e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
|
|
|
(Mark One)
|
|
x
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
December 31, 2009
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to .
|
Commission file number
001-32147
GREENHILL & CO.,
INC.
(Exact Name of Registrant as
Specified in its Charter)
|
|
|
Delaware
|
|
51-0500737
|
(State or Other Jurisdiction
of Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
300 Park Avenue
New York, New York
(Address of Principal Executive
Offices)
|
|
10022
(ZIP Code)
|
Registrants telephone number, including area code:
(212) 389-1500
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
Title of each class
|
|
Name of each exchange on which registered
|
|
Common Stock, par value $.01 per share
|
|
New York Stock Exchange
|
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 o No x
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):
|
|
|
|
|
|
|
Large accelerated
filer x
|
|
Accelerated
filer o
|
|
Non-accelerated
filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting
company o
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
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, 2009, was approximately $1.479 million. The
registrant has no non-voting stock.
As of February 19, 2010, 28,315,131 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 2010 annual
meeting of stockholders to be held on April 21, 2010 are
incorporated by reference in response to Part III of this
Report.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
F-1
|
|
|
|
|
|
|
|
|
F-1
|
|
|
|
|
|
|
|
|
|
II-1
|
|
|
|
|
S-1
|
|
Exhibits
|
|
|
E-1
|
|
i
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 fund placement advisory services
in North America; Greenhill & Co. International LLP
and Greenhill & Co. Europe LLP, each of which provides
investment banking services in Europe and is regulated by the
United Kingdom Financial Services Authority; 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 conduct our North American
merchant banking business; and Greenhill Capital Partners Europe
LLP, an investment adviser regulated by the United Kingdom
Financial Services Authority through which we conduct 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 its offices in New York,
London, Frankfurt, Tokyo, Toronto, Chicago, Dallas, Houston, Los
Angeles and San Francisco.
We also manage merchant banking funds and similar vehicles,
although in the fourth quarter of 2009 we announced our
intention to separate from our merchant banking business in
order to focus entirely on our financial advisory business going
forward. In connection with that decision we sold certain assets
of our merchant banking business (including the right to raise
successor funds) to certain of our employees engaged in that
business. After a transition period our merchant banking funds
will be managed by subsidiaries of GCP Capital Partners Holdings
LLC, which is principally owned by Robert H. Niehaus, Chairman
and founder of Greenhill Capital Partners, LLC (with no
ownership by the firm).
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 fund placement advisory business. We opened our Houston and
Los Angeles offices in the summer of 2009.
In our merchant banking business, we raised our first
U.S. fund in 2000 and our second U.S. merchant banking
fund in 2005. We raised 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. in 2009. As
noted above, after a transition period, management of our active
funds will transfer to subsidiaries of GCP Capital Partners
Holdings LLC. We will retain our existing principal investments
in the merchant banking funds and intend to liquidate those
investments over time.
1
As of December 31, 2009, we had 61 managing directors and 8
senior advisors globally, including 6 managing directors
dedicated to the merchant banking business, and we had
290 employees, including 27 employees dedicated to the
merchant banking business.
Principal
Sources of Revenue
Our principal sources of revenues are financial advisory and
merchant banking.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Financial advisory fees
|
|
$
|
216.0
|
|
|
$
|
218.2
|
|
|
$
|
366.7
|
|
|
$
|
209.8
|
|
|
$
|
142.1
|
|
Merchant banking and other
revenues(1)
|
|
|
82.6
|
|
|
|
3.7
|
|
|
|
33.7
|
|
|
|
80.8
|
|
|
|
79.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
298.6
|
|
|
$
|
221.9
|
|
|
$
|
400.4
|
|
|
$
|
290.6
|
|
|
$
|
221.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Merchant banking and other revenues includes (i) interest
income of $0.3 million, $3.6 million,
$5.4 million, $3.1 million, and $2.9 million in
2009, 2008, 2007, 2006, and 2005, respectively,
(ii) unrealized gains from our investment in Iridium
Communications, Inc. (formerly GHL Acquisition Corp.) of
$42.2 million and $2.6 million in 2009 and 2008,
respectively, and (iii) a gain of $21.8 million in
2009 from the sale of certain assets of the merchant banking
business. |
Financial
Advisory
Our financial advisory business consists of mergers and
acquisitions, financing advisory and restructuring, and fund
placement advisory. 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 in transactions that typically are of the
highest strategic and financial importance to those companies.
We advise clients on strategic matters, including acquisitions,
divestitures, defensive tactics, special committee assignments
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 fund placement advisory practice we assist private equity
funds and other financial sponsors in raising capital from a
global set of institutional and other investors.
Financial advisory revenues accounted for 72% and 98% of our
total revenues in 2009 and 2008, respectively.
Non-U.S. clients
are a significant part of our business, generating 35% and 47%
of our financial advisory revenues in 2009 and 2008,
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 successful
conclusion of a transaction or closing of a fund and, in
connection principally with restructuring assignments, monthly
retainer fees.
2
Merchant
Banking and Other Investments
Our merchant banking activities consist 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 that invest in portfolio companies. Merchant banking funds
are private investment funds raised from contributions by
qualified institutional investors and financially sophisticated
individuals. The funds generally make investments in non-public
companies, typically with a view toward divesting within 3 to
5 years. On December 22, 2009, in connection with our
plan to exit from the merchant banking business, we announced
that we had sold certain assets relating to our merchant banking
business to Robert H. Niehaus, the chairman and founder of
Greenhill Capital Partners, and V. Frank Pottow, a member of the
Investment Committee of Greenhill Capital Partners, for
289,050 shares of Greenhill common stock. Following a
transition period which is expected to end in December 2010 in
the case of GCP, a new, independent firm, GCP Capital Partners
Holdings LLC, formed by Messrs. Niehaus and Pottow will
take over the management of our merchant banking funds. The firm
will retain its existing investments in the merchant banking
funds. Merchant banking and other revenue accounted for 28% and
2% of our revenues in 2009 and 2008, respectively. We generate
merchant banking revenue from (i) management fees paid by
the funds we manage, (ii) gains (or losses) on our
investments in the merchant banking funds and
(iii) merchant banking profit overrides. We generate other
investment revenue from gains (or losses) on other principal
investment activities, principally Iridium Communications, Inc.,
and from interest income. During 2009 we recognized revenue of
$42.2 million from our investment in Iridium and
$21.8 million from the sale of certain assets of our
merchant banking business.
We charge management fees in GCP II, GSAVP and GCP Europe to all
investors except the firm. In GCP I, we charge management
fees to all outside investors who are not employed or affiliated
with us. We may also generate gains (or losses) from our capital
investment in our merchant banking funds depending upon the
performance of the funds. Our investments in our merchant
banking funds generate realized and unrealized investment gains
(or losses) based on our allocable share of earnings generated
by the funds. As the general partner of our merchant banking
funds, we make investment decisions for the funds and are
entitled to receive an override on the profits of the funds
after certain performance hurdles are met. As a result of our
plan to exit the merchant banking business the fees we generate
from the management of outside capital in our merchant banking
funds will decline over time, and the percentage of any merchant
banking profit overrides on investments made by the merchant
banking funds after January 1, 2010, to which the firm
would be entitled if any such overrides were to be realized,
will be reduced from 10 out of 20 points to 1 out of 20 points.
The firm has committed $87.6 million, or approximately 10%
of the funds capital, to GCP II. The firm has committed
$10.9 million, or approximately 11% of the funds
capital, to GSAVP and $40.4 million (or
£25 million), or approximately 13% of the funds
capital, to GCP Europe. As of December 31, 2009, GCP II,
GSAVP and GCP Europe had drawn approximately 82%, 46%, and 39%
of their committed capital, respectively. In addition, the firm
has agreed to commit $5.0 million to a successor fund to
GCP II and $2.5 million to a successor fund to GSAVP,
subject to certain conditions, payable over five years from the
date of inception of each fund.
In February 2008 we completed the initial public offering of
units in our subsidiary GHL Acquisition Corp. (which we refer to
as GHLAC), a blank check company. In September 2009
GHLAC completed its acquisition of Iridium Holdings LLC. The
combined company was renamed Iridium Communications Inc.
(Iridium). Effective upon the completion of the
acquisition of Iridium we valued our investment at its public
market price discounted for legal and contractual restrictions
on sale. At December 31, 2009, the firm owned 8,924,016
common shares of Iridium (Iridium Common Stock)
(NASDAQ IRDM) and warrants to purchase 4,000,000
additional shares of Iridium Common Stock at $11.50 per share
(Iridium $11.50 Warrants) (NASDAQ
IRDMZ), or approximately 12% of the Iridium Common Stock on a
fully diluted basis.
3
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 fund placement. 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, 2009, Greenhill employed a total of
290 people (including our managing directors and senior
advisors), of which 187 were located in our North American
offices, 93 were based in our European offices and 10 in our
Asian office. We had 27 employees who were active in our
merchant banking activities. The vast majority of our finance,
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
In our financial advisory services business, 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 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 some 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. Beginning in 2008, this trend of
consolidation and convergence accelerated considerably as
several major U.S. financial institutions consolidated,
filed for bankruptcy protection, or were forced to merge. 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 investment banking and securities products 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.
4
We believe our primary competitors in securing mergers and
acquisitions and financing advisory and restructuring
engagements are Bank of America Corporation, Citigroup Inc.,
Credit Suisse Holdings (USA), Inc., Goldman Sachs Group, Inc.,
JPMorgan Chase & Co., Morgan Stanley, UBS A.G. and
other bulge bracket firms as well as investment banking firms
such as Blackstone Group, Evercore Partners Inc., Jefferies
Group, Inc., Lazard Ltd. and other closely held independent
firms.
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 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 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 securities regulators also
have regulatory or oversight authority over
Greenhill & Co., LLC. 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). Our business may
also be subject to regulation by
non-U.S. 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 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 United Kingdoms 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
5
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.
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, 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 and conduct our merchant banking business, 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 72% and 98% of our total
revenues in 2009 and 2008, respectively. Unlike diversified
investment banks, we only have one other significant alternative
source of revenue which will decline as we exit the merchant
banking business, and lack such other sources of revenue as
securities trading or underwriting. As a result our reliance on
financial advisory fees will increase and 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.
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 and economic conditions in 2009 affected the
number and size of transactions on which we provided mergers and
acquisitions advice and therefore adversely affected our
financial advisory fees. In 2009, worldwide completed M&A
volume decreased by 40%, from $2,855 billion in
6
2008 to $1,725 billion in
2009(1).
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. The continuing market volatility also affects our
clients ability and willingness to engage in
stock-for-stock
transactions. Accordingly, we expect that the lack of liquidity
and general uncertainty about economic and market activities may
continue to adversely impact our business.
For most of 2009, the United States, Canada, Europe and Asia
continued to be impacted by economic recessions. As our
operations in the United States and Europe historically have
provided most of our revenues and earnings, 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 activity in the companies in which we
have investments could also adversely affect the business
operations of those companies, and therefore, our earnings. In
addition, during a market downturn, there may be fewer
opportunities to exit and realize value from our merchant
banking and other principal investments.
In the
event of a continued economic downturn, revenues from mergers
and acquisitions advisory activities may decline further, and it
is unlikely that revenues from financing advisory and
restructuring activities will fully offset any such
decline
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 it is unlikely that we
will be able to offset a decline in mergers and acquisitions
revenue with revenue generated from financing advisory and
restructuring assignments.
The requirement of Section 327 of the U.S. Bankruptcy
Code requiring that one be a disinterested person to
be employed in a restructuring was modified in 2007 to allow a
person not to be disqualified solely by virtue of its status as
an underwriter of securities. The disinterested
person definition of the U.S. Bankruptcy Code, as
previously in effect, disqualified certain of our competitors.
The revised definition has allowed more financial services firms
to compete for restructuring engagements as well as with respect
to the recruitment and retention of professionals. If our
competitors succeed in being retained in new restructuring
engagements, our financing advisory and restructuring practice,
and thereby our results of operations, could be materially
adversely affected.
If demand for our financing advisory and restructuring services
decreases, we could suffer a decline in revenues, which could
lower our overall profitability materially.
Our
merger and acquisition and financing advisory and restructuring
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 or financing advisory and restructuring projects,
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
(1)
Source: Global M&A completed transaction volume for the
year ended December 31, 2009 as compared to the year ended
December 31, 2008. Source: Thompson Financial as of
January 19, 2010.
7
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 41% of our total revenues in
2009 and 54% of our total revenues in 2008. Our single largest
client engagement accounted for approximately 10% of our total
revenues in 2009 and 2008, respectively. 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 our merchant banking funds and other principal
investments vary from period to period; these gains may not
recur and may not be replaced by other gains; our investments
may lose money
We have principal investments in our merchant banking funds
(which in turn have a limited number of investments in portfolio
companies) and we have a principal investment in 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. In 2009, the firm
recognized a net gain from our investment in Iridium that
accounted for more than 10% of total revenues. There were no
gains (or losses) from any single investment that accounted for
more than 10% of total revenues in 2008. 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 our merchant banking portfolio or in Iridium)
and the volatility of changes in investment values may adversely
affect our results of operations and our stock price.
A significant portion of the value of our investment portfolio
is comprised of our investment in Iridium. A significant decline
in the value of Iridium can therefore give rise to significant
losses.
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 the year. 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,
investments are reported 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
8
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.
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. 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.
Our merchant banking funds will typically invest in securities
of a class that are not publicly-traded. In many cases we 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. We will generally
not be able to sell these securities publicly unless their sale
is registered under applicable securities laws, or unless an
exemption from such registration requirements is available.
Moreover, in cases where we hold publicly traded securities such
as our investment in Iridium, we may be further limited in our
ability to sell such securities if we sit on the board of
directors of the company. In particular, our ability to dispose
of investments is heavily dependent on the merger and
acquisition environment and the initial public offering market,
which fluctuates 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.
In addition, 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 though
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 merchant banking portfolio and other investments 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, 2009, the value of the firms
principal investment in its merchant banking funds and Iridium
was $150.4 million. The value of our investments 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 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
9
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.
Investors
in our merchant banking funds may elect to remove us as the
general partner of those funds at any time without cause. Such
removal would lead to a decrease in our revenues, which could be
substantial and lead, therefore, to a material adverse effect on
our business
The third-party investors in our merchant funds may, subject to
certain conditions, act at any time to remove us as the general
partner in those funds without cause, resulting in reduction in
the amounts of profit overrides we could earn from those funds.
In addition to the negative impact on our revenue, the
occurrence of such an event with respect to any of our funds
would likely result in significant reputational damages as well.
A
significant deterioration in the credit markets or the failure
of one or more banking institutions could adversely affect our
ability to access the cash invested by us
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, but 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.
Our inability to refinance our existing revolving credit
facility could adversely affect our operations. We have a
revolving loan commitment from a U.S. commercial bank which
currently expires on March 31, 2010 and has been extended
to April 30, 2011, subject to completion of documentation.
The commitment amount is currently $90.0 million and
reduces to $75.0 million effective April 30, 2010 and
$60.0 million effective December 31, 2010. At
December 31, 2009 we had $37.2 million drawn down from
the facility. We utilize the revolving loan facility to provide
for our domestic cash needs, which include the funding of
capital calls for GCP and GSAVP, dividend payments, share
repurchases and for other corporate purposes.
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 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
additional securities, 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
290 employees (including managing directors and senior
advisors) as of December 31, 2009 and total revenues of
$298.6 million in 2009. 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
10
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. Since 2008, this trend of
consolidation and convergence accelerated considerably as
several major U.S. financial institutions consolidated,
filed for bankruptcy protection, were forced to merge or
received substantial government assistance. 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 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.
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, 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.
11
Greenhills
managing directors own a significant portion of the common stock
of the firm and their interests may differ from those of our
public shareholders
Our managing directors and their affiliated entities
collectively own approximately 22% of the total shares of common
stock outstanding at December 31, 2009. Robert F. Greenhill
and members of his family beneficially own approximately 8% of
our common stock outstanding. In addition, we have issued
restricted stock units to our managing directors which, if fully
vested as of December 31, 2009, would have resulted in our
managing directors and their affiliates owning approximately 28%
of our shares of common stock.
As a result of these shareholdings, Robert F. Greenhill and our
other 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.
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 and
elsewhere. In the U.S., our broker-dealer subsidiary,
Greenhill & Co., LLC is subject to regulation in the
United States, by the SEC and FINRA. In the U.K., our
subsidiaries, Greenhill & Co. International LLP and
Greenhill & Co. Europe LLP, as well as Greenhill
Capital Partners Europe LLP, are subject to regulation by the
FSA. Any failure to comply with applicable laws and regulations
could result in fines, suspensions of personnel or other
sanctions, including revocation
12
of the registration of us or any of our broker-dealer or
investment adviser 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. Some of
our subsidiaries are registered as investment advisers with the
SEC. Registered investment advisers are subject to the
requirements and regulations of the Investment Advisers Act of
1940. Such requirements relate to, among other things,
recordkeeping and reporting requirements, disclosure
requirements, custody arrangements, limitations on transactions
between an advisor and its clients or between an advisors
clients, as well as general anti-fraud prohibitions.
Our U.S. broker-dealer, our U.K. and German investment
banking affiliates as well as our investment advisor
subsidiaries are subject to periodic examinations by regulatory
authorities. We cannot predict the outcome of any such
examination. Our business may also be subject to regulation by
non-U.S. governmental
and regulatory bodies and self-regulatory authorities in other
countries where Greenhill operates.
In addition, as a result of recent highly publicized financial
scandals, the regulatory environment in which we operate may be
subject to further regulation. New laws or regulations or
changes in the enforcement of existing laws or regulations
applicable to our clients may also adversely affect our
business. 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 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 2009, the SEC proposed to adopt a new rule under
the Investment Advisors Act which would, among other
things, ban the use of placement agents by government entities.
The adoption of this rule would have a material adverse impact
in our fund placement advisory business and could result in a
significant loss of revenue.
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, 2009, there were 27,977,623 shares
of common stock outstanding, which is net of
5,276,648 shares of common stock held in treasury. Of the
outstanding shares, 6,418,236 shares of
13
common stock are subject to a
lock-up and
may not be sold until June 30, 2010, subject to certain
exceptions. The
lock-up was
entered into by the selling shareholders in an offering of
shares by them in November 2009 (which included nearly all of
our pre-IPO managing directors and certain other managing
directors). It restricts the transfer of all the shares owned or
subsequently acquired during the
lock-up
period, effectively extending and broadening the five year
transfer restriction agreed to by our pre-IPO managing directors
in respect of the shares they received at the time of our
initial public offering in May 2004.
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
At the time of and since our initial public offering we have
awarded our directors, managing directors and other employees
restricted stock units. At December 31, 2009, 2,582,513
restricted stock units were outstanding and an additional
729,640 restricted stock units were granted to employees
subsequent to year end as part of the long-term incentive award
program. A significant portion of the compensation of our
managing directors is paid in restricted stock units. 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 2,582,513 restricted stock units that
were outstanding as of December 31, 2009 would be issued as
follows: 739,296 shares in 2010, 687,301 shares in
2011, 361,926 shares in 2012, 684,173 shares in 2013
and 109,817 shares in 2014. 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
principal investments, including 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 support expansion. There can be no assurance that we
will be able to manage our expanding operations
14
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:
|
|
|
|
|
the statements about our policy that our total compensation and
benefits, including that payable to our managing directors and
senior advisors, will not exceed 50% of total revenues each year
in Managements Discussion and Analysis of Financial
Condition and Results of Operations Compensation and
Benefits;
|
|
|
|
the statement about our expectation that revenues from our
financial advisory business will continue to account for the
majority of our revenues and the revenues from our merchant
banking management business will decline over time in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Overview;
|
|
|
|
the statement about our expectations that we expect to exit our
merchant banking management business and related activities over
time in Managements Discussion and Analysis of
Financial Condition and Results of Operations
Overview;
|
|
|
|
the statement about our intention to liquidate our merchant
banking and other principal investments over time in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Overview;
|
|
|
|
the statement about new managing directors adding incrementally
to our revenue and income growth potential in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Overview;
|
|
|
|
the statements about our expected annual fees from our merchant
banking funds in 2010 and thereafter in Managements
Discussion and Analysis of Financial Condition and Results of
Operations Overview Merchant Banking and
Other Investment Revenues;
|
15
|
|
|
|
|
the statement about our simple business model as an independent,
unconflicted advisor creating opportunities for us to attract
new clients and providing us with excellent recruiting
opportunities to further expand our industry expertise and
geographic reach in Managements Discussion and
Analysis of Financial Condition and Results of
Operations Business Environment;
|
|
|
|
the statement about our expectation that it is not likely in the
near-term that we will exceed the profit threshold for each fund
and recognize profit override revenue in Managements
Discussion and Analysis of Financial Condition and Results of
Operations Merchant Banking and Other Investment
Revenues;
|
|
|
|
the statement about our expectation that non-compensation costs,
particularly occupancy, travel and information services costs,
will increase as we grow our business and make strategic
investments in Managements Discussion and Analysis
of Financial Condition and Results of Operations
Non-Compensation Expenses;
|
|
|
|
the statement about the reduction in our borrowing needs in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources; and
|
|
|
|
the discussion of our ability to meet liquidity needs in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
|
|
|
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.
At December 31, 2009, we occupied ten offices, all of which
are leased. Our headquarters are located at 300 Park Avenue, New
York, New York, and comprise approximately 70,000 square
feet of leased space. In June 2009 we entered into a new lease
for our existing New York office space and additional space. The
new lease commences in September 2010 and will cover
approximately 105,000 square feet of leased space expiring
in 2020 (with options to renew through 2030). We have agreed to
sublet approximately 15,000 square feet of this space to
GCP Capital Partners Holdings LLC beginning in January 2011 for
a period of 3 to 5 years. In London, we lease approximately
19,000 square feet of office space at Lansdowne House, 57
Berkeley Square in London, pursuant to lease agreements expiring
in 2013. Our Frankfurt office is located at Neue Mainzer Strasse
52 and consists of approximately 13,000 square feet of
leased space, pursuant to a lease agreement expiring in 2015
(with an option to renew for five years). Our Dallas office is
located at 300 Crescent Court and consists of approximately
6,000 square feet, pursuant to a lease agreement expiring
in 2013. Our Toronto office is located at 79 Wellington Street
West and consists of approximately 5,000 square feet,
pursuant to a lease agreement expiring in 2014. Our
San Francisco office is located at One California Street
and consists of approximately 4,000 square feet pursuant to
a lease agreement expiring in 2013. Pursuant to a lease
agreement expiring in 2010 our Tokyo office is located at the
Marunouchi Building and consists of approximately
2,000 square feet. Our Chicago office is located at 155
North Wacker Drive and consists of approximately
8,000 square feet pursuant to a lease agreement expiring in
2019. Our Los Angeles office is located at 10250 Constellation
Boulevard and consists of approximately 3,000 square feet
pursuant to a lease agreement expiring in 2011. Our Houston
office is located at 1301 McKinney Street and consists of
approximately 5,000 square feet pursuant to a lease
agreement expiring in 2015.
|
|
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.
16
|
|
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, 2009.
EXECUTIVE
OFFICERS AND DIRECTORS
Our executive officers are Scott L. Bok (Co-Chief Executive
Officer), Simon A. Borrows (Co-Chief Executive Officer), Robert
H. Niehaus (Chairman, Greenhill Capital Partners), 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, 50, has served as our Co-Chief Executive Officer
since October 2007, 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.). He has also served as a member of the Board of Directors
of Heartland Payment Systems (2001 2005) and
Republic Group Insurance (2003 2007).
Simon A. Borrows, 51, has served as our Co-Chief Executive
Officer since October 2007, served as our
Non-U.S. President
from January 2004 until October 2007 and been a member of our
Management Committee since its formation in January 2004. In
addition, Mr. Borrows has been a director of
Greenhill & Co., Inc. since its incorporation in March
2004. Mr. Borrows joined Greenhill as a managing director
in June 1998. Prior to joining Greenhill, Mr. Borrows was
the managing director of Baring Brothers International Limited
(the corporate finance division of ING Barings), a position
Mr. Borrows had held since 1995. Mr. Borrows was a
director of Baring Brothers from 1989 to 1998. Prior to joining
Baring Brothers in 1988, Mr. Borrows worked in the
corporate finance department of Morgan Grenfell.
Robert H. Niehaus, 54, has served as the Chairman of Greenhill
Capital Partners since June 2000. Mr. Niehaus has been a
member of our Management Committee since its formation in
January 2004. Mr. Niehaus is also a member of the
Investment Committee of Greenhill Capital Partners Europe and
GSAVP. Mr. Niehaus joined Greenhill in January 2000 as a
managing director to begin the formation of Greenhill Capital
Partners. Since December 2009 Mr. Niehaus has also been
Chairman of GCP Capital Partners Holdings LLC. Prior to joining
Greenhill, Mr. Niehaus spent 17 years at Morgan
Stanley & Co., where he was a managing director in the
merchant banking department from 1990 to 1999. Mr. Niehaus
was vice chairman and a director of the Morgan Stanley Leveraged
Equity Fund II, L.P., a $2.2 billion private equity
investment fund, from 1992 to 1999, and was vice chairman and a
director of Morgan Stanley Capital Partners III, L.P., a
$1.8 billion private equity investment fund, from 1994 to
1999. Mr. Niehaus was also the chief operating officer of
Morgan Stanleys merchant banking department from 1996 to
1998. Mr. Niehaus is a director of Iridium.
Mr. Niehaus is a member of the board of directors of
Iridium Communications Inc. (f/k/a GHL Acquisition Corp.). He
has also served as a member of the Board of Directors of Crown
Castle Communications (and its predecessor Global Signal,
2002 2006), Crusader Energy Group (2006
2009), EXCO Resources (2003 2009), Heartland Payment
Systems (2001 2007), American Italian Pasta Company
(1992 2007), and Republic Group Insurance
(2003 2007).
Richard J. Lieb, 50, 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.
17
Harold J. Rodriguez, Jr., 54, 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. 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. 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 with Ernst & Young, where he
was a senior manager specializing in taxation.
Ulrika Ekman, 47, 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 seven members, three of whom are
employees (Robert F. Greenhill, Scott L. Bok and Simon A.
Borrows) 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, 73, 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 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, 68, 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 GMAC Inc. Mr. Blakely is also Vice Chairman of the
Board of Trustees of the Financial Accounting Federation, the
oversight body for the Accounting Standards Board.
John C. Danforth, 73, 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, 64, 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.
18
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, 66, 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 also a member of the Board of
Directors of First Wind Holdings, LLC. Mr. Key serves as a
member of the Board of Directors of 1- 800 Contacts,
Inc. from 2005 and 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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
Dividends per
|
|
|
|
Sales Price
|
|
|
share of
|
|
|
|
High
|
|
|
Low
|
|
|
common stock
|
|
|
First quarter
|
|
$
|
79.64
|
|
|
$
|
50.51
|
|
|
$
|
0.45
|
|
Second quarter
|
|
|
75.40
|
|
|
|
52.50
|
|
|
|
0.45
|
|
Third quarter
|
|
|
92.90
|
|
|
|
45.42
|
|
|
|
0.45
|
|
Fourth quarter
|
|
|
77.40
|
|
|
|
54.65
|
|
|
|
0.45
|
|
As of February 19, 2010, there were approximately 7 holders
of record of the firms common stock.
On February 19, 2010, the last reported sales price for the
firms common stock on the New York Stock Exchange was
$75.55 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.
ASSUMES
$100 INVESTED ON MAY 6, 2004
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 2009
21
The following table provides information as of December 31,
2009 regarding securities issued under our equity compensation
plans that were in effect during fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
2,582,513
|
|
|
$
|
|
(2)
|
|
|
25,737,329
|
|
Equity compensation plans not approved by security holders
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
2,582,513
|
|
|
$
|
|
|
|
|
25,737,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our amended Equity Incentive Plan was approved by our security
holders in April 2009. See Note 11
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. |
Share
Repurchases in the Fourth Quarter of 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Purchased(1)
|
|
|
Paid Per Share
|
|
|
Programs
|
|
|
Plans or Programs
|
|
|
October 1 October 31
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
November 1 November 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1 December 31
|
|
|
289,050(2
|
)
|
|
|
84.36
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes 8,617 shares the firm is deemed to have
repurchased at $87.81 from employees in conjunction with the
payment of tax liabilities in respect of stock delivered to
employees in settlement of restricted stock units. |
|
(2) |
|
On December 22, 2009, we sold certain assets relating to
our merchant banking business to Robert H. Niehaus and V. Frank
Pottow in exchange for 289,050 shares of our common stock. |
22
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands, except per share and number of employee
data)
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
298,646
|
|
|
$
|
221,873
|
|
|
$
|
400,422
|
|
|
$
|
290,646
|
|
|
$
|
221,152
|
|
% change from prior year
|
|
|
35
|
%
|
|
|
(45
|
%)
|
|
|
38
|
%
|
|
|
31
|
%
|
|
|
46
|
%
|
Employee compensation and benefit expense
|
|
|
138,298
|
|
|
|
102,050
|
|
|
|
183,456
|
|
|
|
134,134
|
|
|
|
102,441
|
|
Non-compensation expense
|
|
|
46,455
|
|
|
|
41,965
|
|
|
|
39,765
|
|
|
|
37,355
|
|
|
|
28,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
113,893
|
|
|
|
77,858
|
|
|
|
177,201
|
|
|
|
119,157
|
|
|
|
90,000
|
|
Provision for taxes
|
|
|
42,736
|
|
|
|
29,392
|
|
|
|
61,833
|
|
|
|
41,633
|
|
|
|
32,636
|
|
Net income allocated to common shareholders
|
|
|
71,240
|
|
|
|
48,978
|
|
|
|
115,276
|
|
|
|
75,666
|
|
|
|
55,532
|
|
Diluted average shares outstanding
|
|
|
29,754
|
|
|
|
28,214
|
|
|
|
28,728
|
|
|
|
29,628
|
|
|
|
30,672
|
|
Diluted earnings per share
|
|
|
2.39
|
|
|
|
1.74
|
|
|
|
4.01
|
|
|
|
2.55
|
|
|
|
1.81
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
328,389
|
|
|
$
|
265,779
|
|
|
$
|
374,213
|
|
|
$
|
297,731
|
|
|
$
|
235,605
|
|
Total liabilities
|
|
|
94,836
|
|
|
|
65,712
|
|
|
|
229,670
|
|
|
|
140,326
|
|
|
|
116,996
|
|
Stockholders equity
|
|
|
232,052
|
|
|
|
198,249
|
|
|
|
142,290
|
|
|
|
155,174
|
|
|
|
115,379
|
|
Noncontrolling interests
|
|
|
1,501
|
|
|
|
1,818
|
|
|
|
2,253
|
|
|
|
2,231
|
|
|
|
3,230
|
|
Total equity
|
|
|
233,553
|
|
|
|
200,067
|
|
|
|
144,543
|
|
|
|
157,405
|
|
|
|
118,609
|
|
Dividends declared per share
|
|
|
1.80
|
|
|
|
1.80
|
|
|
|
1.26
|
|
|
|
0.70
|
|
|
|
0.44
|
|
Selected Data and Ratios (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes as a percentage of revenues
|
|
|
38
|
%
|
|
|
35
|
%
|
|
|
44
|
%
|
|
|
41
|
%
|
|
|
41
|
%
|
Revenues per employee(a)
|
|
$
|
1,140
|
|
|
$
|
991
|
|
|
$
|
1,930
|
|
|
$
|
1,651
|
|
|
$
|
1,591
|
|
Employees at
year-end(b)(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
187
|
|
|
|
150
|
|
|
|
131
|
|
|
|
116
|
|
|
|
90
|
|
Europe
|
|
|
93
|
|
|
|
81
|
|
|
|
83
|
|
|
|
85
|
|
|
|
61
|
|
Asia
|
|
|
10
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees
|
|
|
290
|
|
|
|
234
|
|
|
|
214
|
|
|
|
201
|
|
|
|
151
|
|
|
|
|
(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) |
|
Includes 27 employees in 2009 who were active in our
merchant banking business and are expected to leave the firm
after a transition period. |
23
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
Greenhill is an independent investment banking firm that
(i) provides financial advice on significant mergers,
acquisitions, financings, restructurings and similar corporate
finance matters as well as fund placement services for private
equity and other financial sponsors and (ii) manages and
invests in merchant banking funds and makes other principal
investments. We act for clients located throughout the world
from offices in New York, London, Frankfurt, Tokyo, Toronto,
Chicago, Dallas, Houston, Los Angeles and San Francisco.
Our activities 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 fund placement advisory; and
|
|
|
|
Merchant banking, which includes the management of outside
capital invested in the firms merchant banking funds and
other similar vehicles, primarily 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 Greenhill Funds), and the firms
principal investments in the Greenhill Funds, Iridium, other
merchant banking funds and other investments.
|
In the fourth quarter of 2009 we announced our intention to
separate our merchant banking business to focus entirely on our
financial advisory business, and in connection with that
decision we sold certain assets of our merchant banking business
(including the right to raise successor funds) to certain of our
employees engaged in that business. After a transition period,
which we expect to end in December 2010 in the case of GCP, our
merchant banking funds will be managed by an independent company
although we will retain our principal investments in the
merchant banking funds and intend to liquidate those investments
over time.
Historically, our financial advisory business has accounted for
the majority of our revenues. However, there have been periods,
such as the third quarter of 2009, the second quarter of 2008
and the first quarter of 2006, in which the revenues of our
merchant banking business have outweighed our financial advisory
revenues. Since 2005, our first full year as a public company,
our financial advisory business has generated approximately 80%
of total revenues and our merchant banking and other investment
activities have generated approximately 20% of our total
revenue. As a result of our plans to exit the merchant banking
business over time, the fees we generate from our management of
outside capital in the merchant banking funds will decline in
2010 and thereafter, and we do not expect any gains attributable
to our profit overrides in our merchant banking funds to be a
meaningful portion of our revenues. Since we will retain our
existing principal investments in the merchant banking funds and
Iridium we will continue to generate realized and unrealized
investment gains (or losses) until such investments are
liquidated.
The main driver of the financial advisory business is overall
mergers and acquisitions, or M&A, and restructuring volume,
particularly in the industry sectors and geographic markets in
which we focus. 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
total, we recruited 14 Managing Directors in 2009, increasing
our Managing Director count on a net basis by 30%. This group of
experienced bankers brings us sector expertise in Consumer
Goods, Financial Services, Gaming and Hospitality,
Infrastructure, and new offices in Houston and Los Angeles.
The principal drivers of our merchant banking revenues are
management fees paid by our merchant banking funds, realized and
unrealized gains on investments and profit overrides, the size
and timing of which are tied to a number of different factors
including the performance of the particular companies in which
we invest, general economic conditions in the debt and equity
markets and other factors which affect the industries in which
we invest, such as commodity prices.
24
At December 31, 2009, we had three merchant banking funds
which are actively investing and we have assets under management
in those funds of $1.3 billion. As a result of the
separation of the merchant banking business, we do not expect to
generate any fee revenue from our management of these funds
after the completion of a transition period which is expected to
end in December 2010 in the case of GCP. In addition, as of
December 31, 2009, we owned approximately 12% of Iridium
Common Stock.
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 $216.0 million in the year
ended December 31, 2009 compared to $218.2 million in
the year ended December 31, 2008, which represents a
decrease of 1%. At the same time, worldwide completed M&A
volume decreased by 40%, from $2,855 billion in 2008 to
$1,725 billion in
2009(2).
Since July 2007 the financial markets have experienced a sharp
contraction in credit availability and global M&A activity.
Recent levels of capital markets volatility and an uncertain
macroeconomic outlook have further contributed to a volatile and
uncertain environment for evaluating many assets, securities and
companies, which has created a more difficult environment for
M&A activity. There is considerable uncertainty as to how
much longer this difficult economic environment may last,
although many market participants and observers have noted the
beginning of a potential upturn in transaction activity. Because
we earn a majority of our financial advisory revenue from fees
that are dependent on the successful completion of a merger,
acquisition, financing, restructuring or similar transaction or
the closing of a fund, our financial advisory business has been
negatively impacted and may be further impacted by a reduction
in M&A activity. We believe, however, that our simple
business model as an independent, unconflicted adviser will
create opportunities for us to attract new clients and provide
us with excellent recruiting opportunities to further expand our
industry expertise and geographic reach.
Merchant banking and other investment revenues were
$82.6 million for the year ended December 31, 2009
compared to $3.7 million for the year ended
December 31, 2008, which represents an increase of
$78.9 million. Our 2009 merchant banking revenue included
an unrealized gain of $42.2 million resulting from our
investment in Iridium and a $21.8 million gain related to
the sale of certain merchant banking assets.
The economic and market environment remained difficult in 2009.
Adverse changes in general economic conditions, commodity
prices, credit and public equity markets, including a decline in
the share price of Iridium, could impact negatively the amount
of financial advisory and merchant banking revenue realized by
the firm.
(2) Source:
Global M&A completed transaction volume for the year ended
December 31, 2009 as compared to the year ended
December 31, 2008. Source: Thompson Financial as of
January 19, 2010.
25
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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
|
Financial advisory fees
|
|
$
|
216.0
|
|
|
$
|
218.2
|
|
|
$
|
366.7
|
|
|
$
|
209.8
|
|
|
$
|
142.1
|
|
Merchant banking & other revenues
|
|
|
82.6
|
|
|
|
3.7
|
|
|
|
33.7
|
|
|
|
80.8
|
|
|
|
79.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
298.6
|
|
|
$
|
221.9
|
|
|
$
|
400.4
|
|
|
$
|
290.6
|
|
|
$
|
221.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Advisory Revenues
Historical
Financial Advisory Revenues by Client Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
North America
|
|
|
65
|
%
|
|
|
53
|
%
|
|
|
37
|
%
|
|
|
50
|
%
|
|
|
44
|
%
|
Europe
|
|
|
34
|
%
|
|
|
44
|
%
|
|
|
61
|
%
|
|
|
49
|
%
|
|
|
55
|
%
|
Asia, Latin America & Other
|
|
|
1
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Historical
Financial Advisory Revenues by Industry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Financial Services
|
|
|
19
|
%
|
|
|
18
|
%
|
|
|
26
|
%
|
|
|
10
|
%
|
|
|
12
|
%
|
Healthcare
|
|
|
16
|
%
|
|
|
8
|
%
|
|
|
1
|
%
|
|
|
21
|
%
|
|
|
|
|
Technology
|
|
|
10
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
Consumer Goods & Retail
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
20
|
%
|
|
|
4
|
%
|
|
|
8
|
%
|
Energy & Utilities
|
|
|
8
|
%
|
|
|
13
|
%
|
|
|
6
|
%
|
|
|
7
|
%
|
|
|
6
|
%
|
Fund Placement
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate, Lodging & Leisure
|
|
|
2
|
%
|
|
|
8
|
%
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
1
|
%
|
Communications & Media
|
|
|
1
|
%
|
|
|
11
|
%
|
|
|
12
|
%
|
|
|
15
|
%
|
|
|
21
|
%
|
General Industrial & Other
|
|
|
34
|
%
|
|
|
32
|
%
|
|
|
28
|
%
|
|
|
35
|
%
|
|
|
50
|
%
|
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 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
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
26
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,
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.
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. One client represented approximately 10% of
total revenues in 2009 and a different client represented
approximately 10% of total revenues in 2008.
2008 versus 2007. Financial advisory revenues
were $218.2 million for the year ended December 31,
2008 compared to $366.7 million for the year ended
December 31, 2007, which represents a decrease of 41%. The
decrease resulted from a decrease in the scale and number of
completed assignments.
Prominent financial advisory assignments in 2008 include:
|
|
|
|
|
the sale of Kelda Group plc to a consortium of international
infrastructure investors;
|
|
|
|
the acquisition by Roche Holding Ltd. of Ventana Medical
Systems, Inc.;
|
|
|
|
the sale of American Financial Realty Trust to Gramercy Capital
Corp.;
|
|
|
|
the acquisitions by G4S plc of ArmorGroup International plc and
of Global Solutions Limited;
|
|
|
|
the acquisition by Hancock Timber Resource Group of TimberStar
Southwest;
|
|
|
|
the sale of the Philadelphia Stock Exchange, Inc. to the NASDAQ
Stock Market, Inc.; and
|
27
|
|
|
|
|
the merger of Delta Air Lines with Northwest Airlines.
|
We earned financial advisory revenue from 65 different clients
in 2008, compared to 74 in 2007. We earned $1 million or
more from 37 clients in 2008, compared to 47 in 2007 of which
24% were new to the firm in 2008 compared to 34% in 2007. The
ten largest fee-paying clients contributed 54% and 56% to our
total revenues in 2008 and 2007, respectively, and only one of
those clients had in any prior year been among our ten largest
fee-paying clients. One client represented approximately 10% of
total revenues in 2008 and a different client represented
approximately 12% of total revenues in 2007.
Merchant
Banking and Other Investment Revenues
Our merchant banking activities currently consist primarily of
the management of and our investment in Greenhills
merchant banking funds: GCP I, GCP II, GSAVP and GCP
Europe, and our investment in Iridium. The following table sets
forth additional information relating to our merchant banking
and other investment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Management fees
|
|
$
|
17.4
|
|
|
$
|
19.2
|
|
|
$
|
17.3
|
|
|
$
|
15.2
|
|
|
$
|
11.4
|
|
Net realized and unrealized gains (losses) on investments in
merchant banking funds
|
|
|
3.5
|
|
|
|
(17.5
|
)
|
|
|
7.0
|
|
|
|
27.1
|
|
|
|
32.0
|
|
Net realized and unrealized merchant banking profit overrides
|
|
|
(0.7
|
)
|
|
|
(2.7
|
)
|
|
|
1.8
|
|
|
|
34.6
|
|
|
|
32.3
|
|
Other realized and unrealized investment income
|
|
|
40.3
|
|
|
|
1.1
|
|
|
|
2.2
|
|
|
|
0.8
|
|
|
|
0.5
|
|
Sale of certain merchant banking assets
|
|
|
21.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.3
|
|
|
|
3.6
|
|
|
|
5.4
|
|
|
|
3.1
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total merchant banking and other investment revenues
|
|
$
|
82.6
|
|
|
$
|
3.7
|
|
|
$
|
33.7
|
|
|
$
|
80.8
|
|
|
$
|
79.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We manage four separate families of merchant banking funds:
GCP I, GCP II, GCP Europe and GSAVP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
Commitment
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Outstanding
|
|
|
|
|
Year
|
|
|
Total
|
|
Committed
|
|
by the
|
Fund
|
|
Type of Fund
|
|
Commenced
|
|
|
Commitments
|
|
by the
Firm(1)
|
|
Firm(2)
|
|
GCP I
|
|
North America,
merchant banking
|
|
|
2000
|
|
|
$423.2 million
|
|
$30.1 million
|
|
$0.0 million
|
GCP II
|
|
North America,
merchant banking
|
|
|
2005
|
|
|
$875.0 million
|
|
$87.6 million
|
|
$16.1 million
|
GSAVP
|
|
Northeastern
United States;
venture capital
|
|
|
2006
|
|
|
$101.5 million
|
|
$10.9 million
|
|
$4.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GCP Europe
|
|
UK and Europe;
merchant banking
|
|
|
2007
|
|
|
£191.2 million
|
|
£25.0 million
|
|
£15.7 million
|
|
|
|
(1) |
|
Commitment amounts are stated as of the relevant closing dates
of the respective funds with the exception of GCP I, which
reflects the commitments after giving effect to its 2004
reorganization. |
|
(2) |
|
Commitment amount outstanding at December 31, 2009. |
We generate merchant banking and other investment revenue from
(i) management fees paid by the funds we manage,
(ii) gains (or losses) on our investments in the merchant
banking funds, Iridium and similar vehicles, and
(iii) profit overrides. In addition, in 2009 our merchant
banking and other investment revenue included the gain related
to our sale of certain merchant banking assets.
We earn management fees on capital committed to our 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%
28
to 2.0% of invested capital after the termination of the
applicable commitment period. In 2009, we earned annual fees
from our merchant banking funds of $17.4 million, and we
expect such amount to decline following the termination of the
investment period for GCP II in June 2010. The amount of
management fees earned from a fund after the termination of the
commitment period declines because our fee percentage is lower
and the fee calculation is based upon invested capital instead
of committed capital. Invested capital will decrease as the
investments are liquidated.
As a result of our plan to exit the merchant banking business
beginning in 2010 the fees we generate from the management of
outside capital in our merchant banking funds will decline over
time. Furthermore, we expect the full amount of any management
fees recorded by us will be used to pay the compensation for and
expenses associated with the management of our merchant banking
business; any excess will be distributed to GCP Capital Partners
Holdings LLC.
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. To the
extent we make other principal investments, such as Iridium, we
will also recognize revenue based on the realized and unrealized
gains (or losses) from such investments on a quarterly basis. We
record our investments at estimated fair value. The value of our
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 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 our 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. The values at which our
investments are carried on our books 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 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.
As the general partner of our merchant banking funds, we are
entitled to receive from the funds 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). A significant portion of the
overrides, if any, will be paid out as employee compensation to
those employees who focus primarily on our merchant banking
business. As of December 31, 2009, the net internal rate of
return of each investment in GCP II, GCP Europe and GSAVP was
negative and we have not recognized profit overrides from these
investments. Unless we have significant gains in the portfolio
companies in each fund it is not likely in the near-term that we
will exceed the profit threshold for each fund and recognize
profit override revenue.
We also 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. As a result of the completion of the acquisition
of Iridium by GHLAC in September 2009 we recognized a gain in
2009 of $42.2 million on our investment in Iridium. As of
December 31, 2009, we owned 8,924,016 shares of
Iridium Common Stock (NASDAQ IRDM) and 4,000,000
Iridium $11.50 Warrants (NASDAQ- IRDMZ), or approximately
29
12% of the Iridium Common Stock on a fully diluted basis.
Declines in the fair market value of Iridium may adversely
affect the amount of merchant banking and other investment
revenue recorded in any period.
On December 22, 2009, we completed the sale of certain
assets relating to our merchant banking business to GCP Capital
Partners Holdings LLC, which is principally owned by Robert H.
Niehaus (with no ownership by the firm) in exchange for
289,050 shares of the firms common stock, and we
recognized a gain in 2009 of $21.8 million. We deferred
approximately $2.6 million of additional gain on the sale
which will be earned under the terms of the agreements with
portions of the remaining gain being recognized over the next
two to five years. The assets transferred include the rights to
launch successor merchant banking funds, the investment track
record, and the existing work force. In connection with the sale
the firm entered into a non-compete agreement with GCP Capital
Partners Holdings LLC and agreed to license certain of the
firms trademarks to GCP Capital Partners Holdings LLC for
a period of time. We also agreed to sublease a portion of the
premises occupied by our New York office to GCP Capital Partners
Holdings LLC. In addition, we agreed that any management fees
received by us from the merchant banking funds will be used to
pay the compensation and expenses associated with the management
of the merchant banking business; any excess will be distributed
to GCP Capital Partners Holdings LLC. Finally, 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 from 10 out of 20 points.
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 fees payable in 2009.
During 2009 GCP (and the firm) recognized gains from thirteen
portfolio companies and recorded losses on nine portfolio
companies. In 2008 GCP (and the firm) recognized gains related
to nine portfolio companies and recorded losses related to
seventeen portfolio companies. The gain recognized by the firm
on its investment in Iridium in 2009 contributed more than 10%
to total revenues. The firm had no gains on investments in 2008
that contributed more than 10% to total revenues.
2008 versus 2007. For the year ended
December 31, 2008, the firm earned $3.7 million in
merchant banking and other investment revenue compared to
$33.7 million in 2007, a decrease of 89%. The decrease
principally resulted from a decline in the fair market value of
merchant banking funds and reversal of overrides accrued in
prior periods in GCP I, offset by slightly higher asset
management fees resulting principally from greater assets under
management. During 2008 GCP (and the firm) recognized gains from
nine of our portfolio companies and recorded losses on seventeen
portfolio companies. In 2007 GCP (and the firm) recognized gains
related to twelve portfolio companies and recorded losses
related to seven portfolio companies. The firm had no gains on
investments in 2008 or 2007 that contributed more than 10% to
total revenues in those years.
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 our 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
Our total operating expenses for the year ended
December 31, 2009 were $184.8 million, which compares
to $144.0 million of total operating expenses for the year
ended December 31, 2008. The
30
increase of $40.8 million, or 28%, relates principally to
an increase in compensation expense described in more detail
below. The pre-tax income margin was 38% in 2009 compared to 35%
in 2008.
We classify operating expenses as employee compensation and
benefits expense and non-compensation expenses. Management does
not separately evaluate operating expenses by financial advisory
and merchant banking activities.
Operating expenses apart from compensation 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions, except employee data)
|
|
|
Number of employees at year end
|
|
|
290
|
|
|
|
234
|
|
|
|
214
|
|
Employee compensation and benefits expense
|
|
$
|
138.3
|
|
|
$
|
102.0
|
|
|
$
|
183.5
|
|
% of revenues
|
|
|
46
|
%
|
|
|
46
|
%
|
|
|
46
|
%
|
Non-compensation expense
|
|
|
46.5
|
|
|
|
42.0
|
|
|
|
39.7
|
|
% of revenues
|
|
|
16
|
%
|
|
|
19
|
%
|
|
|
10
|
%
|
Total operating expense
|
|
|
184.8
|
|
|
|
144.0
|
|
|
|
223.2
|
|
% of revenues
|
|
|
62
|
%
|
|
|
65
|
%
|
|
|
56
|
%
|
Total income before taxes
|
|
|
113.9
|
|
|
|
77.9
|
|
|
|
177.2
|
|
Pre-tax income margin
|
|
|
38
|
%
|
|
|
35
|
%
|
|
|
44
|
%
|
Compensation
and Benefits Expenses
The principal component of our operating expenses is employee
compensation and benefits expense. It is our policy that our
total compensation and benefits, including that payable to our
managing directors and senior advisors, will not exceed 50% of
total revenues each year (although we retain the ability to
change this policy in the future). 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, the anticipated compensation
requirements (which may vary depending on the level of
recruitment of new managing directors in any given period and
other factors), and the level of other costs and expenses.
The compensation we pay to our employees consists of base salary
and benefits, annual incentive compensation payable as cash
bonus awards and long-term incentive compensation awards of
restricted stock units. Base salary and benefits are paid
ratably throughout the year. 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 annually in February following year end. Awards of
restricted stock units are also discretionary and amortized to
compensation expense (based upon the 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. In January 2010, our employees
were granted 729,640 restricted stock units as part of the
long-term incentive award program.
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.
31
2008 versus 2007. For the year ended
December 31, 2008, our employee compensation and benefits
expenses were $102.0 million, which compares to
$183.5 million of compensation and benefits expense for the
year ended December 31, 2007. The decrease of
$81.5 million or 44% is due to the lower level of revenues
in 2008 compared to 2007. For the year ended December 31,
2008, the ratio of compensation to revenues was 46%, which was
the same as 2007.
Our compensation expense is generally based upon revenue and
can fluctuate materially in any particular year depending upon
the 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. Reimbursable 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.
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.
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 same period in the prior year reflects higher
expenses spread over significantly higher revenues.
2008 versus 2007. For the year ended
December 31, 2008, our non-compensation expenses were
$42.0 million, which compared to $39.7 million for the
year ended December 31, 2007, representing an increase of
$2.3 million or 6%. The increase is principally related to
higher occupancy costs associated with rental rate increases and
new office space, increased information service costs primarily
attributable to the growth in personnel, and higher interest
expense related to greater average short term borrowings,
partially offset by the absence of a provisions for legal
contingencies in 2008 as compared to the same period in 2007.
Non-compensation expenses as a percentage of revenue in the year
ended December 31, 2008 were 19%. This compares to 10% for
the year ended December 31, 2007. The increase in these
non-compensation expenses as a percentage of revenue in 2008 as
compared to 2007 reflects slightly higher expenses spread over
significantly lower 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 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 addition, our
non-U.S. subsidiaries
are subject to income taxes in their local jurisdictions.
32
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., which is a relatively
higher corporate tax jurisdiction.
2008 versus 2007. For the year ended
December 31, 2008, the provision for taxes was
$29.4 million, which reflects an effective tax rate of 38%.
This compares to a provision for taxes for the year ended
December 31, 2007 of $61.8 million, which reflects an
effective tax rate of approximately 35%. The decrease in the
provision for taxes in 2008 as compared to 2007 principally
results from lower pre-tax income partially offset by a slightly
higher effective tax rate as a greater proportion of our pre-tax
income was earned in higher tax rate jurisdictions during 2008
as compared to 2007.
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.
Geographic
Data
For a summary of the total revenues, income before minority
interest and tax and total assets by geographic region, see
Note 15 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
invested in short term investments expected to provide
significant liquidity.
We generate cash from both our operating activities in the form
of financial advisory fees, asset management fees and our
merchant banking and other principal investments principally in
the form of distributions of investment proceeds. We use our
cash primarily for operating purposes, compensation of our
employees, payment of income taxes, investments in merchant
banking funds, payment of dividends, repurchase of shares of our
stock 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 generally at its lowest level during the
first quarter and accumulates throughout the remainder of the
year. Our cash balances generally accumulate from our operating
activities during 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 fund
placement 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 paid in the first quarter of the following year
to the large majority of our employees, and taxes payable. In
February 2010, cash bonuses and accrued benefits of
$30.5 million relating to 2009 compensation were paid to
our employees. In addition, we expect to pay approximately
$5.8 million in early 2010 related to income taxes owed for
the year ended December 31, 2009.
Since our initial public offering we have used a portion of our
cash reserves to repurchase shares of our common stock, pay
dividends and make investments. Our commitments to our merchant
banking funds may require us to fund capital calls on short
notice. On the other hand, distributions from our merchant
banking funds are generally made shortly after proceeds are
received by the funds. We are unable to predict the timing or
magnitude of share repurchases, capital calls or distribution of
investment proceeds.
33
Our merchant banking funds typically invest in privately held
companies. The ability of our 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. Similarly,
our investment in Iridium is restricted from sale until late
September 2010 (or until late March 2010 in the case of a
registered offering) and our ability to sell all or a portion of
our investment is subject to factors such as general economic,
sector and stock market conditions which we cannot control.
However, following the lapse of the resale restrictions, it is
our intention to monetize our position in a disciplined manner
over a significant period of time dependent on market conditions.
Pursuant to the agreements entered into in connection with the
sale of certain of our merchant banking assets we no longer
receive any economic benefit from the management of the existing
merchant banking funds. Specifically, beginning in 2010, we
expect the full amount of any management fees recorded by us for
accounting purposes will be used to pay the compensation for and
expenses associated with the management of our merchant banking
business, and any excess will be distributed to GCP Capital
Partners Holdings LLC. We will, however, retain our existing
investments in the merchant banking funds and plan to liquidate
those investments over time. We do not expect that any gains
attributable to our interest in the profit overrides of the
merchant banking funds will contribute meaningful amounts of
cash to our balance sheet.
As of December 31, 2009, we had total commitments (not
reflected on our balance sheet) relating to future principal
investments in GCP II, GSAVP and GCP Europe and other merchant
banking and related activities of $46.5 million. These
commitments, which may not be drawn in full, are expected to be
drawn on from time to time and be substantially invested over a
period of up to five years from the relevant commitment dates.
In January 2010 we funded capital calls of $13.2 million.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Contractual
Obligations.
To provide for working capital needs, facilitate the funding of
merchant banking investments and other general corporate
purposes we have a revolving bank loan facility. Borrowings
under the facility are secured by all management fees earned by
our domestic merchant banking funds and any cash distributed in
respect of their partnership interests in GCP I, GCP II and
GSAVP, as applicable. Interest on borrowings is based on the
higher of Prime Rate or 4.00%. The revolving loan commitment,
which currently expires on March 31, 2010, has been
extended to April 30, 2011, subject to completion of
certain documentation. The commitment amount is currently
$90.0 million and reduces to $75.0 million effective
April 30, 2010 and $60.0 million effective
December 31, 2010 and is subject to borrowing base
limitations. The borrowing rate will remain the same as the
current facility. In conjunction with our plan to exit from the
merchant banking business we will significantly reduce our
commitments to successor merchant banking funds thereby reducing
our borrowing needs. At December 31, 2009 we had
$37.2 million of borrowings outstanding on the loan
facility.
As of December 31, 2009 we had cash and cash equivalents on
hand of $74.5 million, of which $42.2 million were
held outside the U.S. We are 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 charge.
During 2009, we are deemed to have repurchased
138,325 shares of our common stock at an average price of
$69.73 per share as a result of the payment of tax liabilities
in respect of stock delivered to our employees in settlement of
restricted stock units. On December 22, 2009, we
repurchased 289,050 shares of our common stock held by
Robert H. Niehaus and V. Frank Pottow as part of our plan to
exit the merchant banking business.
34
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 rent and
occupancy, information services, professional fees, travel and
entertainment and other general expenses. 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 our merchant banking funds and other principal
payments, 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
our 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 our needs for liquidity should increase further as we
expand our business, we may consider a range of financing
alternatives to meet any such needs.
Cash
Flows
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 our
merchant banking investments partially offset by
$7.5 million in new investments in our 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 an $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 our merchant banking funds, $8.0 million in
GHLAC, $2.2 million in Barrow Street and $22.9 million
in Iridium as well as $2.8 million for the build-out of new
office space, offset by $17.7 million related to
distributions received from our 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 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.
2007. Cash and cash equivalents increased by
$129.3 million in 2007. We generated $145.9 million
from operating activities, including $115.4 million from
net income after giving effect to the non-cash items and by a
net increase in working capital of $30.5 million
(principally from an increase in accrued compensation payable
and a decrease in taxes payable). We generated
$76.5 million from investing activities, including
$38.8 million from the net sale of auction rate securities,
$37.8 million in distributions received from our merchant
banking investments, and $39.1 million from the sale of
other investments (including $30.1 million attributable to
sale of Ironshore Inc. to GCP Europe), offset by
$34.7 million of new investments in merchant banking funds
or other principal investments and $4.5 million for the
build-out of new office space. We used $92.9 million for
financing activities,
35
including $36.9 million for the payment of dividends and
$125.0 million for the repurchase of our common stock. A
portion of our financing activities were funded through net
borrowings of $67.0 million.
Contractual
Obligations
The following table sets forth information relating to our
contractual obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
$
|
103.1
|
|
|
$
|
9.8
|
|
|
$
|
22.5
|
|
|
$
|
20.3
|
|
|
$
|
50.5
|
|
Revolving loan facility
|
|
|
37.2
|
|
|
|
37.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant banking
commitments(a)(b)
|
|
|
47.0
|
|
|
|
27.6
|
|
|
|
19.3
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(c)
|
|
$
|
187.3
|
|
|
$
|
74.6
|
|
|
$
|
41.8
|
|
|
$
|
20.4
|
|
|
$
|
50.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We may be required to substantially fund our merchant banking
commitments at any time through 2012, depending on the timing
and level of investments by GCP II, GCP Europe and GSAVP,
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 will expire
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, 2009 for purposes of inclusion in this table. |
|
(b) |
|
Excludes our commitment of $5.0 million to a successor fund
to GCP II and $2.5 million to a successor fund to GSAVP,
subject to certain conditions, payable over five years from the
date of inception of each fund. |
|
(c) |
|
Total contractual obligations have not been reduced by
approximately $3.6 million in minimum sublease rentals due
in the future under noncancelable subleases. |
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 and in institutions in which
deposits are not insured. 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 primarily denominated in U.S. dollars,
Canadian dollars, pound sterling and euros, 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. To the extent that the cash balances in local
currency exceed our short term obligations, we may hedge our
foreign currency exposure.
With regard to our principal investments we face exposure to
changes in the estimated fair value of the companies in which we
invest, 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
36
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 our merchant banking funds which
consist of publicly traded securities. This analysis showed that
if we assume that at December 31, 2009, the market prices
of all public securities, including Iridium, were 10% lower, the
impact on our operations would be a decrease in revenues of
$8.5 million. We meet on a quarterly basis to determine the
fair value of the investments held in our 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 euro,
pound sterling and Canadian dollar (in which collectively 16% of
our revenues for the year ended December 31, 2009 were
denominated) and the 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. Because of the weakening in value of the
dollar, on weighted average basis, relative to the pound
sterling and euro in 2009 as compared to the same period in
2008, our earnings in 2009 were higher than they would have been
in the same period in the prior year had the value of the dollar
relative to those other currencies remained constant. However,
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
Our 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 related footnotes,
including investment valuations, compensation accruals and other
matters. We believe that the estimates used in preparing our
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 firm include all
consolidated accounts of Greenhill & Co., Inc. and all
other entities in which we have a controlling interest,
including Greenhill & Co. International LLP,
Greenhill & Co. Europe LLP and Greenhill Capital
Partners Europe LLP, 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
our merchant banking funds in which we have a majority of the
economic interest. The general partners account for their
investments in their merchant banking funds under the equity
method of accounting. As such, the general partners record their
proportionate share 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 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.
37
Noncontrolling
Interests
Effective January 1, 2009, the firm recorded the
noncontrolling interests of other consolidated entities as
equity (as opposed to as a liability or mezzanine 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 firm has revised its prior year presentation,
as required, to conform to this new presentation.
The portion of the consolidated interests in the general
partners of our merchant banking funds, which are held directly
by employees of the firm, are presented as noncontrolling
interests in equity.
Revenue
Recognition
Financial
Advisory Fees
We recognize 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
letters. The firm recognizes fund placement 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.
Our clients reimburse certain expenses incurred by us in the
conduct of financial advisory engagements. Expenses are reported
net of such client reimbursements.
Merchant
Banking and Other Investment Revenues
Merchant banking revenues consist of (i) management fees on
our merchant banking activities, (ii) gains (or losses) on
investments in our merchant banking funds and other principal
investment activities, and (iii) merchant banking profit
overrides.
Management fees earned from the firms merchant banking
activities are recognized over the period of related service.
We recognize revenue on investments in our merchant banking
funds based on our allocable share of realized and unrealized
gains (or losses) reported by such funds. Investments held by
merchant banking funds and certain other investments are
recorded at estimated fair value. The value of merchant banking
fund 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 our investments are carried on our books 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.
We recognize merchant banking profit overrides when certain
financial returns are achieved over the life of the fund. 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 for GCP
I and principally all investors except the firm for GCP II, GCP
Europe and GSAVP. The profit overrides earned by the firm are
recognized on an accrual basis throughout the year. In
accordance with the guidance for accounting for formula based
fees, 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
38
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).
We 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, 2009, we have not
reserved for any clawback obligations under applicable fund
agreements.
Investments
The firms investments in 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 upon
the firms proportionate share of the investees net
assets, as described below.
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 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 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.
Provision
for Taxes
The firm accounts for taxes in accordance with the Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC), Income Taxes
(Topic 740), 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.
39
The firm follows the guidelines, pursuant to FASB ASC Topic
740-10
(formerly FIN 48), in recognizing, measuring, presenting
and disclosing in its financial statements uncertain tax
positions taken or expects to take 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 as prescribed by FASB
ASC Topic
740-10.
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. The firms deferred tax
liabilities are presented as a component of taxes payable on the
consolidated statements of financial condition. Management
applies the more-likely-than-not criteria included
in FASB ASC Topic
740-10 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. At December 31, 2009 and 2008, the carrying
value of the firms cash equivalents approximated fair
value. Cash equivalents primarily consist of money market funds
and overnight deposits.
The firm maintains its cash and cash equivalents with financial
institutions with high credit ratings. The firm maintains
deposits in federally insured financial institutions in excess
of federally insured (FDIC) limits and in institutions in which
deposits are not insured. 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.
Financial
Instruments and Fair Value
The firm adopted the provisions of FASB ASC, Fair Value
Measurements and Disclosures (Topic 820), as of
January 1, 2008. FASB ASC Topic 820 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 to FASB ASC Topic 820.
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.
Derivative
Instruments
The firm accounts for the 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 revenue in the
consolidated statements of income.
40
Accounting
Developments
In May 2009, the FASB issued a new standard that provides
guidance on managements assessment of subsequent events.
The standard is effective prospectively for interim and annual
periods ending after June 15, 2009.
In June 2009, the FASB issued an amendment to the accounting and
disclosure requirements for the consolidation of variable
interest entities. The guidance affects the overall
consolidation analysis and requires enhanced disclosures on
involvement with variable interest entities. The guidance was
effective for fiscal years beginning after November 15,
2009; however, in January 2010, the FASB confirmed its decision
to defer the effective date of this guidance for certain
reporting enterprises in the asset management industry,
including mutual funds, hedge funds, mortgage real estate
investment funds, private equity funds and venture capital
funds. The deferral is applicable to the firm and will apply
until the completion of a joint project between the FASB and the
International Accounting Standards Board (IASB) on
consolidation accounting, which is expected to be completed in
2010. Accordingly, the deferral resulted in no changes to the
firms financial reporting. The firm will assess the impact
of the joint project when completed.
In June 2009, the FASB issued ASU
No. 2009-01,
Topic 105 Generally Accepted Accounting
Principles amendments based on Statement of
Financial Accounting Standards No. 168 The FASB
Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles. This Accounting Standards Update amends the
FASB Accounting Standards Codification for the issuance of FASB
Statement No. 168, including the accounting standards
update instructions contained in Appendix B of the
Statement. The FASB will no longer issue new standards in the
form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts; instead the FASB will issue Accounting
Standards Updates. Accounting Standards Updates will not be
authoritative in their own right as they will only serve to
update the Codification. These changes and the Codification
itself do not change GAAP. Other than the manner in which new
accounting guidance is referenced, the adoption of these changes
had no impact on the consolidated financial statements.
In October 2009, the FASB issued amendments to the accounting
and disclosure requirements for revenue recognition. These
amendments, effective for fiscal years beginning on or after
June 15, 2010 (early adoption is permitted), modify the
criteria for recognizing revenue in multiple element
arrangements. The firm will adopt these amendments on
January 1, 2011 and is currently assessing the impact of
the guidance on its consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update
2010-06,
which amends current disclosure requirements related to fair
value measurement. The update requires disclosure of the amount
of significant transfers between Level 1 and Level 2
of the fair value hierarchy, greater transparency as to the
reasons for any transfers among the three levels within the
hierarchy, and further disaggregation in the reconciliation of
recurring Level 3 assets. With the exception of the
additional Level 3 disaggregation requirement (which is
effective with reporting periods beginning after
December 31, 2010), the provisions of this amendment are
effective with reporting periods beginning after
December 31, 2009. As such, the firm is currently assessing
the impact of the guidance on its consolidated financial
statements.
|
|
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. 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.
41
|
|
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 2009
Form 10-K,
the firms Co-Chief Executive Officers 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, 2009 our Chief Executive Officers
certified to the New York Stock Exchange (NYSE) that
they were 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 Co-Chief Executive Officers 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.
42
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 2010 annual
meeting of stockholders, which will be held on April 21,
2010, 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 2010
annual meeting of stockholders, which will be held on
April 21, 2010, 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 21, 2010, 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 2010 annual
meeting of stockholders, which will be held on April 21,
2010, 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 2010 annual meeting of stockholders, which will be held
on April 21, 2010, and is incorporated herein by reference.
43
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)
INDEX TO
FINANCIAL STATEMENTS
Consolidated
Financial Statements of Greenhill & Co., Inc. and
Subsidiaries
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, 2009, 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, 2009 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, 2009 and 2008, 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, 2009. These financial
statements are the responsibility of Greenhill & Co.,
Incs 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, 2009 and 2008, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2009, 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, 2009, 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 26, 2010
expressed an unqualified opinion thereon.
New York, New York
February 26, 2010
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, 2009,
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, 2009, 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, 2009 and 2008, 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, 2009 of Greenhill & Co., Inc. and
subsidiaries and our report dated February 26, 2010,
expressed an unqualified opinion thereon.
New York, New York
February 26, 2010
F-4
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
74,473,459
|
|
|
$
|
62,848,655
|
|
Financial advisory fees receivable, net of allowance for
doubtful accounts of $0.0 million and $0.3 million at
December 31, 2009 and 2008, respectively
|
|
|
26,021,124
|
|
|
|
26,255,995
|
|
Other receivables
|
|
|
4,980,749
|
|
|
|
4,434,227
|
|
Property and equipment, net
|
|
|
12,794,680
|
|
|
|
12,074,207
|
|
Investments in affiliated merchant banking funds
|
|
|
71,844,438
|
|
|
|
73,412,898
|
|
Other investments
|
|
|
78,516,718
|
|
|
|
34,951,710
|
|
Due from affiliates
|
|
|
233,617
|
|
|
|
455,615
|
|
Goodwill
|
|
|
18,721,430
|
|
|
|
16,133,050
|
|
Deferred tax asset
|
|
|
40,101,916
|
|
|
|
33,996,719
|
|
Other assets
|
|
|
701,352
|
|
|
|
1,216,117
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
328,389,483
|
|
|
$
|
265,779,193
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Compensation payable
|
|
$
|
31,855,992
|
|
|
$
|
19,448,513
|
|
Accounts payable and accrued expenses
|
|
|
7,295,857
|
|
|
|
9,614,649
|
|
Bank loan payable
|
|
|
37,150,000
|
|
|
|
26,500,000
|
|
Taxes payable
|
|
|
18,141,138
|
|
|
|
10,149,231
|
|
Due to affiliates
|
|
|
393,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
94,836,275
|
|
|
|
65,712,393
|
|
Common stock, par value $0.01 per share; 100,000,000 shares
authorized, 33,254,271 and 32,830,423 shares issued as of
December 31, 2009 and 2008, respectively; 27,977,623 and
27,981,150 shares outstanding as of December 31, 2009
and 2008, respectively
|
|
|
332,543
|
|
|
|
328,304
|
|
Restricted stock units
|
|
|
81,219,868
|
|
|
|
59,525,357
|
|
Additional paid-in capital
|
|
|
237,716,672
|
|
|
|
213,365,812
|
|
Exchangeable shares of subsidiary; 257,156 shares issued as
of December 31, 2009 and 2008; 132,955 and
208,418 shares outstanding as of December 31, 2009 and
2008, respectively
|
|
|
7,937,414
|
|
|
|
12,442,555
|
|
Retained earnings
|
|
|
206,974,630
|
|
|
|
189,357,441
|
|
Accumulated other comprehensive income (loss)
|
|
|
(8,737,728
|
)
|
|
|
(17,408,714
|
)
|
Treasury stock, at cost, par value $0.01 per share; 5,276,648
and 4,849,273 shares as of December 31, 2009 and 2008,
respectively
|
|
|
(293,391,405
|
)
|
|
|
(259,361,550
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
232,051,994
|
|
|
|
198,249,205
|
|
Noncontrolling interests
|
|
|
1,501,214
|
|
|
|
1,817,595
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
233,553,208
|
|
|
|
200,066,800
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
328,389,483
|
|
|
$
|
265,779,193
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial advisory fees
|
|
$
|
215,993,403
|
|
|
$
|
218,196,923
|
|
|
$
|
366,662,286
|
|
Merchant banking and other revenues
|
|
|
82,300,303
|
|
|
|
121,203
|
|
|
|
28,304,543
|
|
Interest income
|
|
|
352,028
|
|
|
|
3,554,921
|
|
|
|
5,455,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
298,645,734
|
|
|
|
221,873,047
|
|
|
|
400,422,411
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
138,297,822
|
|
|
|
102,049,624
|
|
|
|
183,456,281
|
|
Occupancy and equipment rental
|
|
|
11,705,610
|
|
|
|
10,640,820
|
|
|
|
9,780,212
|
|
Depreciation and amortization
|
|
|
4,117,499
|
|
|
|
4,592,176
|
|
|
|
4,228,714
|
|
Information services
|
|
|
5,703,865
|
|
|
|
5,671,879
|
|
|
|
5,149,724
|
|
Professional fees
|
|
|
6,755,764
|
|
|
|
4,784,812
|
|
|
|
4,326,002
|
|
Travel related expenses
|
|
|
7,773,539
|
|
|
|
6,999,759
|
|
|
|
6,782,611
|
|
Interest expense
|
|
|
1,294,804
|
|
|
|
3,580,292
|
|
|
|
3,023,763
|
|
Other operating expenses
|
|
|
9,103,528
|
|
|
|
5,695,323
|
|
|
|
6,474,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
184,752,431
|
|
|
|
144,014,685
|
|
|
|
223,221,334
|
|
Income before taxes
|
|
|
113,893,303
|
|
|
|
77,858,362
|
|
|
|
177,201,077
|
|
Provision for taxes
|
|
|
42,735,740
|
|
|
|
29,391,962
|
|
|
|
61,833,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
71,157,563
|
|
|
|
48,466,400
|
|
|
|
115,367,882
|
|
Less: Net income (loss) allocated to noncontrolling interests
|
|
|
(82,451
|
)
|
|
|
(511,670
|
)
|
|
|
91,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common stockholders
|
|
$
|
71,240,014
|
|
|
$
|
48,978,070
|
|
|
$
|
115,276,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,663,616
|
|
|
|
28,166,520
|
|
|
|
28,634,769
|
|
Diluted
|
|
|
29,753,609
|
|
|
|
28,214,015
|
|
|
|
28,728,293
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.40
|
|
|
$
|
1.74
|
|
|
$
|
4.03
|
|
Diluted
|
|
$
|
2.39
|
|
|
$
|
1.74
|
|
|
$
|
4.01
|
|
Dividends declared and paid per share
|
|
$
|
1.80
|
|
|
$
|
1.80
|
|
|
$
|
1.26
|
|
See accompanying notes to consolidated financial
statements.
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Consolidated net income
|
|
$
|
71,157,563
|
|
|
$
|
48,466,400
|
|
|
$
|
115,367,882
|
|
Currency translation adjustment, net of tax
|
|
|
8,670,986
|
|
|
|
(22,135,839
|
)
|
|
|
2,217,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
79,828,549
|
|
|
|
26,330,561
|
|
|
|
117,585,636
|
|
Less: Net income (loss) allocated to noncontrolling interests
|
|
|
(82,451
|
)
|
|
|
(511,670
|
)
|
|
|
91,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income allocated to common stockholders
|
|
$
|
79,911,000
|
|
|
$
|
26,842,231
|
|
|
$
|
117,494,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Common stock, par value $0.01 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, beginning of the year
|
|
$
|
328,304
|
|
|
$
|
312,322
|
|
|
$
|
310,345
|
|
Common stock issued
|
|
|
4,239
|
|
|
|
15,982
|
|
|
|
1,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, end of the year
|
|
|
332,543
|
|
|
|
328,304
|
|
|
|
312,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units, beginning of the year
|
|
|
59,525,357
|
|
|
|
42,743,802
|
|
|
|
21,205,268
|
|
Restricted stock units recognized
|
|
|
40,526,780
|
|
|
|
32,196,650
|
|
|
|
29,088,080
|
|
Restricted stock units delivered
|
|
|
(18,832,269
|
)
|
|
|
(15,415,095
|
)
|
|
|
(7,549,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units, end of the year
|
|
|
81,219,868
|
|
|
|
59,525,357
|
|
|
|
42,743,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital, beginning of the year
|
|
|
213,365,812
|
|
|
|
126,268,395
|
|
|
|
116,251,930
|
|
Common stock issued
|
|
|
23,603,749
|
|
|
|
85,940,317
|
|
|
|
7,852,109
|
|
Tax benefit from the delivery of restricted stock units
|
|
|
747,111
|
|
|
|
1,157,100
|
|
|
|
2,164,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital, end of the year
|
|
|
237,716,672
|
|
|
|
213,365,812
|
|
|
|
126,268,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable shares of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable shares of subsidiary, beginning of the year
|
|
|
12,442,555
|
|
|
|
15,352,213
|
|
|
|
15,352,213
|
|
Exchangeable shares of subsidiary delivered
|
|
|
(4,505,141
|
)
|
|
|
(2,909,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable shares of subsidiary, end of the year
|
|
|
7,937,414
|
|
|
|
12,442,555
|
|
|
|
15,352,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings, beginning of the year
|
|
|
189,357,441
|
|
|
|
190,416,057
|
|
|
|
112,052,519
|
|
Dividends
|
|
|
(53,622,825
|
)
|
|
|
(50,036,686
|
)
|
|
|
(36,912,734
|
)
|
Net income allocated to common stockholders
|
|
|
71,240,014
|
|
|
|
48,978,070
|
|
|
|
115,276,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings, end of the year
|
|
|
206,974,630
|
|
|
|
189,357,441
|
|
|
|
190,416,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), beginning of the
year
|
|
|
(17,408,714
|
)
|
|
|
4,727,125
|
|
|
|
2,509,371
|
|
Currency translation adjustment, net
|
|
|
8,670,986
|
|
|
|
(22,135,839
|
)
|
|
|
2,217,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), end of the year
|
|
|
(8,737,728
|
)
|
|
|
(17,408,714
|
)
|
|
|
4,727,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, at cost; par value $0.01 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, beginning of the year
|
|
|
(259,361,550
|
)
|
|
|
(237,529,448
|
)
|
|
|
(112,507,426
|
)
|
Repurchased
|
|
|
(9,645,599
|
)
|
|
|
(21,832,102
|
)
|
|
|
(125,022,022
|
)
|
Sale of certain merchant banking assets
|
|
|
(24,384,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, end of the year
|
|
|
(293,391,405
|
)
|
|
|
(259,361,550
|
)
|
|
|
(237,529,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
232,051,994
|
|
|
|
198,249,205
|
|
|
|
142,290,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests, beginning of the year
|
|
|
1,817,595
|
|
|
|
2,253,128
|
|
|
|
2,230,903
|
|
Net income (loss) allocated to noncontrolling interests
|
|
|
(82,451
|
)
|
|
|
(511,670
|
)
|
|
|
91,610
|
|
Contributions from noncontrolling interests
|
|
|
34,406
|
|
|
|
318,095
|
|
|
|
559,859
|
|
Distributions from noncontrolling interests
|
|
|
(268,336
|
)
|
|
|
(241,958
|
)
|
|
|
(629,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests, end of the year
|
|
|
1,501,214
|
|
|
|
1,817,595
|
|
|
|
2,253,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
233,553,208
|
|
|
$
|
200,066,800
|
|
|
$
|
144,543,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
$
|
71,157,563
|
|
|
$
|
48,466,400
|
|
|
$
|
115,367,882
|
|
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
|
|
|
4,117,499
|
|
|
|
4,592,176
|
|
|
|
4,228,714
|
|
Net investment (gains) losses
|
|
|
(43,080,243
|
)
|
|
|
19,087,179
|
|
|
|
(11,003,760
|
)
|
Restricted stock units recognized and common stock issued
|
|
|
40,802,528
|
|
|
|
32,554,053
|
|
|
|
29,392,620
|
|
Deferred taxes
|
|
|
10,939,879
|
|
|
|
(19,904,419
|
)
|
|
|
(22,548,696
|
)
|
Sale of certain merchant banking assets
|
|
|
(21,823,909
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial advisory fees receivable
|
|
|
234,871
|
|
|
|
497,583
|
|
|
|
(5,309,634
|
)
|
Due to (from) affiliates
|
|
|
615,286
|
|
|
|
(378,529
|
)
|
|
|
631,557
|
|
Other receivables and assets
|
|
|
7,763
|
|
|
|
(2,841,866
|
)
|
|
|
(216,523
|
)
|
Compensation payable
|
|
|
12,407,479
|
|
|
|
(88,612,338
|
)
|
|
|
43,705,711
|
|
Accounts payable and accrued expenses
|
|
|
(4,879,139
|
)
|
|
|
2,487,879
|
|
|
|
843,766
|
|
Taxes payable
|
|
|
(9,053,169
|
)
|
|
|
(9,893,486
|
)
|
|
|
(9,165,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
61,446,408
|
|
|
|
(13,945,368
|
)
|
|
|
145,926,097
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of merchant banking investments
|
|
|
(7,029,955
|
)
|
|
|
(30,197,302
|
)
|
|
|
(31,372,950
|
)
|
Purchases of other investments
|
|
|
(525,000
|
)
|
|
|
(33,062,500
|
)
|
|
|
(3,325,000
|
)
|
Proceeds from investments
|
|
|
|
|
|
|
11,232,727
|
|
|
|
39,141,072
|
|
Distributions from investments
|
|
|
12,448,563
|
|
|
|
17,699,255
|
|
|
|
37,811,302
|
|
Purchases of securities
|
|
|
|
|
|
|
|
|
|
|
(5,000,000
|
)
|
Sales or maturities of securities
|
|
|
|
|
|
|
|
|
|
|
43,753,193
|
|
Purchases of property and equipment, net
|
|
|
(4,674,386
|
)
|
|
|
(2,848,984
|
)
|
|
|
(4,484,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
219,222
|
|
|
|
(37,176,804
|
)
|
|
|
76,522,927
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of revolving bank loan
|
|
|
106,025,000
|
|
|
|
111,925,000
|
|
|
|
204,600,000
|
|
Repayment of revolving bank loan
|
|
|
(95,375,000
|
)
|
|
|
(171,875,000
|
)
|
|
|
(137,650,000
|
)
|
Repayment of notes to UK members
|
|
|
|
|
|
|
(1,445,044
|
)
|
|
|
|
|
Proceeds from the issuance of common stock
|
|
|
|
|
|
|
67,274,143
|
|
|
|
|
|
Contributions from noncontrolling interests
|
|
|
34,406
|
|
|
|
318,095
|
|
|
|
559,859
|
|
Distributions to noncontrolling interests
|
|
|
(268,336
|
)
|
|
|
(241,958
|
)
|
|
|
(629,244
|
)
|
Dividends paid
|
|
|
(53,622,825
|
)
|
|
|
(50,036,686
|
)
|
|
|
(36,912,734
|
)
|
Purchase of treasury stock
|
|
|
(9,645,599
|
)
|
|
|
(21,832,102
|
)
|
|
|
(125,022,022
|
)
|
Net tax benefit from the delivery of restricted stock units and
payment of dividend equivalents
|
|
|
747,111
|
|
|
|
1,157,100
|
|
|
|
2,164,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities
|
|
|
(52,105,243
|
)
|
|
|
(64,756,452
|
)
|
|
|
(92,889,785
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2,064,417
|
|
|
|
(12,943,237
|
)
|
|
|
(275,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
11,624,804
|
|
|
|
(128,821,861
|
)
|
|
|
129,284,230
|
|
Cash and cash equivalents, beginning of year
|
|
|
62,848,655
|
|
|
|
191,670,516
|
|
|
|
62,386,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
74,473,459
|
|
|
$
|
62,848,655
|
|
|
$
|
191,670,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,253,309
|
|
|
$
|
3,444,615
|
|
|
$
|
2,770,412
|
|
Cash paid for taxes, net of refunds
|
|
$
|
41,708,166
|
|
|
$
|
54,371,677
|
|
|
$
|
91,699,733
|
|
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
Note 1
Organization
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, Tokyo, Toronto,
Chicago, Dallas, Houston, Los Angeles 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 fund placement advisory; and
|
|
|
|
Merchant banking, which includes the management of outside
capital invested in affiliated merchant banking funds and other
similar vehicles, primarily 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 Greenhill Funds), and the Companys
principal investments in the Greenhill Funds, Iridium
Communications Inc., other merchant banking funds and other
investments.
|
The Companys U.S. and international wholly-owned
subsidiaries include Greenhill & Co., LLC
(G&Co), Greenhill Capital Partners, LLC
(GCPLLC), Greenhill Venture Partners, LLC
(GVP), Greenhill Aviation Co., LLC
(GAC), Greenhill & Co. Europe Holdings
Limited (GCE), Greenhill & Co. Holding
Canada Ltd. (GCH) and Greenhill & Co.
Japan Ltd. (GCJ). The Company also owns a majority
of the interests in Greenhill Capital Partners II, LLC
(GCPII LLC).
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
engaged in investment banking activities principally in North
America.
GCE is a U.K. based holding company. GCE controls
Greenhill & Co. International LLP (GCI),
Greenhill & Co. Europe LLP (GCEI) and
Greenhill Capital Partners Europe LLP (GCPE),
through its controlling membership interests. GCI and GCEI are
engaged in investment banking activities, principally in Europe,
and are subject to regulation by the U.K. Financial Services
Authority (FSA). GCPE is also regulated by the FSA
and provides investment advisory services to GCP Europe, an
affiliated UK-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, through Greenhill & Co. Canada Ltd., a
wholly-owned Canadian subsidiary of GCH, engages in investment
banking activities in Canada. The Company, through GCJ, engages
in investment banking activities in Japan.
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, our
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 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, our 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.
F-10
GAC owns and operates an aircraft, which is used for the
exclusive benefit of the Companys employees and their
immediate family members.
The Company owns an interest in Iridium Communications Inc.
(Iridium), formerly GHL Acquisition Corp., a blank
check company (GHLAC). See
Note 3 Investments Affiliated
Merchant Banking Investments.
On December 22, 2009, the Company sold certain assets
relating to its merchant banking business, including the right
to raise subsequent merchant banking funds, for
289,050 shares of the Companys common stock to GCP
Capital Partners Holdings LLC, which is principally owned by
Robert H. Niehaus (with no ownership by the Company), the
chairman of GCPLLC. Among other aspects of the sale, the general
partners of the funds agreed to delegate to GCPII LLC, which is
owned 76% by GCPLLC and 24% by GCP Capital Partners Holdings
LLC, their obligation to manage and administer the affiliated
funds. See Note 3 Investments
Other 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,
including GCI, GCEI, GCPE, and GCPII LLC, after eliminations of
all significant inter-company accounts and transactions. In
accordance with the accounting pronouncements on the
consolidation of variable interest entities, the Company
consolidates the general partners of its merchant banking funds
in which it has a majority of the economic interest. The general
partners account for their investments in their 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 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
Effective January 1, 2009, the Company recorded the
noncontrolling interests of other consolidated entities as
equity (as opposed to as a liability or mezzanine 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 Company has revised its prior year
presentation, as required, to conform to this new presentation.
The portion of the consolidated interests in the general
partners of our merchant banking funds, which are held directly
by employees of the Company are presented as noncontrolling
interests in equity.
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
F-11
completed in accordance with the terms of the engagement
letters. The Company recognizes fund placement 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 $4.3 million, $4.5 million and
$4.0 million for the years ended December 31, 2009,
2008, and 2007, respectively.
Merchant
Banking and Other Revenues
Merchant banking revenues consist of (i) management fees on
the Companys merchant banking activities, (ii) gains
(or losses) on the Companys investments in merchant
banking funds and other principal investment activities, and
(iii) merchant banking profit overrides.
Management fees earned from the Companys merchant banking
activities are recognized over the period of related service.
The Company recognizes revenue on its investments in merchant
banking funds based on its allocable share of realized and
unrealized gains (or losses) reported by such funds. Investments
held by merchant banking funds and certain other investments are
recorded at estimated fair value. The value of merchant banking
fund 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 its books
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 merchant banking profit overrides when
certain financial returns are achieved over the life of the
fund. 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 for GCP
I and principally all investors except the Company for GCP II,
GCP Europe and GSAVP. The profit overrides earned by the Company
are recognized on an accrual basis throughout the year. In
accordance with the guidance for accounting for formula based
fees, 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. 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). We 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,
2009, the Company has not reserved for any clawback obligations
under applicable fund agreements. See
Note 3 Investments for further
discussion of the merchant banking revenues recognized.
Investments
The Companys investments in its merchant banking funds are
recorded under the equity method of accounting based upon the
Companys proportionate share of the fair value of the
underlying
F-12
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 upon the
Companys proportionate share of the investees net
assets, as described below.
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.
During 2009, the Company did not record bad debt expense and
released its previously recorded bad debt expense of
$0.3 million. The Company recorded bad debt expense of
approximately $0.3 million and $0.4 million for the
years ended December 31, 2008 and 2007, respectively.
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 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 reclassed 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.
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
Foreign currency assets and liabilities 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 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.
F-13
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 included as a component of other comprehensive income
(loss) in the consolidated statement of changes in equity.
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 term of the lease. Estimated useful lives of the
Companys fixed assets are generally as follows:
Equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements the lesser of 10 years
or the remaining lease term
Provision
for Taxes
The Company accounts for taxes in accordance with the Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC), Income Taxes
(Topic 740), 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 guidelines, pursuant to FASB ASC Topic
740-10
(formerly FIN 48), in recognizing, measuring, presenting
and disclosing in its financial statements uncertain tax
positions taken or expects to take 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 as prescribed by FASB
ASC Topic
740-10.
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. The Companys deferred tax
liabilities are presented as a component of taxes payable on the
consolidated statements of financial condition. Management
applies the more-likely-than-not criteria included
in FASB ASC Topic
740-10 when
determining tax benefits.
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. At December 31, 2009 and 2008, the
carrying value of the Companys cash equivalents amounted
to $42.7 million and $53.5 million, respectively,
which approximated fair value. Cash equivalents primarily
consist of money market funds and overnight deposits.
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 and institutions in
which deposits are not insured. 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.
F-14
Financial
Instruments and Fair Value
The Company adopted the provisions of FASB ASC, Fair Value
Measurements and Disclosures (Topic 820), as of
January 1, 2008. FASB ASC Topic 820 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 Company performs a detailed analysis of
the assets and liabilities that are subject to FASB ASC Topic
820. 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.
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 revenue in the
consolidated statements of income.
Accounting
Developments
In May 2009, the FASB issued a new standard that provides
guidance on managements assessment of subsequent events.
The standard is effective prospectively for interim and annual
periods ending after June 15, 2009. See
Note 16 Subsequent Events for
required disclosure.
In June 2009, the FASB issued an amendment to the accounting and
disclosure requirements for the consolidation of variable
interest entities. The guidance affects the overall
consolidation analysis and requires enhanced disclosures on
involvement with variable interest entities. The guidance was
effective for fiscal years beginning after November 15,
2009; however, in January 2010, the FASB confirmed its decision
to defer the effective date of this guidance for certain
reporting enterprises in the asset management industry,
including mutual funds, hedge funds, mortgage real estate
investment funds, private equity funds and venture capital
funds. The deferral is applicable to the Company and will apply
until the completion of a joint project between the FASB and the
International Accounting Standards Board (IASB) on
consolidation accounting, which is expected to be completed in
2010. Accordingly, the deferral resulted in no changes to the
Companys financial reporting. The Company will assess the
impact of the joint project when completed.
In June 2009, the FASB issued ASU
No. 2009-01,
Topic 105 Generally Accepted Accounting
Principles amendments based on Statement of
Financial Accounting Standards No. 168 The FASB
Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles. This Accounting Standards Update amends the
FASB Accounting Standards Codification for the issuance of FASB
Statement No. 168, including the accounting standards
update instructions contained in Appendix B of the
Statement. The FASB will no longer issue new standards in the
form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts; instead the FASB will issue
F-15
Accounting Standards Updates. Accounting Standards Updates will
not be authoritative in their own right as they will only serve
to update the Codification. These changes and the Codification
itself do not change GAAP. Other than the manner in which new
accounting guidance is referenced, the adoption of these changes
had no impact on the consolidated financial statements.
In October 2009, the FASB issued amendments to the accounting
and disclosure requirements for revenue recognition. These
amendments, effective for fiscal years beginning on or after
June 15, 2010 (early adoption is permitted), modify the
criteria for recognizing revenue in multiple element
arrangements. The Company will adopt these amendments on
January 1, 2011 and is currently assessing the impact of
the guidance on its consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update
2010-06,
which amends current disclosure requirements related to fair
value measurement. The update requires disclosure of the amount
of significant transfers between Level 1 and Level 2
of the fair value hierarchy, greater transparency as to the
reasons for any transfers among the three levels within the
hierarchy, and further disaggregation in the reconciliation of
recurring Level 3 assets. With the exception of the
additional Level 3 disaggregation requirement (which is
effective with reporting periods beginning after
December 31, 2010), the provisions of this amendment are
effective with reporting periods beginning after
December 31, 2009. As such, the Company is currently
assessing the impact of the guidance on its consolidated
financial statements.
Affiliated
Merchant Banking Investments
The Company invests in merchant banking funds for which it acts
as the general partner. In addition to recording its direct
investments in the funds, the Company consolidates each general
partner in which it has a majority of the economic interest.
The Companys management fee income consists of fees paid
by its 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 Greenhill 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 which is held by employees and
former employees of the Company is recorded as net income (loss)
allocated to noncontrolling interests.
As the general partner, the Company makes investment decisions
for the Greenhill Funds and is entitled to receive an override
of the profits realized from the funds. The Company includes in
consolidated merchant banking and other revenue all realized and
unrealized profit overrides it earns from the Greenhill Funds.
This includes profit overrides of the general partner of GCP I
with respect to all investments it made after January 1,
2004 and the profit overrides of the general partners of GCP II,
GCP Europe and GSAVP for all investments. From an economic
perspective, profit overrides in respect of all merchant banking
investments made after January 1, 2004 are allocated 50% to
the Company and 50% to employees of the Company. In addition,
the Company also includes in merchant banking revenue its
portion and certain employees portion of the profit
overrides of GCP I with respect to investments made prior to
January 1, 2004. The economic share of the profit overrides
allocated to the employees of the Company is recorded as
compensation expense.
On December 22, 2009, we completed the sale of certain
assets relating to our merchant banking business to GCP Capital
Partner Holdings LLC, which is principally owned by Robert H.
Niehaus (with no ownership by the Company). The assets
transferred include the rights to launch successor merchant
banking funds, the investment track record, and the existing
work force. This transaction was deemed a sale of a business for
accounting purposes. In connection with the sale, the Company
entered into a non-compete agreement with GCP Capital Partners
Holdings LLC and agreed to license certain of the Companys
trademarks to GCP Capital Partners Holdings LLC for a set period
of time. As part of the agreement the Company received
289,050 shares of the its common stock, and recognized a
gain
F-16
of $21.8 million. The Company deferred approximately
$2.6 million of additional gain on the sale related to
non-compete and trademark licensing agreements. The deferred
revenue will be earned over the terms of the agreements with
portions of the remaining gain being recognized over the next
two to five years.
The Company also recognized merchant banking and other revenues
from other investments, including its investment in Iridium,
which is discussed in further detail below.
The Companys merchant banking and other revenue, by
source, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Management fees
|
|
$
|
17,396
|
|
|
$
|
19,208
|
|
|
$
|
17,301
|
|
Net realized and unrealized gains (losses) on investments in
merchant banking funds
|
|
|
3,474
|
|
|
|
(17,543
|
)
|
|
|
7,023
|
|
Net realized and unrealized merchant banking profit overrides
|
|
|
(738
|
)
|
|
|
(2,700
|
)
|
|
|
1,800
|
|
Other realized and unrealized investment income
|
|
|
40,344
|
|
|
|
1,156
|
|
|
|
2,181
|
|
Sale of certain merchant banking assets
|
|
|
21,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total merchant banking and other revenues
|
|
$
|
82,300
|
|
|
$
|
121
|
|
|
$
|
28,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of the Companys investments in
affiliated merchant banking funds are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Investment in GCP I
|
|
$
|
3,147
|
|
|
$
|
8,469
|
|
Investment in GCP II
|
|
|
51,189
|
|
|
|
55,852
|
|
Investment in GSAVP
|
|
|
3,867
|
|
|
|
2,730
|
|
Investment in GCPE
|
|
|
13,641
|
|
|
|
6,362
|
|
|
|
|
|
|
|
|
|
|
Total investments in affiliated merchant banking funds
|
|
$
|
71,844
|
|
|
$
|
73,413
|
|
|
|
|
|
|
|
|
|
|
The investment in GCP I included $0.3 million and
$0.5 million at December 31, 2009 and 2008,
respectively, related to the noncontrolling interests in the
managing general partner of GCP I held directly by various
employees of the Company. The investment in GCP II included
$1.2 million and $1.3 million at December 31,
2009 and 2008, respectively, related to the noncontrolling
interests in the general partner of GCP II held directly by
various employees of the Company. At December 31, 2009 and
2008, approximately $0.2 million and $0.8 million,
respectively, of the Companys compensation payable related
to profit overrides for unrealized gains of the Greenhill Funds.
This amount may increase or decrease depending on the change in
the fair value of the Greenhill Funds portfolio and is
payable, subject to clawback, at the time the funds realize cash
proceeds.
At December 31, 2009, the Company had unfunded commitments
of $46.5 million to certain of the Greenhill Funds. These
commitments are expected to be drawn on from time to time over a
period of up to five years from the relevant commitment dates of
each fund. The commitments to GCP I expired on March 31,
2007. At December 31, 2009, the Company had unfunded
commitments to GCP II of $16.1 million which may be funded
through June 2010, unfunded commitments to GSAVP of
$4.9 million which may be funded through September 2011,
and unfunded commitments to GCP Europe of $25.5 million (or
£15.7 million) which may be funded through December
2012. For each of the Greenhill 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.
F-17
Other
Investments
The Company has other principal investments including
investments in Iridium, other merchant banking funds and other
investment vehicles. The Companys other investments are as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Iridium Common Stock (formerly GHLAC Common Stock)
|
|
$
|
68,077
|
|
|
$
|
21
|
|
Iridium $11.50 Warrants
|
|
|
8,015
|
|
|
|
|
|
GHLAC Warrants
|
|
|
|
|
|
|
8,295
|
|
Iridium 5% Convertible Note
|
|
|
|
|
|
|
22,900
|
|
Barrow Street Capital III, LLC
|
|
|
2,425
|
|
|
|
3,736
|
|
|
|
|
|
|
|
|
|
|
Total other investments
|
|
$
|
78,517
|
|
|
$
|
34,952
|
|
|
|
|
|
|
|
|
|
|
In November 2007, the Company purchased 11,500,000 units of
GHLAC for $25,000. In February 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 October 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., (Iridium) and in October 2009,
the Company converted the Iridium 5% Convertible Note into
1,995,629 common shares of Iridium (Iridium Common
Stock).
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, 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) and the
Companys fully diluted ownership in Iridium was
approximately 12%. Both the Iridium Common Stock and the Iridium
$11.50 Warrants are restricted from sale until
September 29, 2010 (or until March 29, 2010 in the
case of a registered secondary offering).
At December 31, 2009, the carrying value of the investment
in Iridium Common Stock (NASDAQ: IRDM) was valued at its closing
quoted market price discounted at 5% for legal and contractual
restrictions on the sale of securities held by the Company.
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 as defined by ASC 323. Upon closing of the
acquisition of Iridium by GHLAC, the Company relinquished
certain GHLAC board and management positions to Iridium. As
such, the Company is no longer 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 under ASC 320. The
Company recognized unrealized investment income from its
investment in Iridium of $42.2 million and
$2.6 million in 2009 and 2008, respectively, and is
included in merchant banking and other revenues in the
consolidated statements of income.
F-18
The Company has used an internally developed model to value the
Iridium $11.50 Warrants and the GHLAC Warrants, which takes into
account various standard option valuation methodologies,
including Black Scholes modeling. Selected inputs for the
Companys model include: (1) the terms of the
warrants, including exercise price, exercisability threshold and
expiration date; (2) 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; and (3) for purposes of the GHLAC Warrants
internal estimates, including the Companys weighted
average cost of capital and the probability of a GHLAC
acquisition closing.
At December 31, 2008, the Company determined the value of
the Iridium 5% Convertible Note based upon Iridiums
financial position, liquidity, operating results and the terms
of the note and other qualitative and quantitative factors.
The Company committed $5.0 million to Barrow Street Capital
III, LLC (Barrow Street III), a real estate
investment fund, of which $0.5 million remains unfunded at
December 31, 2009. 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.
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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
Measured at Fair Value on a Recurring Basis as of
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iridium 5% Convertible Note
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,900
|
|
|
$
|
22,900
|
|
GHLAC Warrants
|
|
|
|
|
|
|
|
|
|
|
8,295
|
|
|
|
8,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,195
|
|
|
$
|
31,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Level 3
Gains and Losses
The following tables set forth a summary of changes in the fair
value of the Companys level 3 investments for the
years ended December 31, 2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Net
|
|
|
|
|
|
|
Beginning
|
|
|
Realized
|
|
|
|
|
|
Settlements
|
|
|
Transfers
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Gains
|
|
|
Unrealized
|
|
|
and
|
|
|
in and/or
|
|
|
Balance
|
|
|
|
January 1,
|
|
|
or
|
|
|
Gains or
|
|
|
Issuances,
|
|
|
out of
|
|
|
December 31,
|
|
|
|
2009
|
|
|
(Losses)
|
|
|
(Losses)
|
|
|
net
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Net
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
Transfers
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Realized
|
|
|
Unrealized
|
|
|
and
|
|
|
in and/or
|
|
|
Balance
|
|
|
|
January 1,
|
|
|
Gains
|
|
|
Gains or
|
|
|
Issuances,
|
|
|
out of
|
|
|
December 31,
|
|
|
|
2008
|
|
|
or (Losses)
|
|
|
(Losses)
|
|
|
net
|
|
|
Level 3
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iridium 5% Convertible Note
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,900
|
|
|
$
|
|
|
|
$
|
22,900
|
|
GHLAC Warrants
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
|
8,025
|
|
|
|
|
|
|
|
8,295
|
|
Tammac Holdings Corp.
|
|
|
2,000
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
2,000
|
|
|
$
|
|
|
|
$
|
(1,730
|
)
|
|
$
|
30,925
|
|
|
$
|
|
|
|
$
|
31,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reduction in the fair value of the GHLAC Warrants and the
subsequent addition of the Iridium $11.50 Warrants, resulted
from the Companys forfeiture of 8,369,563 Founder Warrants
and 4,000,000 GHLAC Private Placement Warrants, and the exchange
of 4,000,000 GHLAC Private Placement Warrants for the Iridium
$11.50 Warrants in connection with the acquisition of Iridium in
September 2009.
The reduction in the fair value of the Iridium
5% Convertible Note included within the level 3
hierarchy relates to the Companys decision on
October 24, 2009 to exercise its right to convert the note
into 1,995,629 shares of Iridium Common Stock. The Company
includes Iridium Common Stock in level 2 of the fair value
hierarchy as it is currently valued at its closing market price
discounted for legal and contractual restrictions on sale.
The investment in Tammac Holdings Corp was in the form of a
note, with an 8% interest rate and a maturity date of March
2010. Tammac Holdings Corp was a GCP I portfolio company. During
2008, the Company wrote down the value of its investment in
Tammac Holdings Corp and recorded an unrealized loss of
$2.0 million.
At December 31, 2009, the Company recorded goodwill in the
amount of $18.7 million which relates to an acquisition
made by the Companys Canadian operations, GCH. Goodwill
increased by $2.6 million from 2008 as a result of foreign
currency translation gains recognized by the Company during
2009. The Company has reviewed its goodwill for potential
impairment and determined that the fair value of the reporting
entity to which goodwill is related exceeded the carrying value
of such reporting entity. Accordingly, no goodwill impairment
loss has been recognized for the years ended December 31,
2009 and 2008.
F-20
At December 31, 2009, the Company had receivables of
$0.2 million and payables of $0.4 million due to the
Greenhill Funds, relating to accrued management fees and expense
reimbursements, which are included in due to affiliates. At
December 31, 2008, the Company had receivables of
$0.5 million due from the Greenhill Funds, relating to
accrued management fees and expense reimbursements, which are
also included in due from affiliates. See
Note 1 Organization.
During 2009, 2008 and 2007, the Company paid $7,994, $11,965 and
$24,067, 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,
2009, 2008 and 2007 are rent reimbursements of $68,100 for 2009,
$64,890 for 2008 and $56,800 for 2007, for airplane and office
space sublet by a firm owned by an executive of the Company.
Included in accounts payable and accrued expenses are
$0.3 million at December 31, 2009 and 2008,
respectively, in interest payable on the undistributed earnings
to the U.K. members of GCI. See Note 1
Organization and Note 3
Investments.
In conjunction with the sale of certain assets of the merchant
banking business, GCP Capital Partners Holdings LLC will
sublease office space from the Company for a period of three to
five years and will reimburse the Company for its allocable
share of certain occupancy and administrative costs beginning in
2010. See Note 3 Investments
Affiliated Merchant Banking Investments and
Note 12 Commitments and
Contingencies.
|
|
Note 6
|
Property
and Equipment
|
Property and Equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Aircraft
|
|
$
|
17,037
|
|
|
$
|
17,037
|
|
Equipment
|
|
|
11,330
|
|
|
|
9,506
|
|
Furniture and fixtures
|
|
|
6,016
|
|
|
|
4,682
|
|
Leasehold improvements
|
|
|
18,241
|
|
|
|
16,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,624
|
|
|
|
47,573
|
|
Less accumulated depreciation and amortization
|
|
|
(39,829
|
)
|
|
|
(35,499
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
12,795
|
|
|
$
|
12,074
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7
|
Revolving
Bank Loan Facility
|
At December 31, 2009, the Company had a $90.0 million
revolving loan facility from a U.S. banking institution to
provide for working capital needs, facilitate the funding of
investments and other general corporate purposes. The revolving
loan facility is secured by all management fees earned by GCPLLC
and GVP and any cash distributed in respect of their partnership
interests in GCP I and GCP II or GSAVP, as applicable. Interest
on borrowings is based on the higher of Prime Rate or 4.00% and
is payable monthly. In December 2009, the revolving bank loan
facilitys maturity date was extended from
December 31, 2009 to March 31, 2010. In addition, the
Company must comply with certain financial and liquidity
covenants. The weighted average daily borrowings outstanding
under the loan facility were approximately $31.4 million
and $69.2 million for the years ended December 31,
2009 and December 31, 2008, respectively. The weighted
average interest rates were 4.00% to 4.47% for the years ended
December 31, 2009 and 2008, respectively. At
December 31, 2009 we were compliant with all loan
covenants. See Note 16 Subsequent
Events.
F-21
Note 8
Equity
Dividends declared per common share were $1.80 in 2009, $1.80 in
2008, and $1.26 in 2007. Dividend equivalents of
$4.5 million, $3.4 million and $2.2 million were
paid in 2009, 2008 and 2007, respectively, on the restricted
stock units that are expected to vest.
In connection with the acquisition of Beaufort Partners Limited,
GCH, in 2006, issued 257,156 shares of non-voting
exchangeable shares valued at $15.4 million which are
exchangeable into the same number of shares of common stock of
the Company subject to certain conditions and are entitled to
receive the same dividends (if any) as paid in respect of the
common stock. The non-voting exchangeable shares are
exchangeable at the option of the holders thereof at any time
except in limited circumstances in connection with a liquidation
of the Company or where the Company has exercised its rights to
redeem the exchangeable shares. In 2009, 75,463 exchangeable
shares were converted into common stock and in 2008, 48,738
exchangeable shares were converted into common stock.
On December 22, 2009, Robert H. Niehaus, the chairman and
founder of Greenhill Capital Partners, and V. Frank Pottow, a
member of the Investment Committee of Greenhill Capital
Partners, exchanged 289,050 shares of the Companys
common stock, in conjunction with the sale of certain assets of
the merchant banking business. See Note 3
Investments Affiliated Merchant Banking
Investments.
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.
In November 2008, the Company completed a primary stock offering
(the Primary Offering) of 1,250,000 common shares.
The offering price was $56.00 per share, and the Company
received proceeds, net of underwriting commissions and expenses,
of $67.3 million.
During 2008, 293,950 restricted stock units vested and were
issued as common stock of which the Company is deemed to have
repurchased 106,043 shares at an average price of $64.43
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 2008, the Company
repurchased in open market transactions 240,880 shares of
its common stock at an average price of $62.27.
During 2007, 192,795 restricted stock units vested and were
issued as common stock of which the Company is deemed to have
repurchased 72,462 shares at an average price of $68.60 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 2007, the Company
repurchased in open market transactions 1,917,451 shares of
its common stock at an average price of $62.61.
F-22
|
|
Note 9
|
Earnings
Per Share
|
The computations of basic and diluted EPS are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands, except per share amounts)
|
|
|
Numerator for basic and diluted EPS net income
allocated to common stockholders
|
|
$
|
71,240
|
|
|
$
|
48,978
|
|
|
$
|
115,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS weighted average number of
shares
|
|
|
29,664
|
|
|
|
28,167
|
|
|
|
28,635
|
|
Add dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of incremental shares issuable from
restricted stock units
|
|
|
90
|
|
|
|
47
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted EPS weighted average number
of shares and dilutive potential shares
|
|
|
29,754
|
|
|
|
28,214
|
|
|
|
28,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.40
|
|
|
$
|
1.74
|
|
|
$
|
4.03
|
|
Diluted
|
|
$
|
2.39
|
|
|
$
|
1.74
|
|
|
$
|
4.01
|
|
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 (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 and (v) the 1,250,000 shares issued in
the Primary Offering in November 2008, less the treasury stock
purchased by the Company.
|
|
Note 10
|
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.
Employees must be 21 years old to be eligible to
participate. 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 $0.9 million,
$0.6 million and $0.5 million for contributions to the
Retirement Plan for the years ended December 31, 2009, 2008
and 2007, respectively. At December 31, 2009 and 2008,
compensation payable included $0.7 million and
$0.5 million, respectively, 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 year ended December 31, 2009,
GCI incurred costs of approximately $0.6 million and GCPE
incurred costs of approximately $0.1 million. For the year
ended December 31, 2008 GCI incurred costs of approximately
$0.7 million and GCPE incurred costs of approximately
$0.1 million. For the year ended December 31, 2007 GCI
incurred costs of approximately $0.8 million.
|
|
Note 11
|
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
F-23
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 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.
As of December 31, 2009, 2008 and 2007, there were
restricted stock units outstanding of 2,582,513 2,014,686 and
1,746,363, 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,
2009, 2008 and 2007, the Company recognized compensation
expense, net of forfeitures, of $40.5 million,
$32.2 million and $29.1 million, respectively.
The weighted-average grant date fair value for restricted stock
units granted during 2009, 2008 and 2007 was $66.96, $64.93 and
$74.15, respectively. As of December 31, 2009, unrecognized
restricted stock units compensation expense was approximately
$74.6 million, with such unrecognized compensation expense
expected to be recognized over a weighted average period of
approximately 2.04 years.
The activity related to the restricted stock units is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units Outstanding
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Fair
|
|
|
|
|
|
Average Fair
|
|
|
|
Units
|
|
|
Value
|
|
|
Units
|
|
|
Value
|
|
|
Outstanding, January 1,
|
|
|
2,014,686
|
|
|
$
|
56.94
|
|
|
|
1,746,363
|
|
|
$
|
53.02
|
|
Granted(1)
|
|
|
945,591
|
|
|
$
|
66.96
|
|
|
|
655,111
|
|
|
$
|
64.93
|
|
Delivered
|
|
|
(344,686
|
)
|
|
$
|
54.62
|
|
|
|
(293,950
|
)
|
|
$
|
52.44
|
|
Forfeited
|
|
|
(33,078
|
)
|
|
$
|
63.75
|
|
|
|
(92,838
|
)
|
|
$
|
53.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31,
|
|
|
2,582,513
|
|
|
$
|
60.83
|
|
|
|
2,014,686
|
|
|
$
|
56.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes 729,640 restricted stock units granted to employees
subsequent to December 31, 2009 as part of the long term
incentive awards program. |
|
|
Note 12
|
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, which are used to obtain office
equipment. Under an operating lease for office space, a third
party owes the Company a portion of the monthly lease payment.
Over the remaining life of this lease, the third party owes the
Company approximately $0.2 million. This receivable is
secured with a letter of credit issued on behalf of the third
party in the amount of $1.0 million.
F-24
As of December 31, 2009, the approximate aggregate minimum
future rental payments required were as follows:
|
|
|
|
|
2010
|
|
$
|
9,841,000
|
|
2011
|
|
|
10,116,000
|
|
2012
|
|
|
12,398,000
|
|
2013
|
|
|
10,832,000
|
|
2014
|
|
|
9,404,000
|
|
Thereafter
|
|
|
50,487,000
|
|
|
|
|
|
|
Total(1)
|
|
$
|
103,078,000
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total aggregate minimum future rental payments have not been
reduced by approximately $3.6 million in minimum sublease
rentals due in the future under noncancelable subleases. |
Net rent expense for the years ended December 31, 2009,
2008 and 2007 was approximately $9.0 million,
$8.3 million and $7.7 million, respectively.
Diversified U.S. financial institutions issued two
unsecured letters of credit on behalf of the Company, the
amounts totaling of $2.4 million at December 31, 2009
and $3.9 million at December 31, 2008, for the benefit
of a lessor. At December 31, 2009 and 2008, no amounts had
been drawn under any of the letters of credit.
At December 31, 2009, the Company had unfunded commitments
for future investments in GCP II, GSAVP, GCPE and other merchant
banking activities of $47.0 million. Of the remaining
unfunded commitments, $16.1 million will be funded as
required until 2010, $4.9 million will be funded as
required until 2011, $25.5 million (or
£15.7 million) will be funded as required until 2012
and $0.5 million will be funded as required until 2013. For
each of the Greenhill Funds up to 15% of the commitment
remaining after the expiration of the commitment period may
continue to be drawn, subject to certain limitations, to fund
expenses and follow-on investments. In addition, the Company has
agreed to commit $5.0 million to a successor fund to GCP II
and $2.5 million to a successor fund to GSAVP, subject to
certain conditions, payable over five years from the date of
inception of each fund.
In the normal course of its business, the Company indemnifies
certain managing directors, directors, officers and certain
other persons against specified potential losses arising at a
time when they are or were members or partners, directors or
officers of the Company, its predecessors, or any of their
respective affiliates. The Company is unable to estimate the
maximum payout under these indemnities. However, management
believes that it is unlikely the Company will have to make any
material payments under these arrangements, and no liabilities
related to these indemnities have been recognized in the
consolidated statements of financial condition.
From time to time, the Company may be involved in litigation
arising out of the ordinary course of its business. The Company
is unable to estimate any maximum payout which may be required
to be made in respect of such litigation. However, management
believes it is unlikely that the Company will have to make any
material payments in connection with any such litigation.
As a C corporation, the Company is subject to federal, foreign,
state and local corporate income taxes.
F-25
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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
22,312
|
|
|
$
|
28,691
|
|
|
$
|
41,102
|
|
State and local
|
|
|
9,350
|
|
|
|
7,376
|
|
|
|
7,287
|
|
Non-U.S.
|
|
|
134
|
|
|
|
13,229
|
|
|
|
35,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax expense
|
|
|
31,796
|
|
|
|
49,296
|
|
|
|
84,382
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
15,454
|
|
|
|
(13,797
|
)
|
|
|
(17,489
|
)
|
State and local
|
|
|
2,335
|
|
|
|
(3,601
|
)
|
|
|
(1,089
|
)
|
Non-U.S.
|
|
|
(6,849
|
)
|
|
|
(2,506
|
)
|
|
|
(3,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax (benefit) expense
|
|
|
10,940
|
|
|
|
(19,904
|
)
|
|
|
(22,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense
|
|
$
|
42,736
|
|
|
$
|
29,392
|
|
|
$
|
61,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2009, the
Company has provided U.S. income tax on approximately
$93.8 million of eligible earnings of its foreign
affiliates since it became a C corporation in 2004 of which it
has repatriated $87.2 million. If the Company had not
permanently reinvested 50% of its eligible earnings from foreign
affiliates it would have incurred additional deferred tax
liabilities of $0.2 million from temporary differences
related to such earnings as of December 31, 2009.
Deferred income taxes reflect the net tax effects of temporary
differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when such differences are
expected to reverse. Significant components of the
Companys net deferred tax assets and liabilities are set
forth below:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
29,239
|
|
|
$
|
22,292
|
|
Depreciation and amortization
|
|
|
3,557
|
|
|
|
2,898
|
|
Unrealized loss on investments
|
|
|
2,441
|
|
|
|
3,133
|
|
Cumulative translation adjustment
|
|
|
2,251
|
|
|
|
4,253
|
|
Other financial accruals
|
|
|
2,614
|
|
|
|
1,421
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
40,102
|
|
|
|
33,997
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
17,190
|
|
|
|
|
|
Depreciation and amortization
|
|
|
374
|
|
|
|
|
|
Other financial accruals
|
|
|
577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
18,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
21,961
|
|
|
$
|
33,997
|
|
|
|
|
|
|
|
|
|
|
Based on the Companys historical taxable income and its
expectation for taxable income in the future, management expects
that the 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
F-26
to (i) the realization of its deferred tax liabilities and
(ii) future taxable income. Included in other receivables
in the consolidated statements of financial condition are income
taxes receivable of $1.7 million.
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.
The Company performed a tax analysis as of December 31,
2009, and determined that there was no requirement to accrue any
liabilities, pursuant to FASB ASC
740-10
(formerly FIN 48).
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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S. statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase related to state and local taxes, net of U.S. income tax
|
|
|
7.7
|
|
|
|
3.1
|
|
|
|
2.2
|
|
Foreign taxes
|
|
|
1.1
|
|
|
|
(2.2
|
)
|
|
|
(3.6
|
)
|
Other
|
|
|
(6.3
|
)
|
|
|
1.6
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate before noncontrolling interests
|
|
|
37.5
|
|
|
|
37.5
|
|
|
|
34.9
|
|
Noncontrolling interests
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate after noncontrolling interests
|
|
|
37.5
|
%
|
|
|
37.8
|
%
|
|
|
34.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The effective tax rate for the year ended December 31, 2009
reflected the benefit of the sale of certain assets relating to
the Companys merchant banking business as described in
Note 1 Organization and
Note 3 Investments Other
Investments, which was structured as a tax-free exchange
under Section 355 of the Internal Revenue Code of 1986.
|
|
Note 14
|
Regulatory
Requirements
|
Certain subsidiaries of the Company are subject to various
regulatory requirements in the United States and United Kingdom,
which specify, among other requirements, minimum net capital
requirements for registered broker-dealers.
G&Co is subject to the Securities and Exchange
Commissions 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, 2009 and 2008, G&Cos net capital
was $11.7 million and $8.6 million, respectively,
which exceeded its requirement by $10.4 million and
$7.7 million, respectively. G&Cos aggregate
indebtedness to net capital ratio was 1.71 to 1 and 1.60 to 1 at
December 31, 2009 and 2008, respectively. Certain advances,
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. As of December 31, 2009 and 2008, each of GCI, GCEI
and GCPE were in compliance with its local capital adequacy
requirements.
F-27
|
|
Note 15
|
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 fund placement services; and
|
|
|
|
Merchant banking, which includes the management of outside
capital invested in the Greenhill Funds and the Companys
principal investments in such funds and other investments.
|
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. Financial advisory revenues represented
approximately 72%, 98% and 92% of the Companys total
revenues for the years ended December 31, 2009, 2008 and
2007, respectively.
One financial advisory client represented approximately 10% of
revenues in 2009, and a different client represented
approximately 10% of revenues in 2008. 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
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 2008 and 2007.
Through December 2009 the Companys financial advisory and
merchant banking activities were closely aligned and had similar
economic characteristics. A similar network of business and
other relationships upon which the Company relies for financial
advisory opportunities also generate merchant banking
opportunities. Through 2009 the Companys professionals and
employees were treated as a common pool of available resources
and the related compensation and other Company costs were not
directly attributable to either particular revenue source. 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.
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, Tokyo, Toronto,
Chicago, Dallas, Houston, Los Angeles and San Francisco.
For reporting purposes, the geographic regions are North America
and Europe and other, locations in which the Company retains
substantially all of its employees.
F-28
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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
255,716
|
|
|
$
|
135,038
|
|
|
$
|
191,827
|
|
Europe and other
|
|
|
42,930
|
|
|
|
86,835
|
|
|
|
208,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
298,646
|
|
|
$
|
221,873
|
|
|
$
|
400,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
136,278
|
|
|
$
|
45,881
|
|
|
$
|
65,961
|
|
Europe and other
|
|
|
(22,385
|
)
|
|
|
31,977
|
|
|
|
111,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
113,893
|
|
|
$
|
77,858
|
|
|
$
|
177,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
231,174
|
|
|
$
|
184,252
|
|
|
$
|
218,906
|
|
Europe and other
|
|
|
97,215
|
|
|
|
81,527
|
|
|
|
155,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
328,389
|
|
|
$
|
265,779
|
|
|
$
|
374,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16
|
Subsequent
Events
|
On January 19, 2010, the Company funded a capital call of
$7.9 million to GCP II and received distributions from GCP
II of $2.3 million. On January 20, 2010, the Company
funded a capital call of approximately $5.2 million (or
£3.2 million) to GCPE.
On January 27, 2010, the Board of Directors of the Company
declared a quarterly dividend of $0.45 per share. The dividend
will be payable on March 17, 2010 to the common
stockholders of record on March 3, 2010.
On February 19, 2010 a U.S. banking institution
extended the maturity dated of the Companys revolving loan
facility until April 30, 2011, subject to the completion of
certain documentation. The facility commitment will be reduced
to $75.0 million effective April 30, 2010 and
$60.0 million effective December 31, 2010 and is
subject to a borrowing base limitation. The borrowing rate will
be based on the higher of Prime Rate or 4.00%. The Company must
comply with certain financial and liquidity covenants.
The Company has evaluated subsequent events through
February 26, 2010, the date as of which the financial
statements are being issued.
F-29
Supplemental
Financial Information
Quarterly Results (unaudited)
The following represents the Companys unaudited quarterly
results for the years ended December 31, 2009 and 2008.
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 statement of the results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(in millions, expect per share data)
|
|
|
Total revenues
|
|
$
|
61.8
|
|
|
$
|
54.1
|
|
|
$
|
116.3
|
|
|
$
|
66.4
|
|
Total expenses
|
|
|
39.4
|
|
|
|
37.0
|
|
|
|
64.9
|
|
|
|
43.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
22.4
|
|
|
|
17.1
|
|
|
|
51.4
|
|
|
|
23.0
|
|
Provision for taxes
|
|
|
8.7
|
|
|
|
6.8
|
|
|
|
21.3
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
13.7
|
|
|
|
10.3
|
|
|
|
30.1
|
|
|
|
17.0
|
|
Less: Net income (loss) allocated to noncontrolling interests
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common stockholders
|
|
$
|
13.9
|
|
|
$
|
10.3
|
|
|
$
|
30.0
|
|
|
$
|
17.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.47
|
|
|
$
|
0.35
|
|
|
$
|
1.01
|
|
|
$
|
0.57
|
|
Diluted
|
|
$
|
0.47
|
|
|
$
|
0.35
|
|
|
$
|
1.01
|
|
|
$
|
0.57
|
|
Dividends declared per share
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
(in millions, expect per share data)
|
|
|
Total revenues
|
|
$
|
75.3
|
|
|
$
|
108.7
|
|
|
$
|
(14.9
|
)
|
|
$
|
52.8
|
|
Total expenses
|
|
|
45.3
|
|
|
|
61.6
|
|
|
|
4.0
|
|
|
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
30.0
|
|
|
|
47.1
|
|
|
|
(18.9
|
)
|
|
|
19.7
|
|
Provision (benefit) for taxes
|
|
|
10.9
|
|
|
|
17.7
|
|
|
|
(6.7
|
)
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
|
19.1
|
|
|
|
29.4
|
|
|
|
(12.2
|
)
|
|
|
12.2
|
|
Less: Net income (loss) allocated to noncontrolling interests
|
|
|
(0.1
|
)
|
|
|
0.4
|
|
|
|
(0.5
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders
|
|
$
|
19.2
|
|
|
$
|
29.0
|
|
|
$
|
(11.7
|
)
|
|
$
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.68
|
|
|
$
|
1.04
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.44
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
1.04
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.44
|
|
Dividends declared per share
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
F-30
|
|
2.
|
Financial
Statement Schedules Index
|
Combined
Financial Statements of Greenhill Capital Partners, L.P.,
Greenhill Capital Partners
(Cayman), L.P., Greenhill Capital Partners (Executives), L.P.
and Greenhill Capital, L.P.
|
|
|
|
|
|
|
|
S-2
|
|
|
|
|
S-3
|
|
|
|
|
S-4
|
|
|
|
|
S-5
|
|
|
|
|
S-6
|
|
|
|
|
S-7
|
|
|
|
|
S-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-20
|
|
|
|
|
S-21
|
|
Combined
Financial Statements of Greenhill Capital Partners II, L.P.,
Greenhill Capital Partners
(Cayman) II, L.P., Greenhill Capital Partners (Executives) II,
L.P. and Greenhill Capital Partners (Employees) II,
L.P.
|
|
|
|
|
|
|
|
S-23
|
|
|
|
|
S-24
|
|
|
|
|
S-25
|
|
|
|
|
S-26
|
|
|
|
|
S-27
|
|
|
|
|
S-28
|
|
|
|
|
S-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-42
|
|
|
|
|
S-43
|
|
F-31
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement.
|
|
2
|
.1
|
|
Reorganization Agreement and Plan of Merger of
Greenhill & Co. Holdings, LLC (incorporated by
reference to Exhibit 2.1 to the Registrants
registration statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to the Registrants
Current Report on
Form 8-K
filed on October 27, 2007).
|
|
3
|
.2
|
|
Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.2 to the Registrants registration statement
on
Form S-1/A
(No. 333-113526)
filed May 5, 2004).
|
|
4
|
.1
|
|
Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrants registration statement
on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.1
|
|
Form of Greenhill & Co, Inc. Transfer Rights Agreement
(incorporated by reference to Exhibit 10.1 to the
Registrants registration statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.2
|
|
Form of Greenhill & Co., Inc. Employment,
Non-Competition and Pledge Agreement (incorporated by reference
to Exhibit 10.2 to the Registrants registration
statement on
Form S-1/A
(No. 333-113526)
filed on April 20, 2004).
|
|
10
|
.4
|
|
Form of U.K. Non-Competition and Pledge Agreement (incorporated
by reference to Exhibit 10.4 to the Registrants
registration statement on
Form S-1/A
(No. 333-113526)
filed on April 20, 2004).
|
|
10
|
.5
|
|
Equity Incentive Plan (incorporated by reference to
Exhibit 10.5 to the Registrants registration
statement on
Form S-1/A
(No. 333-113526)
filed on April 20, 2004).
|
|
10
|
.6
|
|
Form of Indemnification Agreement (incorporated by reference to
Exhibit 10.6 to the Registrants registration
statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.7
|
|
Tax Indemnification Agreement (incorporated by reference to
Exhibit 10.7 to the Registrants registration
statement on
Form S-1/A
(No. 333-113526)
filed on April 20, 2004).
|
|
10
|
.8
|
|
Loan Agreement (Line of Credit) dated as of December 31,
2003 between First Republic Bank and Greenhill & Co.
Holdings, LLC (incorporated by reference to Exhibit 10.8 to
the Registrants registration statement on
Form S-1/A
(No. 333-113526)
filed on April 20, 2004).
|
|
10
|
.9
|
|
Security Agreement dated as of December 31, 2003 between
Greenhill Fund Management Co., LLC and First Republic Bank
(incorporated by reference to Exhibit 10.9 to the
Registrants registration statement on
Form S-1/A
(No. 333-113526)
filed on April 20, 2004).
|
|
10
|
.10
|
|
Agreement for Lease dated February 18, 2000 between TST 300
Park, L.P. and Greenhill & Co., LLC (incorporated by
reference to Exhibit 10.10 to the Registrants
registration statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.11
|
|
First Amendment of Lease dated June 15, 2000 between TST
300 Park, L.P. and Greenhill & Co., LLC (incorporated
by reference to Exhibit 10.11 to the Registrants
registration statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.12
|
|
Agreement for Lease dated April 21, 2000 between TST 300
Park, L.P. and McCarter & English, LLP (incorporated
by reference to Exhibit 10.12 to the Registrants
registration statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.13
|
|
Assignment and Assumption of Lease dated October 3, 2003
between McCarter & English, LLP and
Greenhill & Co., LLC (incorporated by reference to
Exhibit 10.13 to the Registrants registration
statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.14
|
|
Sublease Agreement dated January 1, 2004 between Greenhill
Aviation Co., LLC and Riversville Aircraft Corporation
(incorporated by reference to Exhibit 10.14 to the
Registrants registration statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
F-32
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.15
|
|
Agreement of Limited Partnership of GCP, L.P. dated as of
June 29, 2000 (incorporated by reference to
Exhibit 10.15 to the Registrants registration
statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.16
|
|
GCP, LLC Limited Liability Company Agreement dated as of
June 27, 2000 (incorporated by reference to
Exhibit 10.16 to the Registrants registration
statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.17
|
|
Amended and Restated Agreement of Limited Partnership of
Greenhill Capital, L.P., dated as of June 30, 2000
(incorporated by reference to Exhibit 10.17 to the
Registrants registration statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.18
|
|
Amendment to the Amended and Restated Agreement of Limited
Partnership of Greenhill Capital, L.P. dated as of May 31,
2004 (incorporated by reference to Exhibit 10.18 to the
Registrants registration statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.19
|
|
Amended and Restated Agreement of Limited Partnership of GCP
Managing Partner, L.P. dated as of May 31, 2004
(incorporated by reference to Exhibit 10.19 to the
Registrants registration statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.20
|
|
Form of Assignment and Subscription Agreement dated as of
January 1, 2004 (incorporated by reference to
Exhibit 10.20 to the Registrants registration
statement on
Form S-1/A
(No. 333-113526)
filed on April 30, 2004).
|
|
10
|
.21
|
|
Form of Greenhill & Co., Inc Equity Incentive Plan
Restricted Stock Unit Award Notification Five Year
Ratable Vesting (incorporated by reference to Exhibit 10.21
to the Registrants Quarterly Report on
Form 10-Q
for the period ended September 30, 2004).
|
|
10
|
.22
|
|
Form of Greenhill & Co., Inc Equity Incentive Plan
Restricted Stock Unit Award Notification Five Year
Cliff Vesting (incorporated by reference to Exhibit 10.22
to the Registrants Quarterly Report on
Form 10-Q
for the period ended September 30, 2004).
|
|
10
|
.23
|
|
Form of Greenhill & Co., Inc. Equity Incentive Plan
Restricted Stock Unit Award Notification Five Year
Ratable Vesting (incorporated by reference to Exhibit 10.23
to the Registrants registration statement on
Form S-1/A
(No. 333-112526)
filed on April 30, 2004).
|
|
10
|
.24
|
|
Form of Greenhill & Co., Inc. Equity Incentive Plan
Restricted Stock Unit Award Notification Five Year
Cliff Vesting (incorporated by reference to Exhibit 10.24
to the Registrants registration statement on
Form S-1/A
(No. 333-112526)
filed on April 30, 2004).
|
|
10
|
.25
|
|
Amended and Restated Agreement of Limited Partnership of
Greenhill Capital Partners (Employees) II, L.P. dated as of
March 31, 2005 (incorporated by reference to
Exhibit 99.2 of the Registrants report on
Form 8-K
filed on April 5, 2005).
|
|
10
|
.26
|
|
Amended and Restated Agreement of Limited Partnership of GCP
Managing Partner II, L.P. dated as of March 31, 2005
(incorporated by reference to Exhibit 99.3 of the
Registrants Current Report on
Form 8-K
filed on April 5, 2005).
|
|
10
|
.27
|
|
Form of Agreement for Sublease by and between Wilmer, Cutler,
Pickering, Hale & Dorr LLP and Greenhill &
Co., Inc. (incorporated by reference to Exhibit 10.27 to
the Registrants Quarterly Report on
Form 10-Q
for the period ended June 30, 2005).
|
|
10
|
.28
|
|
Form of Greenhill & Co. Equity Incentive Plan
Restricted Stock Award Notification Five Year
Ratable Vesting (incorporated by reference to Exhibit 10.28
to the Registrants Quarterly Report on
Form 10-Q
for the period ended September 30, 2005).
|
|
10
|
.29
|
|
Form of Senior Advisor Employment and Non-Competition Agreement
(incorporated by reference to Exhibit 10.29 to the
Registrants Quarterly Report on
Form 10-Q
for the period ended September 30, 2005).
|
|
10
|
.30
|
|
Form of Agreement for the Sale of the 7th Floor, Lansdowne
House, Berkeley Square, London, among Pillar Property Group
Limited, Greenhill & Co. International LLP,
Greenhill & Co., Inc. and Union Property Holdings
(London) Limited (incorporated by reference to
Exhibit 10.30 to the Registrants Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005).
|
F-33
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.31
|
|
Loan Agreement dated as of January 31, 2006 by and between
First Republic Bank and Greenhill & Co., Inc.
(incorporated by reference to Exhibit 10.31 to the
Registrants Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005).
|
|
10
|
.32
|
|
Form of Agreement of Limited Partnership of GSAV (Associates),
L.P. (incorporated by reference to Exhibit 10.32 to the
Registrants Quarterly Report on
Form 10-Q
for the period ended March 31, 2006).
|
|
10
|
.33
|
|
Form of Agreement of Limited Partnership of GSAV GP, L.P.
(incorporated by reference to Exhibit 10.33 to the
Registrants Quarterly Report on
Form 10-Q
for the period ended March 31, 2006).
|
|
10
|
.34
|
|
Form of First Modification Agreement by and between First
Republic Bank and Greenhill & Co., Inc. (incorporated
by reference to Exhibit 10.34 to the Registrants
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006).
|
|
10
|
.35
|
|
Form of Second Modification Agreement by and between First
Republic Bank and Greenhill & Co., Inc. (incorporated
by reference to Exhibit 10.35 to the Registrants
Quarterly Report on
Form 10-Q
for the period ended March 31, 2007).
|
|
10
|
.36
|
|
Form of Third Modification Agreement by and between First
Republic Bank and Greenhill & Co., Inc. (incorporated
by reference to Exhibit 10.36 to the Registrants
Quarterly Report on
Form 10-Q
for the period ended June 30, 2007).
|
|
10
|
.37
|
|
Form of Third-Party Security Agreement (Management and Advisory
Fees) by and between Greenhill Capital Partners, LLC and First
Republic Bank (incorporated by reference to Exhibit 10.37
to the Registrants Quarterly Report on
Form 10-Q
for the period ended June 30, 2007).
|
|
10
|
.38
|
|
Form of Amended and Restated Limited Partnership Agreement for
Greenhill Capital Partners Europe (Employees), L.P.
(incorporated by reference to Exhibit 10.38 to the
Registrants Quarterly Report on
Form 10-Q
for the period ended June 30, 2007).
|
|
10
|
.39
|
|
Form of Amended and Restated Limited Partnership Agreement for
GCP Europe General Partnership L.P. (incorporated by reference
to Exhibit 10.39 to the Registrants Quarterly Report
on
Form 10-Q
for the period ended June 30, 2007).
|
|
10
|
.40
|
|
Form of Fourth Modification Agreement by and between First
Republic Bank and Greenhill & Co., Inc. (incorporated
by reference to Exhibit 10.40 to the Registrants
Annual Report on
Form 10-K
for the year ended December 31, 2007).
|
|
10
|
.41
|
|
Form of Third-Party Security Agreement (Management and Advisory
Fees) by and between Greenhill Venture Partners, LLC and First
Republic Bank (incorporated by reference to Exhibit 10.41
to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2007).
|
|
10
|
.42
|
|
Form of Reaffirmation of and Amendment to Form of Third-Party
Security Agreement (Management and Advisory Fees) by and between
Greenhill Capital Partners, LLC and First Republic Bank
(incorporated by reference to Exhibit 10.42 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2007).
|
|
10
|
.43
|
|
Amended and Restated Equity Incentive Plan (incorporated by
reference to Exhibit 10.43 to the Registrants
Quarterly Report on
Form 10-Q
for the period ended March 31, 2008).
|
|
10
|
.44
|
|
Amended and Restated Equity Incentive Plan (incorporated by
reference to Exhibit 10.44 to the Registrants
Quarterly Report on
Form 10-Q
for the period ended March 31, 2009).
|
|
10
|
.45
|
|
Form of Greenhill & Co. Equity Incentive Plan
Restricted Stock Award Notification (MDs) Five Year
Ratable Vesting (incorporated by reference to Exhibit 10.45
to the Registrants Quarterly Report on
Form 10-Q
for the period ended March 31, 2009).
|
|
10
|
.46
|
|
Form of Greenhill & Co. Equity Incentive Plan
Restricted Stock Award Notification (MDs) Five Year
Cliff Vesting (incorporated by reference to Exhibit 10.46
to the Registrants Quarterly Report on
Form 10-Q
for the period ended March 31, 2009).
|
F-34
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.47
|
|
Form of Greenhill & Co. Equity Incentive Plan
Restricted Stock Award Notification (non-MDs) Five
Year Ratable Vesting (incorporated by reference to
Exhibit 10.47 to the Registrants Quarterly Report on
Form 10-Q
for the period ended March 31, 2009).
|
|
10
|
.48
|
|
Lease between 300 Park Avenue, Inc. and Greenhill &
Co., Inc. dated June 17, 2009 (incorporated by reference to
Exhibit 10.1 of the Registrants report on
Form 8-K
filed on June 22, 2009).
|
|
10
|
.49
|
|
Memorandum of Agreement dated as of October 28, 2009 among
Registrant, Robert H. Niehaus and V. Frank Pottow (incorporated
by reference to Registrants report on
Form 8-K
filed on October 29, 2009).
|
|
10
|
.50
|
|
Transaction Agreement dated as of December 22, 2009 among
Registrant, certain of its subsidiaries, Robert H. Niehaus and
V. Frank Pottow (incorporated by reference to Registrants
report on
Form 8-K
filed on December 22, 2009).
|
|
21
|
.1*
|
|
List of Subsidiaries of the Registrant.
|
|
23
|
.1*
|
|
Consent of Ernst & Young LLP.
|
|
31
|
.1*
|
|
Certification of Co-Chief Executive 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.
|
|
31
|
.2*
|
|
Certification of Co-Chief Executive 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.
|
|
31
|
.3*
|
|
Certification of 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.
|
|
32
|
.1*
|
|
Certification of Co-Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2*
|
|
Certification of Co-Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.3*
|
|
Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
F-35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: February 26, 2010
GREENHILL & CO., INC.
Scott L. Bok
Co-Chief Executive Officer
II-1
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities
and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Robert
F. Greenhill
Robert
F. Greenhill
|
|
Chairman and Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Scott
L. Bok
Scott
L. Bok
|
|
Co-Chief Executive Officer and Director (Principal
Co-Executive Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Simon
A. Borrows
Simon
A. Borrows
|
|
Co-Chief Executive Officer and Director (Principal
Co-Executive Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Richard
J. Lieb
Richard
J. Lieb
|
|
Chief Financial Officer (Principal Financial Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Harold
J. Rodriguez, Jr.
Harold
J. Rodriguez, Jr.
|
|
Chief Administrative Officer (Principal Accounting
Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Robert
T. Blakely
Robert
T. Blakely
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ John
C. Danforth
John
C. Danforth
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Steven
F. Goldstone
Steven
F. Goldstone
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Stephen
L. Key
Stephen
L. Key
|
|
Director
|
|
February 26, 2010
|
II-2
|
|
Item 15C.
|
Financial
Statement Schedules
|
Combined Financial Statements of Greenhill Capital Partners,
L.P., Greenhill Capital Partners (Cayman), L.P., Greenhill
Capital Partners (Executives), L.P. and Greenhill Capital,
L.P.
S-1
Report of
Independent Registered Public Accounting Firm
To the Partners of Greenhill Capital Partners Private Equity
Fund I:
We have audited the accompanying combined statements of assets,
liabilities and partners capital of Greenhill Capital
Partners Private Equity Fund I (comprised of Greenhill
Capital Partners, L.P., Greenhill Capital Partners (Cayman),
L.P., Greenhill Capital Partners (Executives), L.P. and
Greenhill Capital, L.P.) (the Partnerships),
including the combined schedules of investments, as of
December 31, 2009 and 2008, and the related combined
statements of operations, changes in partners capital, and
cash flows for each of the three years ended December 31,
2009. These combined financial statements are the responsibility
of the Partnerships General Partner. Our responsibility is
to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial
statements are free of material misstatement. We were not
engaged to perform an audit of the Partnerships internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Partnerships internal control
over financial reporting. Accordingly, we express no such
opinion. 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 the General
Partner, as well as evaluating the overall combined financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to
above present fairly, in all material respects, the combined
financial position of Greenhill Capital Partners Private Equity
Fund I at December 31, 2009 and 2008, and the results
of its operations, changes in its partners capital, and
its cash flows for each of the three years ended
December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on
the basic combined financial statements taken as a whole. The
accompanying supplemental schedules are presented for purposes
of additional analysis and are not a required part of the basic
combined financial statements. Such additional information has
been subjected to the auditing procedures applied in the audit
of the basic combined financial statements and, in our opinion,
is fairly stated in all material respects in relation to the
basic combined financial statements taken as a whole.
New York, New York
February 22, 2010
S-2
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments, at estimated fair value as determined by the
General Partner (cost of $40,501,951 in 2009 and $57,894,833 in
2008, respectively)
|
|
$
|
15,756,205
|
|
|
$
|
55,970,247
|
|
Cash and cash equivalents
|
|
|
6,046,753
|
|
|
|
14,735,666
|
|
Due from affiliates
|
|
|
1,152,344
|
|
|
|
|
|
Interest and dividend receivable
|
|
|
447
|
|
|
|
10,208
|
|
Other assets
|
|
|
60
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
22,955,809
|
|
|
$
|
70,716,131
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital
|
|
|
|
|
|
|
|
|
Due to affiliates
|
|
$
|
64,723
|
|
|
$
|
471,659
|
|
Accrued expenses and other liabilities
|
|
|
1,238,879
|
|
|
|
1,838,130
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,303,602
|
|
|
|
2,309,789
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
Limited partners
|
|
|
20,548,434
|
|
|
|
62,976,771
|
|
General partners
|
|
|
1,103,773
|
|
|
|
5,429,571
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
21,652,207
|
|
|
|
68,406,342
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
22,955,809
|
|
|
$
|
70,716,131
|
|
|
|
|
|
|
|
|
|
|
Analysis of Partners Capital:
|
|
|
|
|
|
|
|
|
Net capital contributions, distributions, accumulated net
investment income and net realized gains
|
|
$
|
46,397,953
|
|
|
$
|
70,330,928
|
|
Accumulated net unrealized loss
|
|
|
(24,745,746
|
)
|
|
|
(1,924,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,652,207
|
|
|
$
|
68,406,342
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined
financial statements.
S-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
$
|
|
|
|
$
|
395,309
|
|
|
$
|
7,738,847
|
|
Interest income
|
|
|
23,129
|
|
|
|
360,075
|
|
|
|
1,577,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,129
|
|
|
|
755,384
|
|
|
|
9,316,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fee
|
|
|
174,603
|
|
|
|
376,210
|
|
|
|
870,297
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
2,206,620
|
|
Other expenses
|
|
|
346,705
|
|
|
|
260,947
|
|
|
|
375,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521,308
|
|
|
|
637,157
|
|
|
|
3,452,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
(498,179
|
)
|
|
|
118,227
|
|
|
|
5,864,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gain (Loss) on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on investments
|
|
|
18,246,295
|
|
|
|
114,267,197
|
|
|
|
651,997,359
|
|
Net change in unrealized loss on investments
|
|
|
(22,821,161
|
)
|
|
|
(170,630,586
|
)
|
|
|
(549,471,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,574,866
|
)
|
|
|
(56,363,389
|
)
|
|
|
102,525,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,073,045
|
)
|
|
$
|
(56,245,162
|
)
|
|
$
|
108,390,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined
financial statements.
S-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited
|
|
|
General
|
|
|
|
|
|
|
Partners
|
|
|
Partners
|
|
|
Total
|
|
|
Partners capital, January 1, 2007
|
|
$
|
662,480,576
|
|
|
$
|
116,131,149
|
|
|
$
|
778,611,725
|
|
Contributed capital
|
|
|
5,971,468
|
|
|
|
86,182
|
|
|
|
6,057,650
|
|
Distributions
|
|
|
(515,650,320
|
)
|
|
|
(98,373,178
|
)
|
|
|
(614,023,498
|
)
|
Net income
|
|
|
90,082,713
|
|
|
|
18,307,499
|
|
|
|
108,390,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital, December 31, 2007
|
|
|
242,884,437
|
|
|
|
36,151,652
|
|
|
|
279,036,089
|
|
Distributions
|
|
|
(133,198,240
|
)
|
|
|
(21,186,345
|
)
|
|
|
(154,384,585
|
)
|
Net loss
|
|
|
(46,709,426
|
)
|
|
|
(9,535,736
|
)
|
|
|
(56,245,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital, December 31, 2008
|
|
|
62,976,771
|
|
|
|
5,429,571
|
|
|
|
68,406,342
|
|
Contributed capital
|
|
|
1,385,705
|
|
|
|
14,290
|
|
|
|
1,399,995
|
|
Distributions
|
|
|
(38,890,340
|
)
|
|
|
(4,190,745
|
)
|
|
|
(43,081,085
|
)
|
Net loss
|
|
|
(4,923,702
|
)
|
|
|
(149,343
|
)
|
|
|
(5,073,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital, December 31, 2009
|
|
$
|
20,548,434
|
|
|
$
|
1,103,773
|
|
|
$
|
21,652,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined
financial statements.
S-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,073,045
|
)
|
|
$
|
(56,245,162
|
)
|
|
$
|
108,390,212
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized loss (gain) on investments
|
|
|
4,574,866
|
|
|
|
56,363,389
|
|
|
|
(102,525,954
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments
|
|
|
|
|
|
|
|
|
|
|
(1,418,178
|
)
|
Proceeds from sale of investments
|
|
|
35,639,176
|
|
|
|
18,918,712
|
|
|
|
592,815,398
|
|
Due from affiliates
|
|
|
(1,152,344
|
)
|
|
|
|
|
|
|
|
|
Interest and dividend receivable
|
|
|
9,761
|
|
|
|
69,772
|
|
|
|
(57,280
|
)
|
Other assets
|
|
|
(50
|
)
|
|
|
|
|
|
|
2,523,968
|
|
Accrued expenses and other liabilities
|
|
|
(599,251
|
)
|
|
|
(329,184
|
)
|
|
|
(1,259,342
|
)
|
Due to affiliates
|
|
|
(406,936
|
)
|
|
|
(21,178
|
)
|
|
|
395,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
32,992,177
|
|
|
|
18,756,349
|
|
|
|
598,863,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of note payable
|
|
|
|
|
|
|
|
|
|
|
(101,753,757
|
)
|
Contributions from partners
|
|
|
1,399,995
|
|
|
|
|
|
|
|
6,057,650
|
|
Distributions to partners
|
|
|
(43,081,085
|
)
|
|
|
(21,746,493
|
)
|
|
|
(503,581,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(41,681,090
|
)
|
|
|
(21,746,493
|
)
|
|
|
(599,278,017
|
)
|
Net change in cash and cash equivalents
|
|
|
(8,688,913
|
)
|
|
|
(2,990,144
|
)
|
|
|
(414,103
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
14,735,666
|
|
|
|
17,725,810
|
|
|
|
18,139,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
6,046,753
|
|
|
$
|
14,735,666
|
|
|
$
|
17,725,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,510,394
|
|
In-kind distribution
|
|
|
|
|
|
|
132,638,092
|
|
|
|
110,441,588
|
|
The accompanying notes are an integral part of the combined
financial statements.
S-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
% of Partners
|
|
|
|
|
|
Estimated
|
|
|
% of Partners
|
|
Industry/Security Description
|
|
Cost
|
|
|
Fair Value
|
|
|
Capital
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Capital
|
|
|
Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exco Resources,
Inc.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,344,482 shares of common stock in 2008
|
|
$
|
|
|
|
$
|
|
|
|
|
0.0
|
%
|
|
$
|
5,175,000
|
|
|
$
|
21,241,007
|
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MxEnergy, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,666 shares of common stock in 2009; 11,097 shares
of common stock in 2008
|
|
|
305,167
|
|
|
|
|
|
|
|
|
|
|
|
305,167
|
|
|
|
305,167
|
|
|
|
|
|
1,913,313 Class C common stock in 2009; 234,082
Series A convertible preferred stock in 2008
|
|
|
5,000,000
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,305,167
|
|
|
|
2,000,000
|
|
|
|
9.2
|
%
|
|
|
5,305,167
|
|
|
|
5,305,167
|
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMP Exploration Holdings, L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62.3% capital sharing percentage interest
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
8,898,885
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMP Exploration Holdings GP, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63.0% capital sharing percentage interest
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
89,887
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peregrine Oil & Gas, LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.1% capital sharing percentage interest
|
|
|
10,689,586
|
|
|
|
9,900,000
|
|
|
|
45.7
|
%
|
|
|
11,745,666
|
|
|
|
14,850,000
|
|
|
|
21.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peregrine GP, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.8% capital sharing percentage interest
|
|
|
107,976
|
|
|
|
100,000
|
|
|
|
0.5
|
%
|
|
|
118,644
|
|
|
|
150,000
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Double D Energy, Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,881 shares of Class A preferred units in 2008
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
294,873
|
|
|
|
540,817
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Energy
|
|
|
16,102,729
|
|
|
|
12,000,000
|
|
|
|
55.4
|
%
|
|
|
31,628,122
|
|
|
|
42,086,991
|
|
|
|
61.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orchard Acquisition Company (formerly, Peach Holdings LLC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,917 shares of common stock
|
|
|
4,312,276
|
|
|
|
1,756,205
|
|
|
|
8.2
|
%
|
|
|
4,312,276
|
|
|
|
11,644,972
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tammac Holdings Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000,000 Series A shares
|
|
|
15,000,000
|
|
|
|
|
|
|
|
|
|
|
|
15,000,000
|
|
|
|
|
|
|
|
|
|
4,285,715 shares of Class A common stock in 2009,
Bridge Loan (8% through March 31, 2006; 12% thereafter
until maturity date of March 31, 2008) in 2008
|
|
|
4,285,714
|
|
|
|
|
|
|
|
|
|
|
|
4,285,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,285,714
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
19,285,714
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financial Services
|
|
|
23,597,990
|
|
|
|
1,756,205
|
|
|
|
8.2
|
%
|
|
|
23,597,990
|
|
|
|
11,644,972
|
|
|
|
17.0
|
%
|
(1) Publicly traded investments.
The accompanying notes are an integral part of the combined
financial statements.
S-7
Greenhill
Capital Partners Private Equity Fund I
Combined Schedules of Investments
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
% of Partners
|
|
|
|
|
|
Estimated
|
|
|
% of Partners
|
|
Industry/Security Description
|
|
Cost
|
|
|
Fair Value
|
|
|
Capital
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Capital
|
|
|
Telecommunications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
eTel Group Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511,641 shares of common stock in 2008
|
|
$
|
|
|
|
$
|
|
|
|
|
0.0
|
%
|
|
$
|
1,867,489
|
|
|
$
|
238,284
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Telecommunications
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
1,867,489
|
|
|
|
238,284
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axiom Legal Systems, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,644,099 shares of preferred stock Series A
|
|
|
801,232
|
|
|
|
2,000,000
|
|
|
|
9.2
|
%
|
|
|
801,232
|
|
|
|
2,000,000
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Business Services
|
|
|
801,232
|
|
|
|
2,000,000
|
|
|
|
9.2
|
%
|
|
|
801,232
|
|
|
|
2,000,000
|
|
|
|
2.9
|
%
|
Total Investments
|
|
$
|
40,501,951
|
|
|
$
|
15,756,205
|
|
|
|
72.8
|
%
|
|
$
|
57,894,833
|
|
|
$
|
55,970,247
|
|
|
|
81.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined
financial statements.
S-8
|
|
Note 1
|
Organization
and Basis of Presentation
|
Greenhill Capital Partners, L.P. (the Delaware Fund)
was formed as a Delaware limited partnership on May 2, 2000
and commenced operations on June 30, 2000. The primary
business objective of the partnership is to achieve superior
medium to long-term capital growth principally through a
diversified portfolio of private equity and equity related
investments.
The combined financial statements include the accounts of the
Delaware Fund, Greenhill Capital Partners (Cayman), L.P. (the
Off-Shore Fund), Greenhill Capital Partners
(Executives), L.P. (the Executive Fund), and
Greenhill Capital, L.P. (the Employee Fund). The
Delaware Fund, the Off-Shore Fund, the Executive Fund and the
Employee Fund are collectively referred to as Greenhill
Capital Partners Private Equity Fund I or the
Partnerships and have ownership interests
representing 62.5%, 9.3%, 9.7% and 18.5% respectively, of the
combined net assets shown on the combined financial statements
at December 31, 2009. Such ownership interests may vary due
to defaulting partners, differing management fee arrangements,
and profit override allocations. The Partnerships purchased
interests in each portfolio company on a pro rata basis based on
their respective ownership interests and on equivalent economic
terms.
The managing general partner of the Partnerships is GCP Managing
Partner, L.P. GCP Managing Partner, L.P. is responsible for
managing the Partnerships investments, subject to the
approval of GCP, L.P., the other general partner of the
Partnerships, with respect to investments made prior to
December 31, 2003. GCP Managing Partner, L.P. and GCP, L.P.
are subject to removal by a simple majority of unaffiliated
third-party investors of the Partnerships. GCP Managing Partner,
L.P. and GCP, L.P. are collectively known as the General
Partner. The Off-Shore Fund, the Executive Fund and the
Employee Fund were organized as limited partnerships with
substantially the same terms as the Delaware Fund and are also
under the common management of the General Partner.
On December 22, 2009, Robert H. Niehaus, Chairman of
Greenhill Capital Partners LLC (GPGP) and V. Frank
Pottow, a member of the investment committee of GPGP, purchased
certain merchant banking assets. Under the terms of the
transaction the General Partner delegated to an entity
controlled by it, Greenhill Capital Partners II LLC
(GCP II LLC) (collectively with GPGP the
Manager), its obligation to manage and administer
the Partnerships (see Note 8 Related
Party Transactions). GPGP remains the general partner,
parent and affiliate of the General Partner. The same personnel
who were involved in the investment and oversight of the
Partnerships prior to the transaction remain responsible for
investment and oversight of the Partnerships post the
transaction.
The Partnerships will terminate on June 30, 2010, unless
extended at the option of the General Partner for one year, and
thereafter with Advisory Committee approval for an additional
one-year period. The General Partner and Advisory Committee
intend to extend the Partnerships termination date for the
additional one-year period.
The combined financial statements are prepared in conformity
with U.S. generally accepted accounting principles and
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the combined financial statements and the reported
amounts of revenues and expenses during the reporting period.
Investments are stated at estimated fair value, and any
unrealized appreciation or depreciation is included in combined
statement of operations. Actual results could differ from those
estimates.
Capitalized terms used but not defined herein shall have the
meaning assigned to them in the respective limited partnership
agreements.
Certain amounts in the 2008 combined financial statements have
been restated due to the reclassification of the receipt of
escrow proceeds from accumulated net unrealized loss to net
realized gains on investments within the Analysis of
partners capital on the Combined Statement of Assets
Liabilities and Partners Capital. This restatement had no
impact on either Partners Capital or Net income (loss).
S-9
|
|
Note 2
|
Summary
of Significant Accounting Policies
|
Accounting
Developments
In June 2009, the FASB issued ASU
No. 2009-01,
Topic 105 Generally Accepted Accounting
Principles amendments based on Statement of
Financial Accounting Standards No. 168 The FASB
Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles. This Accounting Standards Update amends the
FASB Accounting Standards Codification for the issuance of FASB
Statement No. 168, including the accounting standards
update instructions contained in Appendix B of the
Statement. The FASB will no longer issue new standards in the
form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts; instead the FASB will issue Accounting
Standards Updates. Accounting Standards Updates will not be
authoritative in their own right as they will only serve to
update the Codification. These changes and the Codification
itself do not change GAAP. Other than the manner in which new
accounting guidance is referenced, the adoption of these changes
had no impact on the combined financial statements.
Cash
and Cash Equivalents
Cash and cash equivalents consist of cash, money market funds
and liquid debt instruments such as commercial paper with
maturities of three months or less from the date of purchase.
Cash and cash equivalents are stated at cost, which approximates
fair value. The Partnerships practice is to invest cash
with financial institutions and lenders that have acceptable
credit ratings. All highly liquid investments with a maturity of
less than ninety days at the time of purchase are considered to
be cash equivalents.
Market/Credit
Risks
The Partnerships maintain their cash and cash equivalents with
financial institutions with high credit ratings. At times, the
Partnerships may maintain deposits in federally insured
financial institutions in excess of federally insured (FDIC)
limits. However, the Manager believes that the Partnerships are
not exposed to significant credit risk due to the financial
position of the depository institution in which those deposits
are held.
Investment
Income
Investment income is comprised of interest and dividend income.
Interest income on cash and cash equivalents is recognized when
earned. Interest income on debt securities of portfolio
companies is recognized on the accrual basis, unless
collectibility is uncertain. Dividends on publicly traded
securities are recorded on the ex-dividend date.
Income
Taxes
Since the Partnerships are not subject to income taxes, there is
no provision for income taxes in the combined financial
statements. The partners include their allocable share of
partnership income and loss in their respective tax returns.
FASB ASC 740, Income Taxes (ASC 740)
(formerly known as FIN 48), establishes financial
accounting and disclosure requirements for recognition and
measurement of tax positions taken or expected to be taken in
the course of preparing the Partnerships tax returns to
determine whether the tax positions are
more-likely-than-not of being sustained by the
applicable tax authority. The implementation of ASC 740 did not
result in any current adjustment or cumulative effect and
therefore no adjustment was recorded in the combined financial
statements of the Partnerships upon adoption.
Investment
Valuations
Investments consist primarily of preferred and common equity
interests and partnership interests in publicly and non-publicly
traded companies. Investments held by the Partnerships are
recorded at estimated fair value as determined by the General
Partner. The fair value of investments in privately held
companies are estimated by the General Partner 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
S-10
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 Partnerships
privately held investments to reflect the lack of liquidity and
other transfer restrictions. 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. Investments in
publicly traded securities are valued using quoted market prices
discounted for any legal or contractual restrictions on sale.
The values at which the investments are carried are adjusted to
estimated fair value at the end of each quarter and volatility
in general economic conditions, stock markets and commodity
prices may result in significant changes in the estimated fair
value of the investments. Investment transactions are accounted
for on a trade date basis. When investments are sold, liquidated
or distributed, the gain or loss is classified as realized.
Unrealized appreciation or depreciation resulting from changes
in fair value of investments (including reversals of unrealized
gains or losses when investments are sold or distributed) is
included in the combined statement of operations.
The Partnerships adopted the provisions of FASB ASC, Fair
Value Measurements and Disclosures (Topic 820) (formerly
known as SFAS 157), as of January 1, 2008. FASB ASC
Topic 820 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;
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 General Partner performs a detailed
analysis of the assets and liabilities that are subject to FASB
ASC Topic 820. 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.
The following table summarizes the valuation of the
Partnerships investments by the above FASB ASC Topic 820
pricing observability levels as of December 31, 2009 and
2008:
Fair Value Measurements at Reporting Date Using:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Significant
|
|
Ending Balance
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
as of
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
December 31, 2009
|
|
Investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,756,205
|
|
|
$
|
15,756,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
December 31, 2008
|
|
Investments
|
|
$
|
21,241,007
|
|
|
$
|
|
|
|
$
|
34,729,240
|
|
|
$
|
55,970,247
|
|
S-11
The following table summarizes the fair value of Level 3
investments for the years ended December 31, 2009 and 2008:
|
|
|
|
|
Balance as of January 1, 2008
|
|
$
|
71,756,593
|
|
Purchases (sales), net
|
|
|
(13,917,809
|
)
|
Realized gain (loss), net
|
|
|
(10,006,672
|
)
|
Unrealized gain (loss), net
|
|
|
(13,102,872
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
34,729,240
|
|
Sales
|
|
|
(3,152,160
|
)
|
Realized gain (loss), net
|
|
|
(9,065,723
|
)
|
Unrealized gain (loss), net
|
|
|
(6,755,152
|
)
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
15,756,205
|
|
|
|
|
|
|
FASB ASC Topic 820 requires additional detailed disclosure for
securities held by the Partnerships by major security types
based on the nature, risks, activity or business sector,
vintage, geographic concentration, credit quality, and economic
characteristic. Please refer to Combined Schedule of Investments
and Note 9 Investment Portfolio for
further categorization of investments.
In-kind
Distributions
Marketable securities distributed to limited partners are valued
at the closing price of the security on the principal securities
exchange on which such securities were traded at the close of
the trading day immediately prior to the distribution date.
Subsequent
Events
In May 2009, the FASB issued a new standard ASC 855,
Subsequent Events (ASC 855) that
provides guidance on the General Partners assessment of
subsequent events. ASC 855 is effective prospectively for
interim and annual periods ending after June 15, 2009. The
Partnerships adopted ASC 855 as of June 30, 2009. See
Note 13 Subsequent Events for
required disclosure.
Use of
Estimates
The combined financial statements include estimates and
assumptions made by the General Partner that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Purchases
During 2007, the Partnerships made a follow-on investment in
Peregrine Oil and Gas, LP and Peregrine GP, LLC (collectively
Peregrine) for $1.4 million.
Changes
in Unrealized Investment Valuations
During 2009, the Partnerships recorded unrealized losses of
$9.9 million in Orchard Acquisition Company
(Orchard), $3.3 million in MxEnergy, Inc., and
$3.9 million in Peregrine due to the write-down of the
value of the investments. The Partnerships also reversed
previously recognized net unrealized gains from various
investments sold or distributed of $5.7 million.
During 2008, the Partnerships recorded an unrealized gain
$0.3 million in Axiom Legal Systems, Inc. related to the
write-up of
the value of the investment. In addition, the Partnerships
recorded an unrealized loss of $15.1 million in Exco
Resources, Inc. (Exco) due to the change in the fair
value of the remaining securities and recorded unrealized losses
of $19.3 million in Tammac Holdings Corporation
(Tammac) and $9.2 million in Orchard related to
the write-down of these investments. The
S-12
Partnerships also reversed previously recognized net unrealized
gains from various investments sold or distributed of
$127.3 million.
During 2007, the Partnerships recorded unrealized gains due to
the change in the fair value of remaining securities of
$22.2 million in Crown Castle International Corp.
(formerly, Global Signal Inc. (GSL))
(CCI) and $1.7 million in MedAssets Inc.
(MedAssets). In addition, the Partnerships recorded
unrealized losses due to the change in the fair value of the
investments during the period of $2.3 million in Heartland
Payment Systems, Inc. (Heartland), $1.4 million
in Exco and $10.0 million in LMP Exploration Holdings, L.P.
and LMP Exploration Holdings GP, LLC (collectively
LMP). The Partnerships also reversed previously
recognized net unrealized gains from various investments sold or
distributed of $559.7 million.
Sale
Proceeds, Realizations and other Distributions
During 2009, the Partnerships received $32.5 million from
the sale of the remaining securities held in Exco
($27.3 million recorded as a realized gain and
$5.2 million as a return of capital), $0.7 million
from the sale of its investment in eTel Group Limited
(eTel) ($1.2 million recorded as realized loss
thus relieving remaining basis of $1.9 million),
$1.2 million from the sale of its investment in Double D
Energy, Ltd. (Double D) ($0.9 million recorded
as a realized gain and $0.3 million as a return of
capital), $0.2 million from LMP ($8.8 million recorded
as a realized loss thus relieving remaining basis of
$9.0 million), and $1.0 million from Peregrine
(recorded as a return of capital). Additionally, as a result of
a restructuring of MxEnergys capital structure, the
Partnerships 0.2 million Series A convertible
preferred shares were exchanged for 1.9 million
Class C common stock. As the result of a restructuring of
Tammacs capital structure, the Partnerships
$4.3 million Bridge loan was exchanged for 4.3 million
shares of Class A common stock.
During 2008, the Partnerships received $8.0 million from
the sale of a portion of its investment in LMP (recorded as a
return of capital), $0.5 million from the sale of a portion
of its investment in eTel ($3.6 million recorded as
realized loss and $0.5 million recorded as a return of
capital), $1.0 million from the sale of its investment in
Berliner Communications Inc. ($6.4 million recorded as
realized loss and $1.0 million recorded as return of
capital), $5.0 million from its sale of investment in
MedAssets ($2.5 million recorded as realized gain and
$2.5 million as return of capital), and received
$4.4 million from the sale of Peregrine (recorded as return
of capital). In addition, the Partnerships made an in-kind
distribution of CCI, which was valued at $90.3 million
($84.5 million recorded as realized gain and
$5.8 million recorded as a return of capital) and an
in-kind distribution of Heartland valued at $42.4 million
($37.3 million recorded as realized gain and
$5.1 million recorded as return of capital).
During 2008, the Partnerships also received dividend
distributions of $0.1 million and $0.3 million from
Double D and from Heartland, respectively (recorded as dividend
income).
During 2007, the Partnerships received proceeds of
$17.7 million from the sale of its investment in Hercules
Offshore, Inc. ($15.8 million recorded as realized gain and
$1.9 million recorded as a return of capital). In addition,
during 2007, the Partnerships received payments from amounts
held in escrow by United States Exploration, Inc. of
$3.4 million (recorded as realized gain).
During 2007, the Partnerships also received $95.6 million
from the sale of a portion of its investment in Heartland
($84.9 million recorded as realized gain and
$10.7 million recorded as a return of capital),
$4.6 million from the sale of a portion of its investment
in MedAssets ($2.1 million recorded as realized gain and
$2.5 million recorded as a return of capital),
$1.0 million from the sale of a portion of its investment
in eTel ($3.7 million recorded as a realized loss and
$1.0 million recorded as a return of capital),
$200.1 million from the CCI merger with GSL
($187.1 million recorded as realized gain and
$13.0 million recorded as a return of capital) (See
Note 7), $173.9 million through a registered secondary
offering of CCI shares ($161.9 million recorded as realized
gain and $12.0 million recorded as a return of capital) and
an additional $96.6 million through a block trade of CCI
($90.1 million recorded as realized gain and
$6.5 million recorded as a return of capital). In addition,
the Partnerships made an in-kind distribution of Energy Transfer
Equity, L.P. (ETE), which was valued at
$110.4 million (recorded as a realized gain).
S-13
During 2007, the Partnerships also received dividend
distributions from investments of $4.8 million from ETE,
$1.5 million from MedAssets, $1.1 million from
Heartland, $0.3 million from Double D and interest income
of $0.3 million from Tammac.
|
|
Note 4
|
Allocation
of Profit and Loss
|
Each item of income, gain, loss deduction or expenses included
in the determination of net income or loss is allocated among
each of the partners in a manner consistent with the
corresponding method of distribution for each partner.
Distributions will be made to each partner in accordance with
the terms of its respective limited partnership agreement. In
general, a limited partners share of current income from
dividends and interest (net of expenses) and net proceeds
attributable to the disposition of investments by the
Partnerships will be distributed first, 100% to such limited
partner until such limited partner has received on a cumulative
basis distributions equal to such limited partners share
of the sum of (i) invested capital in the investment giving
rise to the distribution; (ii) aggregate invested capital
in all previously realized investments; (iii) aggregate
write-downs, if any, for unrealized investments,
(iv) management fees and partnership expenses paid prior to
such distributions that are allocable to all realized
investments in which such limited partner participated, and
(v) a priority return of 8% on each of the foregoing
compounded annually for the period of the investment. Remaining
current income and net proceeds will then be distributed 100% to
the General Partner until the General Partner has received as a
catch up adjustment an amount equal to 20% of the
amount distributed to such limited partner as a priority return
referred to above and 20% of the amount distributed per this
provision. Thereafter, current income and net proceeds will be
distributed 80% to such limited partners and 20% to the General
Partner (profit override also referred to as carried
interest).
Since inception, the Partnerships allocation of profit
override to the General Partner representing both its unrealized
and realized profit override was approximately
$224.2 million as of December 31, 2009. As of
December 31, 2009, the General Partner has realized
$223.6 million in distributions of its allocated profit
override. Future losses in the value of the Partnerships
investments may require a reduction in the allocation of profit
override to the General Partner and upon liquidation of the
Partnerships, the General Partner would be obligated to
contribute to the Partnerships the amount, if any, by which
cumulative profit override distributions received exceed its
cumulative allocable profit override. The General Partner would
be required to establish a reserve for potential clawbacks if
the General Partner determined that the likelihood of a clawback
is probable and the amount of the clawback can be reasonably
estimated. As of December 31, 2009 and 2008, the General
Partner has not reserved for any clawback obligations.
Cash distributions of net proceeds from dispositions of
investments will be made as soon as practicable after their
receipt by the Partnerships. Other cash receipts of the
Partnerships shall be distributed at least annually or more
frequently if deemed appropriate by the General Partner.
Distributions in-kind will be made at the discretion of the
General Partner.
During 2009, 2008 and 2007 the Partnerships made distributions
to its partners of $43.1 million (net of $1.4 million
retained to fund management fees and other partnership
expenses), $154.4 million (including $90.3 million of
in-kind distributions of CCI and $42.4 million of in-kind
distributions of HPY), and $614.0 million (including
$110.4 million of in-kind distributions of ETE),
respectively. These distributions were comprised of portfolio
company dividends, capital proceeds, realized gains, return of
invested capital and other proceeds from refinancings.
Accrued expenses and other liabilities as of December 31,
2009 and 2008 consist of foreign tax amounts withheld on behalf
of certain limited partners.
|
|
Note 6
|
Capital
Commitments
|
Each partner admitted to one of the Partnerships committed a
specific dollar amount (Capital Commitment) to be
drawn down according to the terms of the partnership agreement
applicable to
S-14
such partner. Capital contributions by a partner for the purpose
of acquiring partnership investments or payment of certain
partnership expenses and management fees reduce such
partners remaining capital commitment.
On March 31, 2005, the General Partner terminated the
Commitment Period for the Partnerships, except for
(1) commitments made to invest prior to the termination of
the Commitment Period, (2) an investment in convertible
securities in connection with the exercise, exchange or
conversion of those securities, or (3) follow-on
investments made before March 31, 2007, as long as such
investment amount does not exceed 15% of the aggregate Capital
Commitment or the Available Capital Commitments of the partners.
At March 31, 2007, the Partnerships capacity to
drawdown capital expired. As of March 31, 2007, two
partners were in default of their capital call obligations
including amounts related to interim financings and expenses in
the amount of $5.1 million. Such amounts are not reflected
in contributed capital in the combined statements of changes in
partners capital. These partners continue to share pro
rata in the investments made prior to their default; however,
they do not participate in any subsequent investments.
|
|
Note 7
|
Borrowings
and Credit Facility
|
In 2004, the Partnerships entered into a $15 million Credit
Facility (the Facility) with a commercial bank (the
Bank) secured by interests in the Partnerships
capital call rights. The Facility and the Banks security
interest expired on January 31, 2007 and no amounts were
outstanding under the facility at that time. The purpose of this
Facility was to provide the Partnership with short-term revolver
borrowings to fund portfolio company investments in advance of
the receipt by the Partnerships of capital contributions from
the partners. Interest on outstanding borrowings was based on
LIBOR plus 125 basis points. There was no interest expense
related to the Facility in 2007.
In April 2006, GCP SPV1, LLC (the Borrower) amended
the February 17, 2005 credit agreement, with Morgan Stanley
Mortgage Capital, Inc., as administrative agent, and certain
other lenders named therein. Under the terms of the amended
credit agreement the Borrower borrowed $155.6 million,
secured by 9,727,464 shares of GSL common stock owned by
it. In January 2007, the Partnerships applied cash received from
both the previously announced CCI merger with GSL and the
subsequent CCI share repurchase towards the repayment of the
entire outstanding balance on the credit agreement borrowings of
$155.6 million ($53.8 million of which was repaid in
December 2006). As a result of the credit agreement repayment,
the lender relinquished its security interest in the
Partnerships remaining shares of CCI. Interest expense related
to the credit agreement borrowings was $2.2 million
(including $1.6 million for the write-off of unamortized
loan origination fees and $0.3 million for the write-off of
the interest rate cap arrangement) for the year ended
December 31, 2007. The Borrower entered into an interest
rate cap arrangement effective April 18, 2006 (which
expired on September 28, 2007) with Morgan Stanley
Capital Services, Inc. and terminated early the existing
interest rate cap arrangement dated February 17, 2005.
Under the arrangement the interest rate for a notional amount of
borrowings of $155.6 million was capped at one month LIBOR
of 5.5% (or 8.5% including the applicable spread of
300 basis points).
There were no borrowings outstanding under the facility and
credit agreement during the years ended December 31, 2009
and 2008, and the Partnerships weighted average amount of
borrowings outstanding under the facility and credit agreement
during the year ended December 31, 2007 was approximately
$5.3 million, with a related weighted average annualized
rate of 8.2%.
|
|
Note 8
|
Related
Party Transactions
|
GPGP is the general partner, parent and affiliate of the General
Partner and controls the Manager. GPGP committed approximately
$30.3 million to the Partnerships. At March 31, 2007,
the Partnerships capacity to drawdown capital expired and
the General Partners Available Capital Commitment is zero.
GPGP has an interest of approximately 12% in all investments
made on or after February 1, 2004 and approximately 4% in
all investments made prior to February 1, 2004. The
S-15
carrying value of the GPGP investment in the Partnerships
including profit override was approximately $3.1 million
and $8.0 million at December 31, 2009 and 2008,
respectively.
From the inception of the Partnerships through December 22,
2009 the GPGP was responsible for the
day-to-day
managerial and administrative services of the Partnerships.
Effective December 2009, the General Partner delegated its
obligation to GCP II LLC to provide
day-to-day
managerial and administrative services to the Partnerships.
Under the terms of their respective limited partnership
agreements, the Delaware Fund, the Off-Shore Fund and the
Executive Fund each pay a management fee for services rendered
by the Manager in an amount equal to the aggregate management
fees payable by all limited partners. The GPGPs commitment
through the General Partner is not subject to a management fee.
During the Commitment Period, which was terminated on
March 31, 2005, each limited partner (excluding the General
Partner and the Employee Fund) paid an amount based upon a
specified percentage ranging from 1% to 1.5% per annum of such
partners capital commitment. Subsequent to March 31,
2005 (termination of the Commitment Period), the management fee
is 1% of such partners aggregate Invested Capital, as
defined in each limited partnership agreement. The management
fee is payable semi-annually in advance. Management fees paid by
the Partnerships to the Manager for the years ended
December 31, 2009, 2008 and 2007 were $0.2 million,
$0.4 million and $0.9 million, respectively. Included
in due from affiliates at December 31, 2009 is
$1.2 million due to the Partnerships from the General
Partner.
The Manager shall pay all General Partner
Expenses. General Partner Expenses include:
|
|
|
|
(i)
|
all compensation and employee benefit expenses of employees of
the General Partner and related overhead (including rent,
utilities, and other similar items) resulting from the
activities of such employees on behalf of the Partnerships;
|
|
|
(ii)
|
all Partnership Organizational Expenses in excess of
$2.0 million in the aggregate for the Partnerships; and
|
|
|
(iii)
|
all Placement Fees payable by the Partnerships, the General
Partner or the Manager in connection with the offering of
limited partnership interests in the Partnerships.
|
The Partnerships will incur all other Partnership Expenses and
Partnership Administrative Expenses (collectively,
Partnership Expenses). The allocation of such
Partnership Expenses will be made on a pro rata basis based on
committed capital, unless any such expense is solely or
disproportionately attributable to any single partnership, in
which case the Manager may allocate such expense differently.
The Manager pays the Partnership Expenses on behalf of the
Partnerships, for which the Manager is reimbursed on regular
intervals. At December 31, 2009 and 2008 the Partnerships
owed $0.1 million to the Manager for the reimbursement of
such expenses.
Affiliates of the General Partner may provide investment-banking
services to certain portfolio companies from time to time. These
fees are not subject to management fee offset.
The Partnerships shall distribute to the General Partner, and
the General Partner or its affiliates may retain, all
break-up
fees, commitment fees and other Transaction
Fees, as defined in each limited partnership agreement. Eighty
percent of each Partnerships proportionate share of the
amount of any such Transaction Fees received by the General
Partner or its affiliates shall be credited ratably to reduce
the management fees payable by the limited partners of such
Partnerships. There were no management fee reductions in 2009.
Management fee reductions for 2008 were $0.1 million.
S-16
|
|
Note 9
|
Investment
Portfolio
|
As of December 31, 2009 and 2008 the portfolio of
investments by type of security was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated Fair
|
|
|
% of Partners
|
|
|
Estimated Fair
|
|
|
% of Partners
|
|
Type of Security
|
|
Value
|
|
|
Capital
|
|
|
Value
|
|
|
Capital
|
|
|
Preferred Stock
|
|
$
|
2,000,000
|
|
|
|
9.2
|
%
|
|
$
|
7,238,284
|
|
|
|
10.6
|
%
|
Common Stock
|
|
|
3,756,205
|
|
|
|
17.4
|
%
|
|
|
32,885,979
|
|
|
|
48.1
|
%
|
LP Equity Units and Capital Sharing Interests
|
|
|
10,000,000
|
|
|
|
46.2
|
%
|
|
|
15,845,984
|
|
|
|
23.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,756,205
|
|
|
|
72.8
|
%
|
|
$
|
55,970,247
|
|
|
|
81.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008 the portfolio of
investments by geographic location was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated Fair
|
|
|
% of Partners
|
|
|
Estimated Fair
|
|
|
% of Partners
|
|
Geographic Location
|
|
Value
|
|
|
Capital
|
|
|
Value
|
|
|
Capital
|
|
|
North America
|
|
$
|
15,756,205
|
|
|
|
72.8
|
%
|
|
$
|
55,731,963
|
|
|
|
81.5
|
%
|
Europe
|
|
|
|
|
|
|
|
%
|
|
|
238,284
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,756,205
|
|
|
|
72.8
|
%
|
|
$
|
55,970,247
|
|
|
|
81.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10
|
Partners
Capital
|
As of December 31, 2009, 2008 and 2007, the capital balance
of each Partnership was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delaware
|
|
|
Off-Shore
|
|
|
Executive
|
|
|
Employee
|
|
|
Total
|
|
|
Committed capital
|
|
$
|
257.7
|
|
|
$
|
43.0
|
|
|
$
|
41.3
|
|
|
$
|
81.2
|
|
|
$
|
423.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital, January 1, 2007
|
|
|
479.8
|
|
|
|
72.6
|
|
|
|
75.7
|
|
|
|
150.5
|
|
|
|
778.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital
|
|
|
3.8
|
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
1.2
|
|
|
|
6.0
|
|
Distributions
|
|
|
(380.3
|
)
|
|
|
(54.8
|
)
|
|
|
(59.9
|
)
|
|
|
(119.0
|
)
|
|
|
(614.0
|
)
|
Net Income
|
|
|
66.9
|
|
|
|
10.0
|
|
|
|
10.5
|
|
|
|
21.0
|
|
|
|
108.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital December 31, 2007
|
|
|
170.2
|
|
|
|
28.2
|
|
|
|
26.9
|
|
|
|
53.7
|
|
|
|
279.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
(94.0
|
)
|
|
|
(16.3
|
)
|
|
|
(14.9
|
)
|
|
|
(29.2
|
)
|
|
|
(154.4
|
)
|
Net Loss
|
|
|
(34.8
|
)
|
|
|
(5.0
|
)
|
|
|
(5.4
|
)
|
|
|
(11.0
|
)
|
|
|
(56.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital December 31, 2008
|
|
|
41.4
|
|
|
|
6.9
|
|
|
|
6.6
|
|
|
|
13.5
|
|
|
|
68.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital
|
|
|
0.9
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
1.4
|
|
Distributions
|
|
|
(25.6
|
)
|
|
|
(4.5
|
)
|
|
|
(4.1
|
)
|
|
|
(8.9
|
)
|
|
|
(43.1
|
)
|
Net Loss
|
|
|
(3.2
|
)
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(0.9
|
)
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital December 31, 2009
|
|
$
|
13.5
|
|
|
$
|
2.0
|
|
|
$
|
2.1
|
|
|
$
|
4.0
|
|
|
$
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11
|
Market
and Other Risk Factors
|
The Partnerships portfolio investments were comprised
primarily of companies which operate in the energy, financial
services and certain other industry specific business sectors.
Multiple market risk factors exist which could cause the
Partnerships to lose some or all of their invested capital.
These risks include:
General economic risk the Partnerships
portfolio investments can be impacted by changes caused by
global and domestic market conditions, including energy,
financial services and certain other industry specific economic
conditions.
S-17
Changes in the market for public offerings could also have an
effect on the Partnerships and their ability to realize their
investment objectives. In addition, the portfolio is subject to
equity price risk and other market risk.
Concentration risk the Partnerships invested in
securities in a limited number of companies, primarily within
the energy, financial services and certain other industry
specific business sectors and these investments may not be a
balanced or fully diversified portfolio.
Investee risk the Partnerships investees may
include smaller entrepreneurial companies which may have limited
business histories, product or service lines, markets, financial
resources and management depth. Such companies also may not have
achieved profitable operations or positive cash flows.
Liquidity risk the Partnerships portfolio of
investments includes illiquid, non-publicly traded securities
and restricted publicly traded securities. Accordingly, there is
the risk that the Partnerships may not be able to realize their
investment objectives by sale or other disposition of portfolio
investments at prices reflective of the Partnerships
current carrying value. As a result, the Partnerships may
sustain losses with respect to some or all of its investments.
Contractual Obligations the Partnerships may enter
into contracts that contain a variety of indemnity obligations.
The Partnerships maximum exposure under these arrangements
is unknown. However, the Partnerships have not had prior claims
or losses pursuant to these contracts and expect the risk of
loss to be remote.
|
|
Note 12
|
Financial
Highlights
|
The following financial highlights are being presented as
required for non-registered investment companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Ratios to average limited partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
1.22
|
%
|
|
|
0.55
|
%
|
|
|
0.66
|
%
|
Profit override allocation
|
|
|
(0.23
|
)%
|
|
|
(8.36
|
)%
|
|
|
3.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and profit override allocation
|
|
|
0.99
|
%
|
|
|
(7.81
|
)%
|
|
|
3.94
|
%
|
Net investment income (loss)
|
|
|
(1.17
|
)%
|
|
|
0.10
|
%
|
|
|
1.11
|
%
|
Ratio of expenses to total committed capital
|
|
|
0.12
|
%
|
|
|
0.15
|
%
|
|
|
0.82
|
%
|
Ratio of contributed capital to total committed capital
|
|
|
99.88
|
%
|
|
|
99.55
|
%
|
|
|
99.55
|
%
|
The net internal rate of return, since inception of the
Partnerships through December 31, 2007 was 44.57%, 43.62%
through December 31, 2008, and 43.47% through
December 31, 2009. The net internal rate of return, since
inception of the Partnerships, is net of allocations (including
profit override) to the General Partner, and was computed based
on the actual dates of capital contributions and distributions,
and the aggregate net assets at the end of the period of the
limited partners capital as of each measurement date.
Ratios are calculated for the limited partners taken as a whole.
An individual limited partners ratios may vary depending
on the partnership with which they are invested due to differing
management fee arrangements, profit override allocations and the
timing of capital transactions.
The net investment income ratio, as defined, excludes realized
and unrealized gains (losses). The ratio of contributed capital
to total committed capital includes the General Partner.
|
|
Note 13
|
Subsequent
Events
|
The Partnerships have evaluated subsequent events through
February 22, 2010, the date as of which the audited
combined financial statements are being issued.
S-18
Supplemental
Schedules
S-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenhill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Greenhill
|
|
|
|
|
|
|
|
|
|
Greenhill
|
|
|
Partners,
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
(Cayman),
|
|
|
Partners,
|
|
|
Greenhill
|
|
|
|
|
|
|
Partners, L.P.
|
|
|
L.P.
|
|
|
(Executive), L.P.
|
|
|
Capital, L.P.
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments, at estimated fair value
|
|
$
|
9,762,693
|
|
|
$
|
1,422,745
|
|
|
$
|
1,515,311
|
|
|
$
|
3,055,456
|
|
|
$
|
15,756,205
|
|
Cash and cash equivalents
|
|
|
3,367,910
|
|
|
|
1,013,572
|
|
|
|
518,727
|
|
|
|
1,146,544
|
|
|
|
6,046,753
|
|
Due from affiliates
|
|
|
887,602
|
|
|
|
125,060
|
|
|
|
139,682
|
|
|
|
|
|
|
|
1,152,344
|
|
Interest and dividend receivable
|
|
|
139
|
|
|
|
127
|
|
|
|
54
|
|
|
|
127
|
|
|
|
447
|
|
Other assets
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,018,394
|
|
|
$
|
2,561,504
|
|
|
$
|
2,173,774
|
|
|
$
|
4,202,137
|
|
|
$
|
22,955,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to affiliates
|
|
$
|
27,638
|
|
|
$
|
20,651
|
|
|
$
|
8,510
|
|
|
$
|
7,924
|
|
|
$
|
64,723
|
|
Accrued expenses and other liabilities
|
|
|
428,517
|
|
|
|
534,723
|
|
|
|
41,472
|
|
|
|
234,167
|
|
|
|
1,238,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
456,155
|
|
|
|
555,374
|
|
|
|
49,982
|
|
|
|
242,091
|
|
|
|
1,303,602
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
|
12,931,767
|
|
|
|
1,967,504
|
|
|
|
1,728,715
|
|
|
|
3,920,448
|
|
|
|
20,548,434
|
|
General partners
|
|
|
630,472
|
|
|
|
38,626
|
|
|
|
395,077
|
|
|
|
39,598
|
|
|
|
1,103,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
13,562,239
|
|
|
|
2,006,130
|
|
|
|
2,123,792
|
|
|
|
3,960,046
|
|
|
|
21,652,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
14,018,394
|
|
|
$
|
2,561,504
|
|
|
$
|
2,173,774
|
|
|
$
|
4,202,137
|
|
|
$
|
22,955,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenhill
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenhill
|
|
|
Capital
|
|
|
Greenhill
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Partners,
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
Partners,
|
|
|
(Cayman),
|
|
|
Partners,
|
|
|
Greenhill
|
|
|
|
|
|
|
L.P.
|
|
|
L.P.
|
|
|
(Executive), L.P.
|
|
|
Capital, L.P.
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
10,704
|
|
|
$
|
5,824
|
|
|
$
|
1,504
|
|
|
$
|
5,097
|
|
|
$
|
23,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,704
|
|
|
|
5,824
|
|
|
|
1,504
|
|
|
|
5,097
|
|
|
|
23,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fee
|
|
|
137,935
|
|
|
|
17,690
|
|
|
|
18,978
|
|
|
|
|
|
|
|
174,603
|
|
Other expenses
|
|
|
307,573
|
|
|
|
25,922
|
|
|
|
24,628
|
|
|
|
(11,418
|
)
|
|
|
346,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
445,508
|
|
|
|
43,612
|
|
|
|
43,606
|
|
|
|
(11,418
|
)
|
|
|
521,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
(434,804
|
)
|
|
|
(37,788
|
)
|
|
|
(42,102
|
)
|
|
|
16,515
|
|
|
|
(498,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gain (Loss) on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on investments
|
|
|
11,376,260
|
|
|
|
1,512,696
|
|
|
|
1,811,883
|
|
|
|
3,545,456
|
|
|
|
18,246,295
|
|
Net change in unrealized loss on investments
|
|
|
(14,144,785
|
)
|
|
|
(1,973,518
|
)
|
|
|
(2,217,012
|
)
|
|
|
(4,485,846
|
)
|
|
|
(22,821,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,768,525
|
)
|
|
|
(460,822
|
)
|
|
|
(405,129
|
)
|
|
|
(940,390
|
)
|
|
|
(4,574,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,203,329
|
)
|
|
$
|
(498,610
|
)
|
|
$
|
(447,231
|
)
|
|
$
|
(923,875
|
)
|
|
$
|
(5,073,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-21
|
|
Item 15C.
|
Financial
Statements Schedules (continued)
|
Combined Financial Statements of Greenhill Capital
Partners II, L.P., Greenhill Capital Partners
(Cayman) II, L.P., Greenhill Capital Partners
(Executives) II, L.P. and Greenhill Capital Partners
(Employees) II, L.P.
S-22
Report of
Independent Registered Public Accounting Firm
To the Partners of Greenhill Capital Partners Private Equity
Fund II:
We have audited the accompanying combined statement of assets,
liabilities and partners capital of Greenhill Capital
Partners Private Equity Fund II (comprised of Greenhill
Capital Partners II, L.P., Greenhill Capital Partners (Cayman)
II, L.P., Greenhill Capital Partners (Executives) II, L.P. and
Greenhill Capital Partners (Employees) II, L.P.) (the
Partnerships), including the combined schedule of
investments, as of December 31, 2009 and 2008, and the
related combined statements of operations, changes in
partners capital, and cash flows for each of the three
years ended December 31, 2009. These combined financial
statements are the responsibility of the Partnerships
General Partner. Our responsibility is to express an opinion on
these combined financial statements based on our audit.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial
statements are free of material misstatement. We were not
engaged to perform an audit of the Partnerships internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Partnerships internal control
over financial reporting. Accordingly, we express no such
opinion. 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 the General
Partner, as well as evaluating the overall combined financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to
above present fairly, in all material respects, the combined
financial position of Greenhill Capital Partners Private Equity
Fund II at December 31, 2009 and 2008, and the results
of its operations, changes in its partners capital and its
cash flows for each of the three years ended December 31,
2009, in conformity with U.S. generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on
the basic combined financial statements taken as a whole. The
accompanying supplemental schedules are presented for purposes
of additional analysis and are not a required part of the basic
combined financial statements. Such additional information has
been subjected to the auditing procedures applied in the audit
of the basic combined financial statements and, in our opinion,
is fairly stated in all material respects in relation to the
basic combined financial statements taken as a whole.
New York, New York
February 22, 2010
S-23
Greenhill
Capital Partners Private Equity Fund II
Combined Statement of Assets, Liabilities and Partners
Capital
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments, at estimated fair value as determined by the
General Partner (cost of $436,140,453 in 2009, and $588,088,180
in 2008, respectively)
|
|
$
|
506,772,888
|
|
|
$
|
528,178,337
|
|
Cash and cash equivalents
|
|
|
25,761,525
|
|
|
|
4,393,351
|
|
Due from affiliates
|
|
|
|
|
|
|
219,865
|
|
Other assets
|
|
|
329,396
|
|
|
|
331,796
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
532,863,809
|
|
|
$
|
533,123,349
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital
|
|
|
|
|
|
|
|
|
Revolving loan
|
|
$
|
45,000,000
|
|
|
$
|
|
|
Accrued expenses
|
|
|
1,602,844
|
|
|
|
643,328
|
|
Due to affiliates
|
|
|
340,443
|
|
|
|
212,567
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
46,943,287
|
|
|
|
855,895
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
Limited partners
|
|
|
435,192,199
|
|
|
|
476,641,378
|
|
General partner
|
|
|
50,728,323
|
|
|
|
55,626,076
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
485,920,522
|
|
|
|
532,267,454
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
532,863,809
|
|
|
$
|
533,123,349
|
|
|
|
|
|
|
|
|
|
|
Analysis of Partners Capital:
|
|
|
|
|
|
|
|
|
Net capital contributions, distributions, accumulated net
investment income and net realized gain
|
|
$
|
415,288,117
|
|
|
$
|
592,177,285
|
|
Accumulated net unrealized gain (loss)
|
|
|
70,632,405
|
|
|
|
(59,909,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
485,920,522
|
|
|
$
|
532,267,454
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined
financial statements.
S-24
Greenhill
Capital Partners Private Equity Fund II
Combined Statement of Operations
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
$
|
4,616,522
|
|
|
$
|
12,575,575
|
|
|
$
|
6,132,936
|
|
Interest income
|
|
|
66,978
|
|
|
|
311,968
|
|
|
|
188,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,683,500
|
|
|
|
12,887,543
|
|
|
|
6,321,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fee
|
|
|
9,853,195
|
|
|
|
11,816,808
|
|
|
|
11,818,927
|
|
Interest and amortization expense
|
|
|
386,664
|
|
|
|
877,199
|
|
|
|
1,347,404
|
|
Other expenses
|
|
|
2,076,169
|
|
|
|
862,319
|
|
|
|
448,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,316,028
|
|
|
|
13,556,326
|
|
|
|
13,614,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment loss
|
|
|
(7,632,528
|
)
|
|
|
(668,783
|
)
|
|
|
(7,292,753
|
)
|
Net Realized and Unrealized Gain (Loss) on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss) on investments
|
|
|
(96,280,552
|
)
|
|
|
|
|
|
|
7,211,772
|
|
Net change in unrealized gain (loss) on investments
|
|
|
130,542,236
|
|
|
|
(95,706,716
|
)
|
|
|
23,262,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,261,684
|
|
|
|
(95,706,716
|
)
|
|
|
30,474,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
26,629,156
|
|
|
$
|
(96,375,499
|
)
|
|
$
|
23,181,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined
financial statements.
S-25
Greenhill
Capital Partners Private Equity Fund II
Combined Statement of Changes in Partners Capital
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited
|
|
|
General
|
|
|
|
|
|
|
Partners
|
|
|
Partner
|
|
|
Total
|
|
|
Partners capital, January 1, 2007
|
|
$
|
296,454,453
|
|
|
$
|
34,430,210
|
|
|
$
|
330,884,663
|
|
Contributed capital
|
|
|
188,617,864
|
|
|
|
19,423,625
|
|
|
|
208,041,489
|
|
Distributions
|
|
|
(37,440,291
|
)
|
|
|
(4,284,553
|
)
|
|
|
(41,724,844
|
)
|
Net income
|
|
|
19,609,599
|
|
|
|
3,572,274
|
|
|
|
23,181,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital, December 31, 2007
|
|
|
467,241,625
|
|
|
|
53,141,556
|
|
|
|
520,383,181
|
|
Contributed capital
|
|
|
117,775,682
|
|
|
|
13,474,318
|
|
|
|
131,250,000
|
|
Distributions
|
|
|
(20,609,237
|
)
|
|
|
(2,380,991
|
)
|
|
|
(22,990,228
|
)
|
Net loss
|
|
|
(87,766,692
|
)
|
|
|
(8,608,807
|
)
|
|
|
(96,375,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital, December 31, 2008
|
|
|
476,641,378
|
|
|
|
55,626,076
|
|
|
|
532,267,454
|
|
Contributed capital
|
|
|
14,125,882
|
|
|
|
315,928
|
|
|
|
14,441,810
|
|
Distributions
|
|
|
(78,485,082
|
)
|
|
|
(8,932,816
|
)
|
|
|
(87,417,898
|
)
|
Net income
|
|
|
22,910,021
|
|
|
|
3,719,135
|
|
|
|
26,629,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital, December 31, 2009
|
|
$
|
435,192,199
|
|
|
$
|
50,728,323
|
|
|
$
|
485,920,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined
financial statements.
S-26
Greenhill
Capital Partners Private Equity Fund II
Combined Statement of Cash Flows
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
26,629,156
|
|
|
$
|
(96,375,499
|
)
|
|
$
|
23,181,873
|
|
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (gain) loss on investments
|
|
|
(34,261,684
|
)
|
|
|
95,706,716
|
|
|
|
(30,474,626
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments
|
|
|
(47,923,886
|
)
|
|
|
(107,722,643
|
)
|
|
|
(185,443,716
|
)
|
Proceeds received from investments
|
|
|
103,591,019
|
|
|
|
|
|
|
|
59,385,165
|
|
Due from affiliates
|
|
|
219,865
|
|
|
|
330,676
|
|
|
|
(330,676
|
)
|
Other assets
|
|
|
2,400
|
|
|
|
(276,628
|
)
|
|
|
302,715
|
|
Accrued expenses and interest payable
|
|
|
959,516
|
|
|
|
512,443
|
|
|
|
36,635
|
|
Due to affiliates
|
|
|
127,876
|
|
|
|
171,095
|
|
|
|
(223,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
49,344,262
|
|
|
|
(107,653,840
|
)
|
|
|
(133,565,818
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from partners
|
|
|
14,441,810
|
|
|
|
131,250,000
|
|
|
|
208,041,489
|
|
Distributions to partners
|
|
|
(87,417,898
|
)
|
|
|
(22,990,228
|
)
|
|
|
(41,724,844
|
)
|
Repayment of note payable
|
|
|
|
|
|
|
|
|
|
|
(12,549,000
|
)
|
Borrowings from revolving loan
|
|
|
45,000,000
|
|
|
|
39,068,735
|
|
|
|
115,914,642
|
|
Repayment of revolving loan
|
|
|
|
|
|
|
(49,321,667
|
)
|
|
|
(130,161,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(27,976,088
|
)
|
|
|
98,006,840
|
|
|
|
139,520,577
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
21,368,174
|
|
|
|
(9,647,000
|
)
|
|
|
5,954,759
|
|
Cash and cash equivalents, beginning of year
|
|
|
4,393,351
|
|
|
|
14,040,351
|
|
|
|
8,085,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
25,761,525
|
|
|
$
|
4,393,351
|
|
|
$
|
14,040,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
70,782
|
|
|
$
|
759,570
|
|
|
$
|
1,213,276
|
|
The accompanying notes are an integral part of the combined
financial statements.
S-27
Greenhill
Capital Partners Private Equity Fund II
Combined Schedules of Investments
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
% of Partners
|
|
|
|
|
|
Estimated
|
|
|
% of Partners
|
|
Industry/Security Description
|
|
Cost
|
|
|
Fair Value
|
|
|
Capital
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Capital
|
|
|
Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pearl Exploration and Production
Ltd.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(formerly, Watch Resources Ltd.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,438,878 Common shares in 2009, 3,438,878 Common shares in 2008
|
|
$
|
10,393,572
|
|
|
$
|
5,881,835
|
|
|
|
1.2
|
%
|
|
$
|
14,655,192
|
|
|
$
|
2,200,790
|
|
|
|
0.4
|
%
|
BreitBurn Energy Holdings LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500,000 Class A units
|
|
|
75,000,000
|
|
|
|
76,000,000
|
|
|
|
15.6
|
%
|
|
|
75,000,000
|
|
|
|
75,000,000
|
|
|
|
14.1
|
%
|
CLK Energy Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1,500,000 Promissory note due December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
1,500,000
|
|
|
|
|
|
|
|
0.0
|
%
|
Exco Resources,
Inc.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,891,847 Common shares in 2009, 3,947,365 Common shares in 2008
|
|
|
35,945,124
|
|
|
|
40,163,987
|
|
|
|
8.3
|
%
|
|
|
75,000,000
|
|
|
|
35,763,158
|
|
|
|
6.7
|
%
|
Crusader Energy Group (formerly, Knight Energy Group, LLC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000,000 shares in 2008
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
70,016,554
|
|
|
|
44,521,015
|
|
|
|
8.4
|
%
|
Augustus Energy Partners LLC 70,920 Class A units in
2008
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
7,092,105
|
|
|
|
5,000,000
|
|
|
|
0.9
|
%
|
Coronado Resources LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.9% sharing percentage in 2008
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
34,576,122
|
|
|
|
25,000,000
|
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Energy
|
|
|
121,338,696
|
|
|
|
122,045,822
|
|
|
|
25.1
|
%
|
|
|
277,839,973
|
|
|
|
187,484,963
|
|
|
|
35.2
|
%
|
Financial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Finance Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,665,384 Shares of Series B Senior Convertible
Participating Preferred Stock
|
|
|
16,259,899
|
|
|
|
24,056,076
|
|
|
|
5.0
|
%
|
|
|
16,259,899
|
|
|
|
20,009,899
|
|
|
|
3.8
|
%
|
First Equity Card Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,000 Series A Preferred shares, 437,424 Series B
Preferred shares, 1,352,394 Series C Preferred shares,
480,509 Series D Preferred shares
|
|
|
15,952,812
|
|
|
|
|
|
|
|
|
|
|
|
15,952,812
|
|
|
|
|
|
|
|
|
|
33,924 Common shares
|
|
|
196,912
|
|
|
|
|
|
|
|
|
|
|
|
196,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,149,724
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
16,149,724
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
(1) |
|
Publicly traded investment. |
The accompanying notes are an integral part of the combined
financial statements.
S-28
Greenhill
Capital Partners Private Equity Fund II
Combined Schedules of Investments
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
% of Partners
|
|
|
|
|
|
Estimated
|
|
|
% of Partners
|
|
Industry/Security Description
|
|
Cost
|
|
|
Fair Value
|
|
|
Capital
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Capital
|
|
|
Financial Services (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trans-Fast Remittance LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87.4% sharing percentage
|
|
$
|
37,000,000
|
|
|
$
|
16,300,001
|
|
|
|
3.4
|
%
|
|
$
|
37,000,000
|
|
|
$
|
16,300,001
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financial Services
|
|
|
69,409,623
|
|
|
|
40,356,077
|
|
|
|
8.4
|
%
|
|
|
69,409,623
|
|
|
|
36,309,900
|
|
|
|
6.9
|
%
|
Insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PartnerRE Ltd (formerly, Paris Re Holdings
Limited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,147,322 Common shares in 2008
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
22,946,440
|
|
|
|
15,965,113
|
|
|
|
3.0
|
%
|
Harbor Point Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 Class A voting common shares
|
|
|
30,000,000
|
|
|
|
28,920,865
|
|
|
|
6.0
|
%
|
|
|
30,000,000
|
|
|
|
28,250,000
|
|
|
|
5.3
|
%
|
Ironshore Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500,000 Common shares
|
|
|
45,000,923
|
|
|
|
50,147,463
|
|
|
|
10.3
|
%
|
|
|
45,000,923
|
|
|
|
48,000,923
|
|
|
|
9.0
|
%
|
Validus Holdings,
Ltd.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,571,427 Voting Common shares in 2009, 2,571,427 Voting Common
shares in 2008
|
|
|
27,499,990
|
|
|
|
42,334,243
|
|
|
|
8.7
|
%
|
|
|
45,000,000
|
|
|
|
67,268,530
|
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Insurance
|
|
|
102,500,913
|
|
|
|
121,402,571
|
|
|
|
25.0
|
%
|
|
|
142,947,363
|
|
|
|
159,484,566
|
|
|
|
29.9
|
%
|
Services & Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,179,000 Common shares
|
|
|
60,895,000
|
|
|
|
70,004,034
|
|
|
|
14.4
|
%
|
|
|
60,895,000
|
|
|
|
60,895,000
|
|
|
|
11.4
|
%
|
International Education Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,511 Class A units in 2009
|
|
|
45,000,000
|
|
|
|
55,000,000
|
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
Stroz Friedberg Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,496 Shares of Series A Convertible Preferred shares
|
|
|
36,996,221
|
|
|
|
97,964,384
|
|
|
|
20.2
|
%
|
|
|
36,996,221
|
|
|
|
84,003,908
|
|
|
|
15.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Services & Other
|
|
|
142,891,221
|
|
|
|
222,968,418
|
|
|
|
45.8
|
%
|
|
|
97,891,221
|
|
|
|
144,898,908
|
|
|
|
27.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Investments(2)
|
|
$
|
436,140,453
|
|
|
$
|
506,772,888
|
|
|
|
104.3
|
%
|
|
$
|
588,088,180
|
|
|
$
|
528,178,337
|
|
|
|
99.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Publicly traded investment. |
|
(2) |
|
At December 31, 2009, the portfolio of investments was
comprised of companies located in or conducting their principal
business in North America. |
The accompanying notes are an integral part of the combined
financial statements.
S-29
Greenhill
Capital Partners Private Equity Fund II
|
|
Note 1
|
Organization
and Basis of Presentation
|
Greenhill Capital Partners II, L.P. (the Delaware
Partnership II) was formed as a Delaware limited
partnership on January 13, 2005, commenced operations on
March 31, 2005 and had its final closing on June 8,
2005. The primary business objective of the partnership is to
achieve superior medium to long-term capital growth principally
through a diversified portfolio of private equity and equity
related investments.
The combined financial statements include the accounts of the
Delaware Partnership II, Greenhill Capital Partners (Cayman) II,
L.P. (the Off-Shore Partnership II), Greenhill
Capital Partners (Executives) II, L.P. (the Executive
Partnership II), and Greenhill Capital Partners
(Employees) II, L.P. (the Employee Partnership II).
The Delaware Partnership II, the Off-Shore Partnership II, the
Executive Partnership II and the Employee
Partnership II are collectively referred to as
Greenhill Capital Partners Private Equity
Fund II or the Partnerships and have
ownership interests representing 51.4%, 20.1%, 3.5% and 25.0%
respectively, of the combined net assets shown on the combined
financial statements as of December 31, 2009. Such
ownership interests may vary due to differing management fee
arrangements. The Partnerships will generally purchase an
interest in each portfolio company on a pro rata basis based on
their respective ownership interests and on equivalent economic
terms.
The managing general partner of the Partnerships is GCP Managing
Partner II, L.P. (the General Partner) and is
responsible for managing the Partnerships investments. The
General Partner is subject to removal by a simple majority of
unaffiliated third-party investors of the Partnerships. The
Off-Shore Partnership II, the Executive Partnership II and
the Employee Partnership II were organized as limited
partnerships with substantially the same terms as the Delaware
Partnership II and are also under the common management of
the General Partner.
On December 22, 2009, Robert H. Niehaus, Chairman of
Greenhill Capital Partners LLC (GPGP) and V. Frank
Pottow, a member of the investment committee of GPGP, purchased
certain merchant banking assets. Under the terms of the
transaction the General Partner delegated to an entity
controlled by it, Greenhill Capital Partners II LLC
(GCP II LLC) (collectively with GPGP the
Manager), its obligation to manage and administer
the Partnerships (see Note 8 Related
Party Transactions). GPGP remains the general partner,
parent and affiliate of the General Partner. The same personnel
who were involved in the investment and oversight of the
Partnerships prior to the transaction remain responsible for
investment and oversight of the Partnerships post the
transaction.
The Partnerships will terminate on March 31, 2015, unless
extended at the option of the General Partner for up to two
additional successive one-year terms following the expiration of
such initial term.
The combined financial statements are prepared in conformity
with U.S. generally accepted accounting principles and
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the combined financial statements and the reported
amounts of revenues and expenses during the reporting period.
Investments are stated at estimated fair value, and any
unrealized appreciation or depreciation is included in combined
statement of operations. Actual results could differ from those
estimates.
Capitalized terms used but not defined herein shall have the
meaning assigned to them in the respective limited partnership
agreements.
|
|
Note 2
|
Summary
of Significant Accounting Policies
|
Accounting
Developments
In June 2009, the FASB issued ASU
No. 2009-01,
Topic 105 Generally Accepted Accounting
Principles amendments based on Statement of
Financial Accounting Standards No. 168 The FASB
Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles.
S-30
This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement
No. 168, including the accounting standards update
instructions contained in Appendix B of the Statement. The
FASB will no longer issue new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts; instead the FASB will issue Accounting Standards
Updates. Accounting Standards Updates will not be authoritative
in their own right as they will only serve to update the
Codification. These changes and the Codification itself do not
change GAAP. Other than the manner in which new accounting
guidance is referenced, the adoption of these changes had no
impact on the combined financial statements.
Cash
and Cash Equivalents
Cash and cash equivalents consist of cash and money market
funds. Cash and cash equivalents are stated at cost, which
approximates fair value. The Partnerships practice is to invest
cash with financial institutions and lenders that have
acceptable credit ratings. All highly liquid investments with a
maturity of less than ninety days at the time of purchase are
considered to be cash equivalents.
Market/Credit
Risks
The Partnerships maintain their cash and cash equivalents with
financial institutions with high credit ratings. At times, the
Partnerships may maintain deposits in federally insured
financial institutions in excess of federally insured (FDIC)
limits. However, the Manager believes that the Partnerships are
not exposed to significant credit risk due to the financial
position of the depository institution in which those deposits
are held.
Investment
Income
Investment income is comprised of interest and dividend income.
Interest income on cash and cash equivalents is recognized when
earned. Interest income on debt securities of portfolio
companies is recognized on the accrual basis, unless
collectibility is uncertain. Dividends on publicly traded
securities are recorded on the ex-dividend date.
Income
Taxes
Since the Partnerships are not subject to income taxes, there is
no provision for income taxes in the combined financial
statements. The partners include their allocable share of
partnership income and loss in their respective tax returns.
FASB ASC 740, Income Taxes (ASC 740)
(formerly known as FIN 48), establishes financial
accounting and disclosure requirements for recognition and
measurement of tax positions taken or expected to be taken in
the course of preparing the Partnerships tax returns to
determine whether the tax positions are
more-likely-than-not of being sustained by the
applicable tax authority. The implementation of ASC 740 did not
result in any current adjustment or cumulative effect and
therefore no adjustment was recorded in the combined financial
statements of the Partnerships upon adoption.
Investment
Valuations
Investments consist primarily of preferred and common equity
interests and partnership interests in publicly and non-publicly
traded companies. Investments held by the Partnerships are
recorded at estimated fair value as determined by the General
Partner. The fair value of investments in privately held
companies are estimated by the General Partner 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
Partnerships privately held investments to reflect the
lack of liquidity and other transfer restrictions. 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. Investments in publicly traded securities are valued
using quoted market prices discounted for any legal or
contractual restrictions on sale. The values at which
S-31
the investments are carried are adjusted to estimated fair value
at the end of each quarter and volatility in general economic
conditions, stock markets and commodity prices may result in
significant changes in the estimated fair value of the
investments. Investment transactions are accounted for on a
trade date basis. When investments are sold, liquidated or
distributed, the gain or loss is classified as realized.
Unrealized appreciation or depreciation resulting from changes
in fair value of investments (including reversals of unrealized
gains or losses when investments are sold or distributed) is
included in the combined statement of operations.
The Partnerships adopted the provisions of FASB ASC, Fair
Value Measurements and Disclosures (Topic 820) (formerly
known as SFAS 157), as of January 1, 2008. FASB ASC
Topic 820 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;
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 General Partner performs a detailed
analysis of the assets and liabilities that are subject to FASB
ASC Topic 820. 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.
The following table summarizes the valuation of the
Partnerships investments by the above FASB ASC Topic 820
pricing observability levels as of December 31, 2009 and
2008:
Fair Value Measurements at Reporting Date Using:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
as of
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
December 31,
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2009
|
|
|
Investments
|
|
$
|
88,380,065
|
|
|
$
|
|
|
|
$
|
418,392,823
|
|
|
$
|
506,772,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2008
|
|
|
Investments
|
|
$
|
121,197,591
|
|
|
$
|
44,521,015
|
|
|
$
|
362,459,731
|
|
|
$
|
528,178,337
|
|
S-32
The following table summarizes the fair value of Level 3
investments for the years ended December 31, 2009 and 2008:
|
|
|
|
|
Balance as of January 1, 2008
|
|
$
|
426,263,905
|
|
Purchases (sales), net
|
|
|
107,722,643
|
|
Transfers out of Level 3
|
|
|
(145,016,554
|
)
|
Net realized gain (loss), net
|
|
|
|
|
Net unrealized gain (loss), net
|
|
|
(26,510,263
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
362,459,731
|
|
Purchases (sales), net
|
|
|
40,295,803
|
|
Transfers out of Level 3
|
|
|
|
|
Net realized gain (loss), net
|
|
|
(38,464,029
|
)
|
Net unrealized gain (loss), net
|
|
|
54,101,318
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
418,392,823
|
|
|
|
|
|
|
FASB ASC Topic 820 requires additional detailed disclosure for
securities held by the Partnerships by major security types
based on the nature, risks, activity or business sector,
vintage, geographic concentration, credit quality, and economic
characteristic. Please refer to Combined Schedule of Investments
and Note 9 Investment Portfolio for
further categorization of all level three investments.
Use of
Estimates
The combined financial statements include estimates and
assumptions made by the General Partner that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Subsequent
Events
In May 2009, the FASB issued a new standard ASC 855,
Subsequent Events (ASC 855) that
provides guidance on the General Partners assessment of
subsequent events. ASC 855 is effective prospectively for
interim and annual periods ending after June 15, 2009. The
Partnerships adopted ASC 855 as of June 30, 2009. See
Note 13 Subsequent Events for
required disclosure.
Purchases
During 2009, the Partnerships made an investment of
$45.0 million in International Education Corp.
(IEC) and a follow-on investment of
$2.9 million in Coronado Resources LLC
(Coronado).
During 2008, the Partnerships made an investment of
$75.0 million in BreitBurn Energy Holdings LLC
(BreitBurn). In addition, the Partnerships completed
follow-on investments of $7.0 million in Stroz Friedberg
Inc. (Stroz), $4.8 million in Augustus Energy
Partners, LLC (Augustus), and $20.9 million in
Coronado.
During 2007, the Partnerships made investments of
$75.0 million in Exco Resources, Inc. (Exco),
$37.0 million in Trans-Fast Remittance LLC
(Trans-Fast), and $60.9 million in FCC
Holdings, Inc. (FCC). Additionally, the Partnerships
completed follow-on investments of $9.0 million in
Coronado, $1.9 million in First Equity Card Corp
(FECC), and $1.6 million in Augustus.
Changes
in Unrealized Investment Valuations
During 2009, the Partnerships recorded unrealized gains due to
the change in the fair value of securities of $7.9 million
in Black Pearl Resources Inc. (Black Pearl)
(formerly, Pearl Exploration and Production Ltd.),
$43.5 million in Exco, $7.0 million in PartnerRe Ltd.
(PartnerRe) (formerly, Paris Re Holdings Limited).
The Partnerships recorded unrealized gains of $4.0 million
in Healthcare
S-33
Finance Group, Inc. (HFG), $9.1 million in FCC,
$2.1 million in Ironshore Inc. (Ironshore),
$13.9 million in Stroz, $1.0 million in Breitburn,
$10.0 million in IEC and $0.7 million in Harbor Point
Limited (Harbor Point) due to the
write-up of
the value of the investment. The Partnerships reversed
previously recognized net unrealized losses from various
investments of $38.7 million.
The Partnerships also recorded unrealized losses due to the
change in the fair value of securities of $7.4 million in
Validus Holdings, Ltd. (Validus).
During 2008, the Partnerships recorded an unrealized gain due to
the change in the fair value of securities during the year of
$7.1 million in Validus. The Partnerships also recorded
unrealized gains of $17.0 million in Stroz,
$3.8 million in HFG, and $3.0 million in Ironshore,
due to the
write-up of
the value of the investment.
During 2008, the Partnerships recorded unrealized losses due to
the change in the fair value of securities of $6.3 million
in Black Pearl, $5.3 million in PartnerRe,
$25.5 million in Crusader Energy Group
(Crusader) (formerly, Kinght Energy Group,
LLC) and $39.2 million in Exco. The Partnerships also
recorded unrealized losses of $16.1 million in FECC,
$20.7 million in Trans-Fast, $9.7 million in Coronado,
$1.7 million in Harbor Point and $2.1 million in
Augustus, due to the write-down of the value of the investments.
During 2007, the Partnerships recorded unrealized gains due to
the change in the fair value of the remaining securities during
the year of $15.1 million in Validus and $30.0 million
in Stroz. The Partnerships recorded unrealized losses of
$7.9 million in Black Pearl and $1.7 million in
PartnerRe. The Partnerships also reversed previously recognized
net unrealized gains from various investments of
$12.2 million.
Realizations
and other Distributions
During 2009, the Partnerships sold its investment in Augustus
for $5.0 million in proceeds ($2.1 million recorded as
realized loss thus relieving the remaining basis of
$7.1 million), $2.6 million in proceeds from its sale
of Coronado ($34.9 million recorded as realized loss thus
relieving the remaining basis of $37.5 million) and
$32.7 million from its sale of PartnerRe ($9.9 million
recorded as realized gain and $22.8 million recorded as
return of capital). The Partnerships also realized
$35.9 million in proceeds from a partial sale of its
investment in Exco ($3.2 million recorded as realized loss
thus relieving basis of $39.1 million), $1.3 million
from a partial sale in its investment in Black Pearl
($3.0 million recorded as realized loss thus relieving
basis of $4.3 million) and $26.0 million from a
partial sale of Validus ($8.5 million recorded as realized
gain and $17.5 million as return of capital). The
Partnerships recorded realized losses of $70.0 million and
$1.5 million in Crusader and CLK Energy Partners, LLC,
respectively, related to the write-off of the investments. In
addition, received proceeds of $0.1 million from Genesis
Gas & Oil LLC (Genesis) recorded as
realized gain.
During 2009, the Partnerships also received dividend
distributions of $1.8 million from Validus
($0.3 million included in other assets), $0.2 million
from PartnerRe, $1.4 million in Stroz Friedberg Inc.,
$0.1 million from Exco and $1.1 million from Harbor
Point. In addition, the Partnerships received interest income of
$0.04 million from Genesis.
During 2008, the Partnerships received dividend distributions of
$2.1 million from Validus, $3.0 million from Exco,
$2.3 million from Harbor Point, $1.6 million from
Stroz, and $3.6 million from PartnerRe. In addition, the
Partnerships received interest income of $0.1 million from
BreitBurn.
During 2007, the Partnerships received proceeds of
$16.1 million from the Crown Castle International Corp.
(CCI)(formerly, Global Signal, Inc.
(GSL)) merger with GSL ($8.6 million recorded
as realized gain and $7.5 million recorded as a return of
capital), $14.0 million through a registered secondary
offering of CCI shares ($7.0 million recorded as realized
gain and $7.0 million recorded as a return of capital), and
$15.9 million from the block trade of CCI
($10.4 million recorded as realized gain and
$5.5 million recorded as a return of capital). The
Partnerships also received proceeds of $2.7 million from a
partial sale of its shareholdings in the initial public offering
of PartnerRe ($0.6 million recorded as realized gain and
$2.1 million recorded as return of capital). The
Partnerships recorded a realized loss of $7.0 million in
CLK related to the write-off of the investment. In addition,
S-34
the Partnerships recorded proceeds of $10.7 million from
the sale of their membership interests in Genesis
($12.4 million recorded as realized loss thus relieving
remaining basis of $10.9 million). Included in due from
affiliates is $0.2 million of additional proceeds withheld
for US income tax withholding, which was received in February of
2009.
During 2007, the Partnerships received dividend distributions of
$1.5 million from Harbor Point, (recorded as dividend
income) and $4.6 million from Exco (recorded as dividend
income).
|
|
Note 4
|
Allocation
of Profit and Loss
|
Each item of income, gain, loss deduction or expenses included
in the determination of net income or loss is allocated among
each of the partners in a manner consistent with the
corresponding method of distribution for each partner.
Distributions will be made to each limited partner in accordance
with the terms of its respective limited partnership agreement.
In general, a limited partners share of current income
from dividends and interest (net of expenses) and net proceeds
attributable to the disposition of investments by the
Partnerships will be distributed first, 100% to such limited
partner until such limited partner has received on a cumulative
basis distributions equal to such limited partners share
of the sum of (i) invested capital in the investment giving
rise to the distribution; (ii) aggregate invested capital
in all previously realized investments; (iii) aggregate
write-downs, if any, for unrealized investments,
(iv) management fees and partnership expenses paid prior to
such distributions that are allocable to all realized
investments in which such limited partner participated, and
(v) a priority return of 8% on each of the foregoing
compounded annually for the period of the investment. Remaining
current income and net proceeds will then be distributed 100% to
the General Partner until the General Partner has received as a
catch up adjustment an amount equal to 20% of the
amount distributed to such limited partner as a priority return
referred to above and 20% of the amount distributed per this
provision. Thereafter, current income and net proceeds will be
distributed 80% to such limited partner and 20% to the General
Partner (profit override generally referred to as
carried interest).
The General Partner has not met the threshold to receive an
allocation of unrealized or realized profit override as of
December 31, 2009. In the event that the General Partner
had been allocated profit override, future losses in the value
of the Partnerships investments may require a reduction in
such allocation of profit override to the General Partner and
upon liquidation of the Partnerships, the General Partner would
be obligated to contribute to the Partnerships the amount, if
any, by which cumulative profit override distributions received
exceed its cumulative allocable profit override.
Cash distributions of net proceeds from dispositions of
investments will be made as soon as practicable after their
receipt by the Partnerships. Other cash receipts of the
Partnerships shall be distributed at least annually or more
frequently if deemed appropriate by the General Partner.
During 2009, 2008 and 2007, the Partnerships made distributions
to its partners of $87.4 million, $23.0 million and
$41.7 million, respectively. These distributions were
comprised of portfolio company dividends, return of invested
capital and realized gains.
Included in other operating expenses for the year ended
December 31, 2009 and included in accrued expenses at
December 31, 2009 is $1.4 million in partnership
expenses (Note 8) related to the Partnerships
investment in IEC.
|
|
Note 6
|
Capital
Commitments
|
Each partner admitted to the Partnerships committed a specific
dollar amount (Capital Commitment) to be drawn down
according to the terms of the limited partnership agreement
applicable to such partner. Capital contributions by a partner
for the purpose of acquiring partnership investments or payment
of certain partnership expenses and management fees reduce such
partners remaining capital commitment. However, amounts
repaid to a partner as a return of capital in respect to
S-35
management fees will be added back to such partners
remaining capital commitment after the repayment of any notional
losses.
In accordance with the terms of the limited partnership
agreements, each partner will make Capital Contributions to fund
investments through the end of the Commitment Period, which is
generally the fifth anniversary of the last Closing Date of the
Partnerships. The partners will also fund Capital
Contributions post the termination of the Commitment Period for
(1) commitments made to invest prior to the termination of
the Commitment Period, (2) an investment in convertible
securities in connection with the exercise, exchange or
conversion of those securities, or (3) follow-on
investments made by the end of two years from the termination of
the Commitment Period, as long as such investment amount does
not exceed 15% of the aggregate Capital Commitment or the
Available Capital Commitments of the partners.
The Partnerships have $875 million in total aggregate
capital commitments. At December 31, 2009, 2008 and 2007
the Partnerships had remaining outstanding aggregate capital
commitments of $160.1 million, $175.9 million and
$307.1 million from its partners, respectively.
The Partnerships have a $50 million Credit Facility (the
Facility) with a commercial bank (the
Bank), subject to a borrowing base limitation. At
December 31, 2009 the borrowing base exceeded the facility
size and therefore there was no limitation on the borrowing
amount. The purpose of the Facility is to provide the
Partnerships with short-term revolver borrowings to fund
portfolio company investments and certain other general purposes
in advance of the receipt by the Partnerships of capital
contributions from the partners. The Bank has a security
interest in the Partnerships capital call rights and the
Bank could require the General Partner to make a subsequent
capital call to meet the debt obligation if necessary. Interest
on outstanding borrowings is based on LIBOR plus 250 basis
points. In addition, for the duration of the Facility the
Partnerships pay a 35 basis points per annum charge on the
average unutilized portion of the Facility. The Facility expired
on January 27, 2010. Included in Other Assets was $14,584
of debt financing costs related to the Facility at
December 31, 2009 and there were no debt financing costs
related to the Facility included Other Assets at
December 31, 2008. Debt financing costs are amortized over
the life of the Facility.
At December 31, 2009 there were $45.0 million in
revolver borrowings outstanding and there were no revolver
borrowings outstanding as of December 31, 2008. Interest
expense related to the Facility was $0.4 million (including
$0.2 million of amortization of the debt financing costs
and $0.2 million of unused loan commitment fees),
$0.9 million (including $0.1 million of amortization
of the debt financing costs), and $1.1 million (including
$0.1 million of amortization of the debt financing costs)
for the years ended December 31, 2009, 2008 and 2007,
respectively.
In April 2006, the Partnerships transferred all of the shares of
common stock of GSL owned by it to a new, wholly-owned
subsidiary, GCP SPV2, LLC (the Borrower). The
Borrower entered into a credit agreement at that time, with
Morgan Stanley Mortgage Capital, Inc., as administrative agent,
and certain other lenders named therein. Under the terms of the
credit agreement the Borrower borrowed $12.5 million,
secured by 784,314 shares of GSL common stock owned by it.
In January 2007, the Partnerships applied cash proceeds received
at the time of the CCI merger with GSL and the subsequent CCI
share repurchase towards the repayment of the entire outstanding
balance on the credit agreement borrowings of
$12.5 million. As a result of the credit agreement
repayment, the lender relinquished its security interest in the
Partnerships remaining shares of CCI. Interest expense
related to the credit agreement borrowing was $0.2 million
(including $0.1 million for the write-off of
un-amortized
loan origination fees) for the year ended December 31, 2007.
The Partnerships weighted average amount of borrowings
outstanding under the Facility and credit agreement during the
year ended December 31, 2009, 2008 and 2007, was
approximately $2.6 million, $19.1 million and
$16.6 million, respectively. The related weighted average
annualized rate on the borrowings was 1.7%, 3.9%, 6.5% for the
years ended December 31, 2009, 2008 and 2007, respectively.
S-36
|
|
Note 8
|
Related
Party Transactions
|
GPGP is the general partner, parent and affiliate of the General
Partner and controls the Manager. GPGP committed approximately
$87.5 million, or 10.0% of committed capital, to the
Partnerships of which $16.1 million remains outstanding at
December 31, 2009 to fund future investments through the
end of the Commitment Period. In accordance with the terms of
the partnership agreement, the GPGP will also fund Capital
Contributions post the termination of the Commitment Period for
(1) commitments made to invest prior to the termination of
the Commitment Period, (2) an investment in convertible
securities in connection with the exercise, exchange or
conversion of those securities, or (3) follow-on
investments made by the end of two years from the termination of
the Commitment Period, as long as such investment amount does
not exceed 15% of the aggregate Capital Commitment or the
Available Capital Commitments of all partners. Through its
interest in the Partnerships, the GPGP has an interest of
approximately 10.1% in all investments. The carrying value of
the GPGP investment in the Partnerships was approximately
$50.7 million and $55.6 million at December 31,
2009 and 2008, respectively.
From the inception of the Partnerships through December 22,
2009 the GPGP was responsible for the
day-to-day
managerial and administrative services of the Partnerships.
Effective December 2009, the General Partner delegated its
obligation to GCP II LLC to provide
day-to-day
managerial and administrative services to the Partnerships.
Under the terms of their respective limited partnership
agreements, the Delaware Partnership II, the Off-Shore
Partnership II, the Executive Partnership II and the
Employee Partnership II each pay a management fee for
services rendered by the Manager in an amount equal to the
aggregate management fees payable by all limited partners. The
GPGPs commitment through the General Partner is not
subject to a management fee. During the commitment period, each
limited partner pays an amount based upon 1.5% per annum of such
partners capital commitment. Subsequent to the commitment
period, the management fee will be 1% of such partners
aggregate Invested Capital, as defined in each limited
partnership agreement. The management fee is payable
semi-annually in advance. A management fee of $9.9 million
was paid by the Partnerships to the GPGP for the year ended
December 31, 2009 and $11.8 million for the years
ended December 31, 2008 and 2007. The management fee
payment for 2009 was reduced by Transaction fees paid by the
portfolio companies in 2008 (see below).
The Manager shall pay all General Partner Expenses. General
Partner Expenses include:
(i) all compensation and employee benefit expenses of
employees of the General Partner and related overhead (including
rent, utilities, and other similar items) resulting from the
activities of such employees on behalf of the Partnerships;
(ii) all Partnership Organizational Expenses in excess of
$2.0 million in the aggregate for the Partnerships; and
(iii) all Placement Fees payable by the Partnerships, the
General Partner or the Manager in connection with the offering
of limited partnership interests in the Partnerships.
The Partnerships will incur all other Partnership Expenses and
Partnership Administrative Expenses (collectively,
Partnership Expenses). The allocation of such
Partnership Expenses will be made on a pro rata basis based on
committed capital, unless any such expense is solely or
disproportionately attributable to any single Partnership, in
which case the Manager may allocate such expense differently.
The Manager pays the Partnership Expenses on behalf of the
Partnerships, for which the Manager is reimbursed on regular
intervals. At December 31, 2009 and 2008 the Partnerships
owe approximately $0.01 million and $0.1 million,
respectively to the GPGP for reimbursement of such expenses.
Affiliates of the General Partner may provide investment-banking
services to certain portfolio companies from time to time. These
fees are not subject to management fee offset.
The Partnerships shall distribute to the General Partner, and
the General Partner or its affiliates may retain, all
break-up
fees, commitment fees and other Transaction
Fees, as defined in each limited partnership agreement. Eighty
percent of each Partnerships proportionate share of the amount
S-37
of any such Transaction Fees received by the General Partner or
its affiliates shall be credited ratably to reduce the
management fees payable by the limited partners of such
Partnerships. During 2008, the portfolio companies paid
$2.0 million in transaction fees to the Manager, of which
eighty percent reduced the management fees payable by the
limited partners of such Partnerships for 2009.
|
|
Note 9
|
Investment
Portfolio
|
As of December 31, 2009 and 2008 the portfolio of
investments by type of security was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated Fair
|
|
|
% of Partners
|
|
|
Estimated Fair
|
|
|
% of Partners
|
|
Type of Security
|
|
Value
|
|
|
Capital
|
|
|
Value
|
|
|
Capital
|
|
|
Common Stock
|
|
$
|
237,452,427
|
|
|
|
48.9
|
%
|
|
$
|
302,864,529
|
|
|
|
56.9
|
%
|
LP Equity Units and Capital Sharing Interests
|
|
|
147,300,001
|
|
|
|
30.3
|
%
|
|
|
121,300,001
|
|
|
|
22.8
|
%
|
Participating Preferred Stock
|
|
|
122,020,460
|
|
|
|
25.1
|
%
|
|
|
104,013,807
|
|
|
|
19.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
506,772,888
|
|
|
|
104.3
|
%
|
|
$
|
528,178,337
|
|
|
|
99.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008 the portfolio of
investments by geographic location was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated Fair
|
|
|
% of Partners
|
|
|
Estimated Fair
|
|
|
% of Partners
|
|
Geographic Location
|
|
Value
|
|
|
Capital
|
|
|
Value
|
|
|
Capital
|
|
|
North America
|
|
$
|
506,772,888
|
|
|
|
104.3
|
%
|
|
$
|
528,178,337
|
|
|
|
99.2
|
%
|
Other
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
506,772,888
|
|
|
|
104.3
|
%
|
|
$
|
528,178,337
|
|
|
|
99.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10
|
Partners
Capital
|
As of December 31, 2009, 2008 and 2007, the capital balance
of each Partnership was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delaware
|
|
|
Off-Shore
|
|
|
Executive
|
|
|
Employee
|
|
|
Total
|
|
|
Committed capital
|
|
$
|
450.3
|
|
|
$
|
176.5
|
|
|
$
|
31.1
|
|
|
$
|
217.1
|
|
|
$
|
875.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital, January 1, 2007
|
|
|
170.0
|
|
|
|
66.7
|
|
|
|
11.7
|
|
|
|
82.5
|
|
|
|
330.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital
|
|
|
108.0
|
|
|
|
42.3
|
|
|
|
7.4
|
|
|
|
50.3
|
|
|
|
208.0
|
|
Distributions
|
|
|
(21.6
|
)
|
|
|
(8.3
|
)
|
|
|
(1.5
|
)
|
|
|
(10.3
|
)
|
|
|
(41.7
|
)
|
Net income
|
|
|
11.4
|
|
|
|
4.3
|
|
|
|
0.8
|
|
|
|
6.7
|
|
|
|
23.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital December 31, 2007
|
|
|
267.8
|
|
|
|
105.0
|
|
|
|
18.4
|
|
|
|
129.2
|
|
|
|
520.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital
|
|
|
67.5
|
|
|
|
26.5
|
|
|
|
4.7
|
|
|
|
32.6
|
|
|
|
131.3
|
|
Distributions
|
|
|
(12.0
|
)
|
|
|
(4.4
|
)
|
|
|
(0.8
|
)
|
|
|
(5.8
|
)
|
|
|
(23.0
|
)
|
Net loss
|
|
|
(50.1
|
)
|
|
|
(19.8
|
)
|
|
|
(3.5
|
)
|
|
|
(23.0
|
)
|
|
|
(96.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital December 31, 2008
|
|
|
273.2
|
|
|
|
107.3
|
|
|
|
18.8
|
|
|
|
133.0
|
|
|
|
532.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital
|
|
|
8.1
|
|
|
|
3.2
|
|
|
|
0.6
|
|
|
|
2.5
|
|
|
|
14.4
|
|
Distributions
|
|
|
(44.9
|
)
|
|
|
(17.8
|
)
|
|
|
(3.1
|
)
|
|
|
(21.6
|
)
|
|
|
(87.4
|
)
|
Net income
|
|
|
13.2
|
|
|
|
5.1
|
|
|
|
0.9
|
|
|
|
7.4
|
|
|
|
26.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital December 31, 2009
|
|
$
|
249.6
|
|
|
$
|
97.8
|
|
|
$
|
17.2
|
|
|
$
|
121.3
|
|
|
$
|
485.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11
|
Market
and Other Risk Factors
|
The Partnerships portfolio investments were comprised
primarily of companies which operate in the energy, financial
services and certain other industry specific business sectors.
Multiple market risk
S-38
factors exist which could cause the Partnerships to lose some or
all of their invested capital. These risks include:
General economic risk the Partnerships
portfolio investments can be impacted by changes caused by
global and domestic market conditions, including energy,
financial services and certain other industry specific business
sectors economic conditions.
Changes in the market for public offerings could also have an
effect on the Partnerships and their ability to realize their
investment objectives. In addition, the portfolio is subject to
equity price risk and other market risk.
Concentration risk the Partnerships invested in
transactions in a limited number of companies, primarily within
the energy, financial services and certain other industry
specific business sectors and these investments may not be a
balanced or fully diversified portfolio.
Investee risk the Partnerships investees may
include smaller entrepreneurial companies which may have limited
business histories, product or service lines, markets, financial
resources and management depth. Such companies also may not have
achieved profitable operations or positive cash flows.
Liquidity risk the Partnerships portfolio of
investments includes illiquid, non-publicly traded securities
and restricted publicly traded securities. Accordingly, there is
the risk that the Partnerships may not be able to realize their
investment objectives by sale or other disposition of portfolio
investments at prices reflective of the Partnerships
current carrying value. As a result, the Partnerships may
sustain losses with respect to some or all of their investments.
Contractual Obligations the Partnerships may enter
into contracts that contain a variety of indemnity obligations.
The Partnerships maximum exposure under these arrangements
is unknown. However, the Partnerships have not had prior claims
or losses pursuant to these contracts and expect the risk of
loss to be remote.
|
|
Note 12
|
Financial
Highlights
|
The following financial highlights are being presented as
required for non-registered investment companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Ratios to average limited partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
2.75
|
%
|
|
|
2.50
|
%
|
|
|
3.23
|
%
|
Profit override allocation
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and profit override allocation
|
|
|
2.75
|
%
|
|
|
2.50
|
%
|
|
|
3.23
|
%
|
Net investment loss
|
|
|
1.79
|
%
|
|
|
0.33
|
%
|
|
|
1.87
|
%
|
Ratio of expenses to total committed capital
|
|
|
1.53
|
%
|
|
|
1.70
|
%
|
|
|
1.71
|
%
|
Ratio of contributed capital to total committed capital
|
|
|
81.70
|
%
|
|
|
79.68
|
%
|
|
|
64.67
|
%
|
The net internal rate of return since inception of the
Partnerships through December 31, 2007 was 1.1%, (7.7)%
through December 31, 2008 and (3.7)% through
December 31, 2009. The net internal rate of return, since
inception of the Partnerships, is net of allocations (including
profit override if applicable) to the General Partner, and was
computed based on the actual dates of capital contributions and
distributions and the aggregate net assets at the end of the
period of the limited partners capital as of each
measurement date. Ratios are calculated for the limited partners
taken as a whole. An individual limited partners ratios
may vary depending on the limited partnership with which they
are invested due to differing management fee arrangements and
the timing of capital transactions.
S-39
The net investment loss ratio, as defined, excludes realized and
unrealized gains (losses). The ratio of contributed capital to
total committed capital includes the General Partner.
|
|
Note 13
|
Subsequent
Events
|
During January 2010, the Partnerships issued a capital call of
$78.8 million and made a distribution of
$22.6 million. Additionally, the Partnerships repaid in
full the amount of revolver borrowings outstanding at
December 31, 2009.
The Partnerships have evaluated subsequent events through
February 22, 2010, the date as of which the audited
combined financial statements are being issued.
S-40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenhill
|
|
|
Greenhill
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Capital
|
|
|
Greenhill
|
|
|
|
|
|
|
Greenhill
|
|
|
Partners,
|
|
|
Partners,
|
|
|
Capital Partners
|
|
|
|
|
|
|
Capital Partners
|
|
|
(Cayman) II,
|
|
|
(Executive) II,
|
|
|
(Employees) II,
|
|
|
|
|
|
|
II, L.P.
|
|
|
L.P.
|
|
|
L.P.
|
|
|
L.P.
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments, at estimated fair value
|
|
$
|
260,824,135
|
|
|
$
|
102,225,490
|
|
|
$
|
17,987,887
|
|
|
$
|
125,735,376
|
|
|
$
|
506,772,888
|
|
Cash and cash equivalents
|
|
|
12,723,995
|
|
|
|
5,177,736
|
|
|
|
866,466
|
|
|
|
6,993,328
|
|
|
|
25,761,525
|
|
Other assets
|
|
|
169,262
|
|
|
|
66,337
|
|
|
|
11,696
|
|
|
|
82,101
|
|
|
|
329,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
273,717,392
|
|
|
$
|
107,469,563
|
|
|
$
|
18,866,049
|
|
|
$
|
132,810,805
|
|
|
$
|
532,863,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving loan
|
|
$
|
23,160,571
|
|
|
$
|
9,077,091
|
|
|
$
|
1,597,403
|
|
|
$
|
11,164,935
|
|
|
$
|
45,000,000
|
|
Accrued expenses
|
|
|
700,180
|
|
|
|
500,036
|
|
|
|
49,832
|
|
|
|
352,796
|
|
|
|
1,602,844
|
|
Due to affiliates
|
|
|
197,472
|
|
|
|
103,243
|
|
|
|
5,056
|
|
|
|
34,672
|
|
|
|
340,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
24,058,223
|
|
|
|
9,680,370
|
|
|
|
1,652,291
|
|
|
|
11,552,403
|
|
|
|
46,943,287
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
|
246,578,225
|
|
|
|
96,761,406
|
|
|
|
17,032,835
|
|
|
|
74,819,733
|
|
|
|
435,192,199
|
|
General partner
|
|
|
3,080,944
|
|
|
|
1,027,787
|
|
|
|
180,923
|
|
|
|
46,438,669
|
|
|
|
50,728,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
249,659,169
|
|
|
|
97,789,193
|
|
|
|
17,213,758
|
|
|
|
121,258,402
|
|
|
|
485,920,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
273,717,392
|
|
|
$
|
107,469,563
|
|
|
$
|
18,866,049
|
|
|
$
|
132,810,805
|
|
|
$
|
532,863,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenhill
|
|
|
Greenhill
|
|
|
Greenhill
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Capital
|
|
|
Capital
|
|
|
|
|
|
|
Greenhill
|
|
|
Partners,
|
|
|
Partners,
|
|
|
Partners
|
|
|
|
|
|
|
Capital Partners
|
|
|
(Cayman) II,
|
|
|
(Executive) II,
|
|
|
(Employees) II,
|
|
|
|
|
|
|
II, L.P.
|
|
|
L.P.
|
|
|
L.P.
|
|
|
L.P.
|
|
|
Total
|
|
|
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
$
|
2,378,082
|
|
|
$
|
928,030
|
|
|
$
|
164,017
|
|
|
$
|
1,146,393
|
|
|
$
|
4,616,522
|
|
Interest income
|
|
|
26,228
|
|
|
|
16,948
|
|
|
|
1,722
|
|
|
|
22,080
|
|
|
|
66,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,404,310
|
|
|
|
944,978
|
|
|
|
165,739
|
|
|
|
1,168,473
|
|
|
|
4,683,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fee
|
|
|
5,567,942
|
|
|
|
2,186,164
|
|
|
|
384,725
|
|
|
|
1,714,364
|
|
|
|
9,853,195
|
|
Interest and amortization expense
|
|
|
199,008
|
|
|
|
77,996
|
|
|
|
13,725
|
|
|
|
95,935
|
|
|
|
386,664
|
|
Other expenses
|
|
|
1,037,690
|
|
|
|
458,941
|
|
|
|
75,920
|
|
|
|
503,618
|
|
|
|
2,076,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,804,640
|
|
|
|
2,723,101
|
|
|
|
474,370
|
|
|
|
2,313,917
|
|
|
|
12,316,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment loss
|
|
|
(4,400,330
|
)
|
|
|
(1,778,123
|
)
|
|
|
(308,631
|
)
|
|
|
(1,145,444
|
)
|
|
|
(7,632,528
|
)
|
Net Realized and Unrealized Gain (Loss) on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized loss on investments
|
|
|
(49,553,523
|
)
|
|
|
(19,421,202
|
)
|
|
|
(3,417,580
|
)
|
|
|
(23,888,247
|
)
|
|
|
(96,280,552
|
)
|
Net change in unrealized gain on investments
|
|
|
67,187,210
|
|
|
|
26,332,387
|
|
|
|
4,634,004
|
|
|
|
32,388,635
|
|
|
|
130,542,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,633,687
|
|
|
|
6,911,185
|
|
|
|
1,216,424
|
|
|
|
8,500,388
|
|
|
|
34,261,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,233,357
|
|
|
$
|
5,133,062
|
|
|
$
|
907,793
|
|
|
$
|
7,354,944
|
|
|
$
|
26,629,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-43