|
|
|
or (Losses)
|
|
|
(Losses)
|
|
|
Issuances, Net
|
|
|
Out of Level 3
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iridium $11.50 Warrants
|
|
$
|
8,015
|
|
|
$
|
|
|
|
$
|
(735
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
8,015
|
|
|
$
|
|
|
|
$
|
(735
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth a summary of changes in the fair
value of the Companys Level 3 investments for the
year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Sales, Other
|
|
|
Net
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Realized
|
|
|
Unrealized
|
|
|
Settlements
|
|
|
Transfers
|
|
|
Balance
|
|
|
|
January 1,
|
|
|
Gains
|
|
|
Gains or
|
|
|
and
|
|
|
in and/or
|
|
|
December 31,
|
|
|
|
2009
|
|
|
or (Losses)
|
|
|
(Losses)
|
|
|
Issuances, Net
|
|
|
Out of Level 3
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iridium $11.50 Warrants
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3,120
|
)
|
|
$
|
11,135
|
|
|
$
|
|
|
|
$
|
8,015
|
|
Iridium 5% Convertible Note
|
|
|
22,900
|
|
|
|
|
|
|
|
(7,676
|
)
|
|
|
|
|
|
|
(15,224
|
)
|
|
|
|
|
GHLAC Warrants
|
|
|
8,295
|
|
|
|
|
|
|
|
5,454
|
|
|
|
(13,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
31,195
|
|
|
$
|
|
|
|
$
|
(5,342
|
)
|
|
$
|
(2,614
|
)
|
|
$
|
(15,224
|
)
|
|
$
|
8,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the acquisition of Iridium in September 2009,
the Company forfeited 8,369,563 Founder Warrants and 4,000,000
GHLAC Private Placement Warrants, and exchanged 4,000,000 GHLAC
Private Placement Warrants for the Iridium $11.50 Warrants. In
October 2009, the Company exercised its right to convert the
Iridium 5% Convertible Note into 1,995,629 shares of
Iridium Common Stock.
F-24
At December 31, 2010, the Company had goodwill in the
amount of $162.5 million. The changes in the carrying value
of goodwill for the years ended December 31, 2010 and 2009
are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Balance, January 1
|
|
$
|
18,721
|
|
|
$
|
16,133
|
|
Caliburn acquisition
|
|
|
127,972
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
15,814
|
|
|
|
2,588
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
162,507
|
|
|
$
|
18,721
|
|
|
|
|
|
|
|
|
|
|
The Company performs a goodwill impairment test annually or more
frequently if circumstances indicate that impairment may have
occurred. The Company has reviewed its goodwill for potential
impairment and determined that the fair value of the reporting
entities to which goodwill is related exceeded the carrying
value of such reporting entities. Accordingly, no goodwill
impairment loss has been recognized for the years ended
December 31, 2010 and 2009.
At December 31, 2010, the Company had payables of
$0.1 million due to the Merchant Banking Funds which
related to general operating expenses, and are included in due
to affiliates on the statement of financial condition. At
December 31, 2009, the Company had receivables of
$0.2 million and payables of $0.4 million due to the
Merchant Banking Funds relating to accrued management fees and
expense reimbursements, which are included in due to affiliates.
During 2010, 2009 and 2008, the Company paid $10,312, $7,994 and
$11,965, respectively, for the use of an aircraft owned by an
executive of the Company. Included in occupancy and equipment
rental expense for each of the years ended December 31,
2010, 2009 and 2008 are rent reimbursements of $69,720, $68,100,
and $64,890, respectively, for airplane and office space sublet
by a firm owned by an executive of the Company.
Included in accounts payable and accrued expenses at
December 31, 2009 were $0.3 million of interest
payable on the undistributed earnings to the U.K. members of GCI.
|
|
Note 7
|
Property
and Equipment
|
Property and Equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Aircraft
|
|
$
|
17,644
|
|
|
$
|
17,037
|
|
Equipment
|
|
|
14,737
|
|
|
|
11,330
|
|
Furniture and fixtures
|
|
|
7,461
|
|
|
|
6,016
|
|
Leasehold improvements
|
|
|
23,535
|
|
|
|
18,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,377
|
|
|
|
52,624
|
|
Less accumulated depreciation and amortization
|
|
|
(45,814
|
)
|
|
|
(39,829
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
17,563
|
|
|
$
|
12,795
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8
|
Revolving
Bank Loan Facility
|
At December 31, 2010, the Company had a $75.0 million
revolving loan facility from a U.S. banking institution to
provide for working capital needs and for other general
corporate purposes. The
F-25
revolving loan facility is secured by any cash distributed in
respect of our investment in the U.S. based merchant
banking funds and cash distributions from Greenhill &
Co. LLC, and is subject to a borrowing base limitation. The
maturity date of the facility is April 30, 2011. Interest
on borrowings is based on the higher of the Prime Rate or 4.0%
and is payable monthly. In addition, the revolving loan facility
has a prohibition on the incurrence of additional indebtedness
without the prior approval of the lenders and the Company is
required to comply with certain financial and liquidity
covenants. The weighted average daily borrowings outstanding
under the loan facility were approximately $57.7 million
and $31.4 million for the years ended December 31,
2010 and December 31, 2009, respectively. The weighted
average interest rate was 4.0% for the years ended
December 31,2010 and December 31,2009, respectively.
At December 31, 2010, the Company was compliant with all
loan covenants.
Dividends declared per common share were $1.80 for each of the
years ended December 31, 2010, 2009 and 2008. Dividend
equivalents of $5.2 million, $4.5 million and
$3.4 million were paid in 2010, 2009 and 2008,
respectively, on the outstanding restricted stock units. In the
event a restricted stock unit holders employment is
terminated, a portion of the dividend equivalent may be required
to be paid back to the Company. See
Note 12 Restricted Stock Units
In connection with the acquisition of Caliburn on April 1,
2010, the Company issued 1,099,874 shares of its common
stock and 1,099,877 shares of Performance Stock. The
Performance Stock does not pay dividends and will convert to
shares of the Companys common stock if certain revenue
targets are achieved. If the revenue targets are not achieved,
the Performance Stock will be cancelled. See
Note 3 Acquisition and
Note 10 Earnings Per Share.
During 2010, 737,666 restricted stock units vested and were
issued as common stock of which the Company is deemed to have
repurchased 317,554 shares at an average price of $78.18
per share in conjunction with the payment of tax liabilities in
respect of stock delivered to its employees in settlement of
restricted stock units. In addition, during 2010 the Company
repurchased in open market transactions 181,550 shares of
its common stock at an average price of $68.21.
In December 2009, in connection with the sale of the merchant
banking business, certain employees of Greenhill Capital
Partners exchanged 289,050 shares of the Companys
common stock, which was structured as a tax-free exchange under
Section 355 of the Internal Revenue Code of 1986. See
Note 4 Investments Affiliated
Merchant Banking Funds and Note 14
Income Taxes.
During 2009, 344,686 restricted stock units vested and were
issued as common stock of which the Company is deemed to have
repurchased 138,325 shares at an average price of $69.73
per share in conjunction with the payment of tax liabilities in
respect of stock delivered to its employees in settlement of
restricted stock units.
F-26
|
|
Note 10
|
Earnings
Per Share
|
The computations of basic and diluted EPS are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands, except per share amounts)
|
|
|
Numerator for basic and diluted EPS net income
allocated to common stockholders
|
|
$
|
34,526
|
|
|
$
|
71,240
|
|
|
$
|
48,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS weighted average number of
shares
|
|
|
30,727
|
|
|
|
29,664
|
|
|
|
28,167
|
|
Add dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of incremental shares issuable from
restricted stock units
|
|
|
49
|
|
|
|
90
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted EPS weighted average number
of shares and dilutive potential shares
|
|
|
30,776
|
|
|
|
29,754
|
|
|
|
28,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.12
|
|
|
$
|
2.40
|
|
|
$
|
1.74
|
|
Diluted
|
|
$
|
1.12
|
|
|
$
|
2.39
|
|
|
$
|
1.74
|
|
Common shares outstanding consist of (i) the
25,000,000 shares issued in connection with the
reorganization, which preceded our initial public offering in
May 2004, (ii) the 5,750,000 shares issued in
conjunction with the initial public offering, (iii) the
257,156 exchangeable shares issued in connection with the
acquisition of Beaufort Partners Limited (22,764 of which were
exchanged in 2010, 75,463 of which were exchanged in 2009 and
48,738 of which were exchanged in 2008), (iv) the
restricted stock units for which no future service is required
as a condition to the delivery of the underlying common stock,
(v) the 1,250,000 shares issued in the primary
offering in 2008, and (vi) the 1,099,874 shares issued
in conjunction with the Acquisition, less the treasury stock
purchased by the Company.
The weighted number of shares and dilutive potential shares do
not include the Performance Stock. Such shares will potentially
convert to shares of the Companys common stock in tranches
of 659,926 shares and 439,951 shares on the third and
fifth anniversary of the closing of the Acquisition,
respectively, if certain revenue targets are achieved. At the
time a revenue target is achieved such shares will be included
in the Companys share count. If the revenue target for a
tranche is not achieved the Performance Stock in that tranche
will be cancelled. See Note 3
Acquisition.
|
|
Note 11
|
Retirement
Plan
|
In the U.S., the Company sponsors a qualified defined
contribution plan (the Retirement Plan) covering all
eligible employees of G&Co, GCPLLC, GCPII LLC, and GVP. The
Retirement Plan provides for both employee contributions in
accordance with Section 401(k) of the Internal Revenue
Code, and employer discretionary profit sharing contributions,
subject to statutory limits. Participants may contribute up to
50% of eligible compensation, as defined. The Company provides
matching contributions up to $1,000 per employee. The Company
incurred costs of $0.2 million, $0.9 million and
$0.6 million for contributions to the Retirement Plan for
the years ended December 31, 2010, 2009 and 2008,
respectively. At December 31, 2010, there were no amounts
related to contributions due to the Retirement Plan included in
compensation payable. At December 31, 2009, compensation
payable included $0.7 million related to contributions due
to the Retirement Plan.
GCI also operates a defined contribution pension fund for its
employees as well as employees of GCPE. The assets of the
pension fund are held separately in an independently
administered fund. For the years ended December 31, 2010,
2009 and 2008, GCI incurred costs of approximately
$0.7 million, $0.6 million and $0.7 million,
respectively. GCPE incurred costs of approximately
$0.1 million during each of the years ended
December 31, 2010, 2009 and 2008.
F-27
Greenhill Caliburn is required by Australian law to contribute
compulsory superannuation on employees gross earnings generally
at a rate of 9%. Superannuation is a defined contribution plan
in which retirement benefits are determined by the contribution
accumulated over the working life plus investment earnings
within the fund less expenses. Greenhill Caliburn incurred costs
of approximately $0.4 million for the year ended
December 31, 2010.
|
|
Note 12
|
Restricted
Stock Units
|
The Company has adopted an equity incentive plan to motivate its
employees and allow them to participate in the ownership of its
stock. Under the Companys plan restricted stock units,
which represent a right to a future payment equal to one share
of common stock, may be awarded to employees, directors and
certain other non-employees as selected by the Compensation
Committee. Awards granted under the plan generally vest ratably
over a period of five years beginning on the first anniversary
of the grant date or in full on the fifth anniversary of the
grant date. To the extent the restricted stock units are
outstanding at the time a dividend is paid on the common stock,
a dividend equivalent amount is paid to the holders of the
restricted stock units. In the event that the holders
employment is terminated under circumstances in which units
awarded under the plan are forfeited, beginning with grants
awarded in 2009 any dividend equivalent payments related to such
forfeiture, which are unvested for accounting purposes, are
required to be repaid to the Company.
The Company issues restricted stock units to employees under the
equity incentive plan, primarily in connection with its annual
bonus awards and compensation agreements for new hires. It is
the Companys policy to settle restricted stock unit awards
in common shares at the time of vesting of such awards. The
Company will generally use newly issued shares to settle such
awards. The Companys Board of Directors, in consultation
with management consider from time to time whether it would be
in the best interests of the Company to repurchase shares of the
Companys common stock, and depending on a number of
factors, may authorize such repurchases.
In 2010, 111,816 restricted stock units with a fair value of
$11.0 million were settled in cash, $8.9 million of
which was paid in 2010. The remaining $2.1 million will be
paid in 2011 and is included as a component of accounts payable
and accrued expenses at December 31, 2010. There were no
other cash settlements of restricted stock awards for the years
ended December 31, 2010 and 2009 other than those made in
conjunction with the payment of tax liabilities. See
Note 9 Equity.
As of December 31, 2010, 2009 and 2008, there were
restricted stock units outstanding of 2,813,567, 2,582,513 and
2,014,686, respectively, which were legally unvested and require
future service as a condition for the delivery of the underlying
shares of common stock. For the years ended December 31,
2010, 2009 and 2008, the Company recognized compensation expense
from the vesting of restricted stock units, net of forfeitures,
of $53.6 million, $40.5 million and
$32.2 million, respectively.
The weighted-average grant date fair value for restricted stock
units granted during 2010, 2009 and 2008 was $78.19, $66.96 and
$64.93, respectively. As of December 31, 2010, unrecognized
restricted stock units compensation expense was approximately
$101.2 million, with such unrecognized compensation expense
expected to be recognized over a weighted average period of
approximately 2.0 years.
F-28
The activity related to the restricted stock units is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units Outstanding
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Fair
|
|
|
|
|
|
Average Fair
|
|
|
|
Units
|
|
|
Value
|
|
|
Units
|
|
|
Value
|
|
|
Outstanding, January 1,
|
|
|
2,582,513
|
|
|
$
|
60.83
|
|
|
|
2,014,686
|
|
|
$
|
56.94
|
|
Granted
|
|
|
1,142,898
|
(1)
|
|
$
|
78.19
|
|
|
|
945,591
|
|
|
$
|
66.96
|
|
Delivered
|
|
|
(737,666
|
)
|
|
$
|
47.55
|
|
|
|
(344,686
|
)
|
|
$
|
54.62
|
|
Forfeited
|
|
|
(174,178
|
)(2)
|
|
$
|
74.05
|
|
|
|
(33,078
|
)
|
|
$
|
63.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31,
|
|
|
2,813,567
|
|
|
$
|
70.55
|
|
|
|
2,582,513
|
|
|
$
|
60.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes 919,768 stock units granted to employees subsequent to
December 31, 2010 as part of the long term incentive awards
program. |
|
(2) |
|
Includes 111,816 restricted stock units settled for cash as
described above. |
|
|
Note 13
|
Commitments
and Contingencies
|
The Company has entered into certain leases for office space
under non-cancelable operating lease agreements that expire on
various dates through 2020. The Company has also entered into
various operating leases for office equipment.
As of December 31, 2010, the approximate aggregate minimum
future rental payments required were as follows:
|
|
|
|
|
2011
|
|
$
|
13,333,000
|
|
2012
|
|
|
14,521,000
|
|
2013
|
|
|
13,180,000
|
|
2014
|
|
|
12,025,000
|
|
2015
|
|
|
11,111,000
|
|
Thereafter
|
|
|
45,635,000
|
|
|
|
|
|
|
Total(1)
|
|
$
|
109,805,000
|
|
|
|
|
|
|
|
|
|
(1) |
|
Approximately 15,000 square feet of space in our New York
office will be sublet to GCP Capital beginning in 2011 through
December 2015 for approximately $3.4 million. Total
aggregate minimum future rental payments have not been reduced
by this amount. |
Net rent expense for the years ended December 31, 2010,
2009 and 2008 was approximately $12.0 million,
$9.0 million and $8.3 million, respectively.
Diversified financial institutions issued five letters of credit
on behalf of the Company to secure office space leases, which
totaled $4.4 million at December 31, 2010, and three
letters of credit which totaled $1.0 million at
December 31, 2009. These letters of credit were secured by
cash held on deposit. Diversified financial institutions issued
two unsecured letters of credit at December 31, 2009
totaling $2.4 million. At December 31, 2010 and 2009,
no amounts had been drawn under any of the letters of credit.
At December 31, 2010, the Company had unfunded commitments
of $34.6 million to certain Merchant Banking Funds and
unfunded commitments of $0.3 million to Barrow Street III.
See Note 4 Investments.
The Company is involved in certain legal proceedings arising in
the ordinary course of its business. The Company is unable to
estimate any maximum payout which may be required to be made in
F-29
respect of such litigation. Management believes it is unlikely
that the Company will have to make any material payments in
connection with any such litigation.
The Company is subject to U.S. federal, foreign, state and
local corporate income taxes.
The components of the provision for income taxes reflected on
the consolidated statements of earnings are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
15,803
|
|
|
$
|
22,312
|
|
|
$
|
28,691
|
|
State and local
|
|
|
(83
|
)
|
|
|
9,350
|
|
|
|
7,376
|
|
Foreign
|
|
|
6,795
|
|
|
|
134
|
|
|
|
13,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax expense
|
|
|
22,515
|
|
|
|
31,796
|
|
|
|
49,296
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(1,226
|
)
|
|
|
15,454
|
|
|
|
(13,797
|
)
|
State and local
|
|
|
941
|
|
|
|
2,335
|
|
|
|
(3,601
|
)
|
Foreign
|
|
|
(2,700
|
)
|
|
|
(6,849
|
)
|
|
|
(2,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax (benefit) expense
|
|
|
(2,985
|
)
|
|
|
10,940
|
|
|
|
(19,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense
|
|
$
|
19,530
|
|
|
$
|
42,736
|
|
|
$
|
29,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company plans to permanently reinvest 50% of eligible
earnings from its foreign affiliates, and provides
U.S. income tax on the foreign earnings in excess of this
planned reinvestment amount. As of December 31, 2010, the
Company has not provided U.S. income tax on approximately
$57.5 million of earnings from its foreign affiliates since
it became a corporate taxpayer in 2004. As of December 31,
2010, if the Company had not permanently reinvested 50% of its
eligible earnings from foreign affiliates, it would have
incurred additional deferred tax liabilities of
$0.6 million from temporary differences related to such
earnings as of December 31, 2010.
Deferred income taxes reflect the net tax effects of temporary
differences between the financial reporting and tax bases of
assets and liabilities as well as operating loss carryforwards.
Deferred income taxes are measured using the enacted tax rates
and laws that will be in effect when such differences are
F-30
expected to reverse. Significant components of the
Companys net deferred tax assets and liabilities are set
forth below:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
34,912
|
|
|
$
|
29,239
|
|
Depreciation and amortization
|
|
|
3,086
|
|
|
|
3,557
|
|
Unrealized loss on investments
|
|
|
1,742
|
|
|
|
2,441
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
2,251
|
|
Operating loss carryforwards
|
|
|
6,932
|
|
|
|
2,345
|
|
Other financial accruals
|
|
|
1,170
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
47,842
|
|
|
|
40,102
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
20,926
|
|
|
|
17,190
|
|
Depreciation and amortization
|
|
|
302
|
|
|
|
374
|
|
Cumulative translation adjustment
|
|
|
1,125
|
|
|
|
|
|
Intangible asset acquired, net of amortization
|
|
|
2,087
|
|
|
|
|
|
Other financial accruals
|
|
|
592
|
|
|
|
577
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
25,032
|
|
|
|
18,141
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
22,810
|
|
|
$
|
21,961
|
|
|
|
|
|
|
|
|
|
|
Based on the Companys historical taxable income and its
expectation for taxable income in the future, management expects
that its largest deferred tax asset, which relates principally
to compensation expense deducted for book purposes but not yet
deducted for tax purposes, will be realized as offsets to
(i) the realization of its deferred tax liabilities and
(ii) future taxable income.
The Companys deferred taxes for operating loss
carryforwards relate principally to losses incurred in foreign
operations which have mostly been profitable in prior years.
When assessing the need for a valuation allowance, management
evaluates each foreign jurisdiction separately and considers
items such as estimated future taxable income, cost bases, and
other various factors. Based on all available information, the
Company has determined that it is more likely than not that it
will realize the benefit of these operating loss carryforwards
in future periods, so a valuation allowance has not been
established for these deferred tax assets. At December 31,
2010 the Company had foreign loss carryforwards which in
aggregate totaled $23.6 million. The losses may be carried
forward for twenty years and longer.
The deferred taxes for operating loss carryforwards do not
include amounts arising directly from tax deductions related to
the excess of compensation deductible for tax purposes over the
amount expensed for book purposes. As of December 31, 2010,
equity would have been increased by $3.0 million if such
deferred tax assets had been realized.
Any gain or loss resulting from the translation of deferred
taxes for foreign affiliates is included in the foreign currency
translation adjustment incorporated as a component of other
comprehensive income, net of tax, in the consolidated statement
of changes in equity. Included in other receivables in the
consolidated statements of financial condition are income taxes
receivable of $1.9 million as of December 31, 2010.
The Company performed a tax analysis as of December 31,
2010, and determined that there was no requirement to accrue any
liabilities, pursuant to FASB
ASC 740-10
(formerly FIN 48). This tax
F-31
analysis included the Companys tax positions with respect
to applicable income tax issues for open tax years in each
respective jurisdiction.
A reconciliation of the statutory U.S. federal income tax
rate of 35.0% to the Companys effective income tax rate is
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
U.S. statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase related to state and local taxes, net of U.S. income tax
|
|
|
1.0
|
|
|
|
7.7
|
|
|
|
3.1
|
|
Foreign taxes
|
|
|
1.4
|
|
|
|
1.1
|
|
|
|
(2.2
|
)
|
Sale of merchant banking business
|
|
|
(0.7
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
Other
|
|
|
(0.6
|
)
|
|
|
0.1
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate before noncontrolling interests
|
|
|
36.1
|
|
|
|
37.5
|
|
|
|
37.5
|
|
Noncontrolling interests
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate after noncontrolling interests
|
|
|
33.1
|
%
|
|
|
37.5
|
%
|
|
|
37.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate will vary depending on the
source of the income. Investment and certain foreign sourced
income are taxed at a lower effective rate than U.S. trade
or business income. In addition, the Companys effective
tax rate will reflect any provision to return adjustments booked
during the year based upon changes in estimates. The percentage
of state and local taxes in the effective tax rate
reconciliation has fluctuated primarily due to provision to
return adjustments for apportionment changes. The noncontrolling
interest reported in the 2010 effective tax rate is primarily
related to the sale of the Companys merchant banking
business. See Note 4
Investments Affiliated Merchant Banking Funds.
The effective tax rates for the years ended December 31,
2010 and 2009 reflected the benefit of the sale of certain
assets relating to the Companys merchant banking business
as described in Note 4
Investments Affiliated Merchant Banking Funds,
which was structured as a tax-free exchange under
Section 355 of the Internal Revenue Code of 1986.
|
|
Note 15
|
Regulatory
Requirements
|
Certain subsidiaries of the Company are subject to various
regulatory requirements in the United States, United
Kingdom and Australia, which specify, among other requirements,
minimum net capital requirements for registered broker-dealers.
G&Co is subject to the SECs Uniform Net Capital
requirements under
Rule 15c3-1
(the Rule), which specifies, among other
requirements, minimum net capital requirements for registered
broker-dealers. The Rule requires G&Co to maintain a
minimum net capital of the greater of $5,000 or
1/15
of aggregate indebtedness, as defined in the Rule. As of
December 31, 2010 and 2009, G&Cos net capital
was $12.6 million and $11.7 million, respectively,
which exceeded its requirement by $11.7 million and
$10.4 million, respectively. G&Cos aggregate
indebtedness to net capital ratio was 1.00 to 1 and 1.71 to 1 at
December 31, 2010 and 2009, respectively. Certain
distributions and other capital withdrawals of G&Co are
subject to certain notifications and restrictive provisions of
the Rule.
GCI, GCEI and GCPE are subject to capital requirements of the
FSA. Greenhill Caliburn is subject to capital requirements of
the ASIC. As of December 31, 2010 and 2009, GCI, GCEI, GCPE
and Greenhill Caliburn were in compliance with local capital
adequacy requirements.
F-32
|
|
Note 16
|
Business
Information
|
The Companys activities as an investment banking firm
constitute a single business segment, with two principal sources
of revenue:
|
|
|
|
|
Financial advisory, which includes engagements relating to
mergers and acquisitions, financing advisory and restructuring,
and private equity and real estate capital advisory
services; and
|
|
|
|
Merchant banking, which includes the management of outside
capital invested in the Merchant Banking Funds and the
Companys investments in such funds and other principal
investments.
|
As described in Note 4
Investments Affiliated Merchant Banking Funds,
the Company completed the sale of certain assets related to our
merchant banking business in December 2009. Effective
December 31, 2010, the Company will no longer manage the
Merchant Banking Funds, but will retain its existing investments
in and will continue to act as the general partner of the funds.
In reporting to management, the Company distinguishes the
sources of its investment banking revenues between financial
advisory and merchant banking. However, management does not
evaluate other financial data or operating results such as
operating expenses, profit and loss or assets by its financial
advisory and merchant banking activities.
The Company has principally earned its revenues from financial
advisory fees earned from clients in large part upon the
successful completion of the clients transaction or
restructuring, or fund closing. Financial advisory revenues
represented approximately 91%, 72% and 98% of the Companys
total revenues for the years ended December 31, 2010, 2009
and 2008, respectively.
In 2010, there were no financial advisory clients that accounted
for more than 10% of total revenues. In 2009, the Company earned
approximately 10% of our total revenue from our single largest
engagement (advice to Roche Holdings Ltd. in connection with its
acquisition of the outstanding publicly held interest in
Genentech, Inc.). In 2008 the Company earned approximately 10%
of total revenues from our single largest client engagement
(advice to Delta Air Lines in connection with its merger with
Northwest Airlines). The Companys revenues attributable to
these clients related to engagements similar in nature to all of
the Companys other financial advisory engagements. The
Companys gain on its investment in Iridium, which is
recorded in merchant banking and other investment revenues,
contributed more than 10% to total revenues in 2009. The Company
did not have any single gain on an investment in merchant
banking or other principal investments that contributed more
than 10% to total revenues in 2010 or 2008.
Since the financial markets are global in nature, the Company
generally manages its business based on the operating results of
the enterprise taken as whole, not by geographic region. The
Companys investment banking activities are conducted out
of its offices in New York, London, Frankfurt, Sydney, Tokyo,
Toronto, Chicago, Dallas, Houston, Los Angeles, Melbourne, and
San Francisco. For reporting purposes, the geographic
regions are North America, Europe, Australia, and Asia,
locations in which the Company retains substantially all of its
employees.
F-33
The following table presents information about the Company by
geographic region, after elimination of all significant
inter-company accounts and transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for The Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
172,462
|
|
|
$
|
255,716
|
|
|
$
|
135,038
|
|
Europe
|
|
|
53,005
|
|
|
|
42,389
|
|
|
|
86,835
|
|
Australia
|
|
|
40,827
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
12,035
|
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
278,329
|
|
|
$
|
298,646
|
|
|
$
|
221,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
43,276
|
|
|
$
|
136,278
|
|
|
$
|
45,881
|
|
Europe
|
|
|
(7,351
|
)
|
|
|
(16,195
|
)
|
|
|
32,429
|
|
Australia
|
|
|
19,352
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
3,674
|
|
|
|
(6,190
|
)
|
|
|
(452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58,951
|
|
|
$
|
113,893
|
|
|
$
|
77,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
236,015
|
|
|
$
|
236,945
|
|
|
$
|
184,252
|
|
Europe
|
|
|
79,322
|
|
|
|
93,204
|
|
|
|
79,981
|
|
Australia
|
|
|
185,895
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
7,446
|
|
|
|
4,011
|
|
|
|
1,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
508,678
|
|
|
$
|
334,160
|
|
|
$
|
265,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17
|
Subsequent
Events
|
On January 26, 2011, the Board of Directors of the Company
declared a quarterly dividend of $0.45 per share. The dividend
will be payable on March 16, 2011 to the common
stockholders of record on March 2, 2011.
F-34
Supplemental
Financial Information
Quarterly Results (unaudited)
The following represents the Companys unaudited quarterly
results for the years ended December 31, 2010 and 2009.
These quarterly results were prepared in accordance with
U.S. generally accepted accounting principles and reflect
all adjustments that are, in the opinion of management,
necessary for a fair presentation of the results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(in millions, expect per share data)
|
|
|
Total revenues
|
|
$
|
48.9
|
|
|
$
|
83.5
|
|
|
$
|
84.1
|
|
|
$
|
61.9
|
|
Total expenses
|
|
|
45.7
|
|
|
|
53.3
|
|
|
|
60.2
|
|
|
|
60.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
3.2
|
|
|
|
30.2
|
|
|
|
23.9
|
|
|
|
1.6
|
|
Provision benefit for taxes
|
|
|
0.3
|
|
|
|
11.3
|
|
|
|
8.7
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
2.9
|
|
|
|
18.9
|
|
|
|
15.2
|
|
|
|
2.4
|
|
Less: Net income allocated to noncontrolling interests
|
|
|
2.4
|
|
|
|
1.3
|
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common stockholders
|
|
$
|
0.5
|
|
|
$
|
17.6
|
|
|
$
|
14.5
|
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
0.57
|
|
|
$
|
0.47
|
|
|
$
|
0.06
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
0.57
|
|
|
$
|
0.47
|
|
|
$
|
0.06
|
|