XFRA:3DU1 Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

                                        

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2012

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.


Commission File Number: 001-33693

DUFF & PHELPS CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE
20-8893559
(State of other jurisdiction or
incorporation or organization)
(I.R.S. employer
identification no.)

55 East 52nd Street, 31st Floor
New York, New York 10055
(Address of principal executive offices) (Zip code)

(212) 871-2000
(Registrant's telephone number, including area code)

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 þ 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 Regulations 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 þ No 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.
Large accelerated filer o     Accelerated filer þ    Non-accelerated filer o Smaller reporting company o

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ

The number of shares outstanding of the registrant's Class A common stock, par value $0.01 per share, was 38,594,643 as of July 15, 2012. The number of shares outstanding of the registrant's Class B common stock, par value $0.0001 per share, was 3,951,638 as of July 15, 2012.
 


                                        

DUFF & PHELPS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2012

TABLE OF CONTENTS







                                        

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

DUFF & PHELPS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
2012
 
June 30,
2011
 
June 30,
2012
 
June 30,
2011
Revenues
 
$
114,489

 
$
87,886

 
$
220,834

 
$
172,932

Reimbursable expenses
 
4,422

 
3,074

 
7,020

 
4,966

Total revenues
 
118,911

 
90,960

 
227,854

 
177,898

 
 
 
 
 
 
 
 
 
Direct client service costs
 
 
 
 
 
 
 
 
Compensation and benefits (includes $4,084 and $4,130 of equity-based compensation for the three months ended June 30, 2012 and 2011, respectively, and $10,129 and $9,065 for the six months ended June 30, 2012 and 2011, respectively)
 
62,171

 
49,059

 
120,389

 
95,967

Other direct client service costs
 
2,429

 
1,480

 
5,313

 
2,909

Acquisition retention expenses (includes $722 and $297 of equity-based compensation for the three months ended June 30, 2012 and 2011, respectively, and $1,444 and $379 for the six months ended June 30, 2012 and 2011, respectively)
 
2,444

 
297

 
4,487

 
379

Reimbursable expenses
 
4,400

 
3,132

 
7,009

 
5,069

 
 
71,444

 
53,968

 
137,198

 
104,324

Operating expenses
 
 
 
 
 
 
 
 
Selling, general and administrative (includes $808 and $769 of equity- based compensation for the three months ended June 30, 2012 and 2011, respectively, and $1,863 and $2,292 for the six months ended June 30, 2012 and 2011, respectively)
 
28,718

 
24,982

 
56,055

 
49,304

Depreciation and amortization
 
4,348

 
2,567

 
8,245

 
5,056

Restructuring charges (Note 11)
 
239

 
904

 
1,418

 
904

Transaction and integration costs
 
844

 
272

 
1,879

 
466

 
 
34,149

 
28,725

 
67,597

 
55,730

 
 
 
 
 
 
 
 
 
Operating income
 
13,318

 
8,267

 
23,059

 
17,844

 
 
 
 
 
 
 
 
 
Other expense/(income), net
 
 
 
 
 
 
 
 
Interest income
 
(5
)
 
(27
)
 
(33
)
 
(55
)
Interest expense
 
217

 
91

 
371

 
148

Other expense/(income)
 
473

 

 
852

 
(7
)
 
 
685

 
64

 
1,190

 
86

 
 
 
 
 
 
 
 
 
Income before income taxes
 
12,633

 
8,203

 
21,869

 
17,758

Provision for income taxes
 
4,894

 
2,556

 
8,439

 
5,620

Net income
 
7,739

 
5,647

 
13,430

 
12,138

Less: Net income attributable to noncontrolling interest
 
1,146

 
2,223

 
2,932

 
4,601

Net income attributable to Duff & Phelps Corporation
 
$
6,593

 
$
3,424

 
$
10,498

 
$
7,537

 
 
 
 
 
 
 
 
 
Weighted average shares of Class A common stock outstanding
 
 
 
 
 
 
 
 
Basic
 
33,788

 
27,296

 
31,245

 
27,104

Diluted
 
35,076

 
28,067

 
32,514

 
28,095

 
 
 
 
 
 
 
 
 
Net income per share attributable to stockholders of Class A common stock of Duff & Phelps Corporation (Note 5)
 
 
 
 
 
 
 
 
Basic
 
$
0.18

 
$
0.12

 
$
0.32

 
$
0.27

Diluted
 
$
0.18

 
$
0.12

 
$
0.31

 
$
0.26

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.09

 
$
0.08

 
$
0.18

 
$
0.16

See accompanying notes to the condensed consolidated financial statements.


1

                                        

DUFF & PHELPS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Net income
 
$
7,739

 
$
5,647

 
$
13,430

 
$
12,138

 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
 
Currency translation adjustment
 
(1,747
)
 
821

 
(25
)
 
2,252

Amortization of post-retirement benefits, net of tax
 

 
(40
)
 
(1
)
 
(79
)
Other comprehensive income/(loss), net of tax
 
(1,747
)
 
781

 
(26
)
 
2,173

 
 
 
 
 
 
 
 
 
Comprehensive income
 
5,992

 
6,428

 
13,404

 
14,311

Less: comprehensive income attributable to noncontrolling interest
 
(983
)
 
(1,637
)
 
(2,870
)
 
(5,125
)
Comprehensive income attributable to Duff & Phelps Corporation
 
$
5,009

 
$
4,791

 
$
10,534

 
$
9,186





































See accompanying notes to the condensed consolidated financial statements.


2

                                        

DUFF & PHELPS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
 
 
June 30,
2012
 
December 31,
2011
ASSETS
Current assets
 
 
 
 
Cash and cash equivalents
 
$
49,283

 
$
38,986

Accounts receivable (net of allowance for doubtful accounts of $1,761 and $1,753 at June 30, 2012 and December 31, 2011, respectively)
 
75,444

 
77,795

Unbilled services
 
54,795

 
51,427

Prepaid expenses and other current assets
 
11,493

 
8,257

Net deferred income taxes, current
 
1,478

 
2,545

Total current assets
 
192,493

 
179,010

 
 
 
 
 
Property and equipment (net of accumulated depreciation of $34,446 and $32,516 at June 30, 2012 and December 31, 2011, respectively)
 
40,080

 
33,632

Goodwill
 
194,643

 
192,970

Intangible assets (net of accumulated amortization of $30,290 and $25,626 at June 30, 2012 and December 31, 2011, respectively)
 
35,980

 
40,977

Other assets
 
13,108

 
13,942

Investments related to deferred compensation plan (Note 12)
 
26,890

 
23,542

Net deferred income taxes, less current portion
 
140,771

 
115,826

Total non-current assets
 
451,472

 
420,889

Total assets
 
$
643,965

 
$
599,899

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
 
 
 
 
Accounts payable
 
$
5,562

 
$
4,148

Accrued expenses
 
24,234

 
22,612

Accrued compensation and benefits
 
22,691

 
41,518

Liability related to deferred compensation plan, current portion (Note 12)
 
594

 
646

Deferred revenues
 
5,842

 
4,185

Due to noncontrolling unitholders, current portion
 
6,209

 
6,209

Total current liabilities
 
65,132

 
79,318

 
 
 
 
 
Long-term debt (Note 7)
 
22,500

 

Liability related to deferred compensation plan, less current portion (Note 12)
 
26,396

 
23,083

Other long-term liabilities
 
29,716

 
32,248

Due to noncontrolling unitholders, less current portion
 
130,337

 
101,557

Total non-current liabilities
 
208,949

 
156,888

Total liabilities
 
274,081

 
236,206

 
 
 
 
 
Commitments and contingencies (Note 10)
 


 


 
 
 
 
 
Stockholders' equity
 
 
 
 
Preferred stock (50,000 shares authorized; zero issued and outstanding)
 

 

Class A common stock, par value $0.01 per share (100,000 shares authorized; 38,599 and 31,646 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively)
 
386

 
316

Class B common stock, par value $0.0001 per share (50,000 shares authorized; 3,952 and 10,488 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively)
 

 
1

Additional paid-in capital
 
306,682

 
252,572

Accumulated other comprehensive income
 
323

 
287

Retained earnings
 
29,529

 
25,631

Total stockholders' equity of Duff & Phelps Corporation
 
336,920

 
278,807

Noncontrolling interest
 
32,964

 
84,886

Total stockholders' equity
 
369,884

 
363,693

Total liabilities and stockholders' equity
 
$
643,965

 
$
599,899




See accompanying notes to the condensed consolidated financial statements.


3

                                        

DUFF & PHELPS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Six Months Ended
 
 
June 30,
2012
 
June 30,
2011
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
Net income
 
$
13,430

 
$
12,138

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
8,245

 
5,056

Equity-based compensation
 
13,436

 
11,736

Bad debt expense
 
445

 
1,347

Net deferred income taxes
 
4,902

 
6,151

Other
 
1,796

 
359

Changes in assets and liabilities providing/(using) cash, net of acquired balances:
 
 
 
 
Accounts receivable
 
2,148

 
(1,148
)
Unbilled services
 
(3,152
)
 
(18,317
)
Prepaid expenses and other current assets
 
(2,355
)
 
(285
)
Other assets
 
356

 
(381
)
Accounts payable and accrued expenses
 
835

 
(8,223
)
Accrued compensation and benefits
 
(13,041
)
 
(22,674
)
Deferred revenues
 
1,656

 
1,520

Other liabilities
 
(4,987
)
 
83

Net cash provided by/(used in) operating activities
 
23,714

 
(12,638
)
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(7,150
)
 
(4,012
)
Business acquisitions, net of cash acquired
 
(1,400
)
 
(5,891
)
Purchases of investments
 
(2,550
)
 
(3,250
)
Net cash used in investing activities
 
(11,100
)
 
(13,153
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Borrowings under revolving line of credit
 
30,000

 

Repayments of revolving line of credit
 
(7,500
)
 

Net proceeds from sale of Class A common stock
 
49,244

 

Redemption of noncontrolling unitholders
 
(58,972
)
 

Dividends
 
(6,645
)
 
(5,012
)
Repurchases of Class A common stock
 
(5,226
)
 
(13,649
)
Payments of contingent consideration related to acquisitions
 
(1,682
)
 

Distributions and other payments to noncontrolling unitholders
 
(1,636
)
 
(2,378
)
Proceeds from exercises of stock options
 
16

 
267

Excess tax benefit from equity-based compensation
 
561

 
911

Net cash used in financing activities
 
(1,840
)
 
(19,861
)
 
 
 
 
 
Effect of exchange rate on cash and cash equivalents
 
(477
)
 
1,799

 
 
 
 
 
Net increase/(decrease) in cash and cash equivalents
 
10,297

 
(43,853
)
Cash and cash equivalents at beginning of year
 
38,986

 
113,328

Cash and cash equivalents at end of period
 
$
49,283

 
$
69,475




See accompanying notes to the condensed consolidated financial statements.


4

                                        

DUFF & PHELPS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)

 
 
 
 
Stockholders of Duff & Phelps Corporation
 
 
 
 
Total Stockholders'
 
Common Stock - Class A
 
Common Stock - Class B
 
Additional Paid-in
 
Accumulated Other Comprehensive
 
Retained
 
Noncontrolling
 
 
Equity
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Capital
 
Income
 
Earnings
 
Interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2011
 
$
363,693

 
31,646

 
$
316

 
10,488

 
$
1

 
$
252,572

 
$
287

 
$
25,631

 
$
84,886

Comprehensive income
 
13,404

 

 

 

 

 

 
36

 
10,498

 
2,870

Sale of Class A common stock for follow-on offering
 
49,244

 
3,707

 
37

 

 

 
36,785

 

 

 
12,422

Redemption of New Class A Units
 
(58,972
)
 

 

 
(4,407
)
 
(1
)
 
(44,170
)
 

 

 
(14,801
)
Issuance of Class A common stock for acquisitions
 
51

 
3

 

 

 

 
46

 

 

 
5

Exchange of New Class A Units
 

 
2,129

 
21

 
(2,129
)
 

 
(21
)
 

 

 

Net issuance of restricted stock awards
 
(5,210
)
 
1,279

 
12

 

 

 
(4,040
)
 

 

 
(1,182
)
Adjustment to Tax Receivable Agreement as a result of the exchange of New Class A Units
 
54

 

 

 

 

 
54

 

 

 

Issuance of Class A common stock for exercises of stock options
 
16

 
1

 

 

 

 
15

 

 

 
1

Forfeitures
 

 
(166
)
 

 

 

 

 

 

 

Equity-based compensation
 
13,390

 

 

 

 

 
11,255

 

 

 
2,135

Income tax benefit on equity-based compensation
 
561

 

 

 

 

 
561

 

 

 

Distributions to noncontrolling unitholders
 
(1,400
)
 

 

 

 

 
(1,238
)
 

 

 
(162
)
Change in ownership interests between periods
 

 

 

 

 

 
53,217

 

 

 
(53,217
)
Deferred tax asset effective tax rate conversion
 
1,653

 

 

 

 

 
1,646

 

 

 
7

Dividends on Class A common stock
 
(6,600
)
 

 

 

 

 

 

 
(6,600
)
 

Balance as of June 30, 2012
 
$
369,884

 
38,599

 
$
386

 
3,952

 
$

 
$
306,682

 
$
323

 
$
29,529

 
$
32,964












See accompanying notes to the condensed consolidated financial statements.


5

                                        

DUFF & PHELPS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY—CONTINUED
(In thousands)
(Unaudited)

 
 
 
 
Stockholders of Duff & Phelps Corporation
 
 
 
 
Total Stockholders'
 
Common Stock - Class A
 
Common Stock - Class B
 
Additional Paid-in
 
Accumulated Other Comprehensive
 
Retained
 
Noncontrolling
 
 
Equity
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Capital
 
Income
 
Earnings
 
Interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2010
 
$
342,564

 
30,166

 
$
302

 
11,151

 
$
1

 
$
232,644

 
$
1,400

 
$
16,923

 
$
91,294

Comprehensive income
 
14,311

 

 

 

 

 

 
1,649

 
7,537

 
5,125

Issuance of Class A common stock for acquisitions
 
2,925

 
224

 
2

 

 

 
2,174

 

 

 
749

Exchange of New Class A Units
 
(1
)
 
332

 
3

 
(332
)
 

 
(4
)
 

 

 

Net issuance of restricted stock awards
 
(4,696
)
 
1,674

 
17

 

 

 
(3,477
)
 

 

 
(1,236
)
Adjustment to Tax Receivable Agreement as a result of the exchange of New Class A Units
 
373

 

 

 

 

 
373

 

 

 

Issuance of Class A common stock for exercises of stock options
 
113

 
7

 

 

 

 
83

 

 

 
30

Forfeitures
 
(1
)
 
(130
)
 
(1
)
 
(1
)
 

 

 

 

 

Equity-based compensation
 
12,091

 

 

 

 

 
8,970

 

 

 
3,121

Income tax benefit on equity-based compensation
 
911

 

 

 

 

 
911

 

 

 

Distributions to noncontrolling unitholders
 
(2,101
)
 

 

 

 

 
(1,551
)
 

 

 
(550
)
Change in ownership interests between periods
 

 

 

 

 

 
6,888

 

 

 
(6,888
)
Deferred tax asset effective tax rate conversion
 
426

 

 

 

 

 
390

 

 

 
36

Repurchases of Class A common stock pursuant to publicly announced program
 
(8,936
)
 
(625
)
 
(7
)
 

 

 
(6,619
)
 

 

 
(2,310
)
Dividends on Class A common stock
 
(4,969
)
 

 

 

 

 

 

 
(4,969
)
 

Balance as of June 30, 2011
 
$
353,010

 
31,648

 
$
316

 
10,818

 
$
1

 
$
240,782

 
$
3,049

 
$
19,491

 
$
89,371













See accompanying notes to the condensed consolidated financial statements.


6



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Note 1.
Description of Business

Duff & Phelps Corporation (the “Company”) is a leading provider of independent financial advisory and investment banking services. The firm balances analytical skills, market insight and independence to provide expertise in the areas of valuation, transactions, financial restructuring, alternative assets, disputes and taxation. Over 1,000 Duff & Phelps employees work out of more than 25 offices around the world—including Amsterdam, Atlanta, Austin, Beijing, Boston, Chicago, Dallas, Denver, Detroit, Houston, London, Los Angeles, Morristown, Munich, New York, Paris, Philadelphia, Plano, San Francisco, Seattle, Shanghai, Silicon Valley, Tokyo, Toronto and Washington, D.C.

Note 2.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting, and include all adjustments which are, in the opinion of management, necessary for a fair presentation. The financial statements require the use of management estimates and include the accounts of the Company, its controlled subsidiaries and other entities consolidated as required by accounting principles generally accepted in the United States of America (“GAAP”). References to the “Company,” “its” and “itself,” refer to Duff & Phelps Corporation and its subsidiaries, unless the context requires otherwise.

The balance sheet at December 31, 2011 was derived from audited financial statements, but does not include all disclosures required by GAAP. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In management's opinion, all adjustments necessary for a fair presentation are reflected in the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

Follow-on Offering
In the three months ended March 31, 2012, the Company sold 3,707 shares of newly issued Class A common stock to an underwriter at a price of $13.38 per share for an aggregate amount of $49,606. The underwriter offered such shares to the public at a price of $13.75 per share for an aggregate amount of $50,978. Net proceeds from the transaction of $49,244, cash on the balance sheet and borrowings under the revolving credit facility were used to redeem 4,407 New Class A Units of D&P Acquisitions, LLC ("D&P Acquisitions") held by certain executive officers and entities affiliated with Lovell Minnick and Vestar Capital Partners. D&P Acquisitions represented the predecessor entity prior to the Company's IPO and currently represents the primary operating subsidiary of the Company. Units were redeemed at a price of $13.38 per unit or an aggregate amount of $58,972. In connection with the redemption, a corresponding number of shares of Class B common stock were cancelled.

As part of the offering, a shareholder of the Company, Shinsei Bank, Ltd., a Japanese corporation, sold 1,468 shares of Duff & Phelps Corporation Class A common stock to an underwriter at a price of $13.38 per share for an aggregate amount of $19,635. The underwriter offered such shares to the public at a price of $13.75 per share for an aggregate amount of $20,178. The Company did not receive any proceeds from the shares of the Class A common stock being sold by the selling shareholder.

Recent Accounting Pronouncements
Effective January 1, 2012, the Company adopted the Financial Accounting Standards Board's (“FASB”) Accounting Standards Update (“ASU”) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, as amended by ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. These updates revise the manner in which entities present comprehensive income in their financial statements. The guidance removes the presentation options in ASC 220 and


7



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The adoption of these standards did not have a material effect on the Company's consolidated financial statements.

Effective January 1, 2012, the Company adopted ASU 2011-08, Intangibles–Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The update permits an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step goodwill impairment test. If an entity determines based on qualitative factors that it is not more likely than not that a reporting unit's fair value is less than its carrying amount, then the two step impairment test will be unnecessary. The amendment will be effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company performs its impairment test as of October 31st of each year. The Company does not anticipate that the adoption of ASU 2011-08 will have a material effect on its consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The amendment will be effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company does not anticipate that the adoption of ASU 2011-11 will have a material effect on its consolidated financial statements.

Critical Accounting Policies
There have been no significant changes in new accounting pronouncements or in our critical accounting policies and estimates from those that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011. The Company believes that the disclosures herein are adequate so that the information presented is not misleading; however, it is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2011. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year.


8



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Note 3.
Noncontrolling Interest

As described in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, the Company has sole voting power in and controls the management of D&P Acquisitions, LLC and its subsidiaries (“D&P Acquisitions”), which collectively represent the operating subsidiaries of the Company. As a result, the Company consolidates the financial results of D&P Acquisitions and records noncontrolling interest for the economic interest in D&P Acquisitions held by the existing unitholders to the extent the book value of their interest in D&P Acquisitions is greater than zero. The Company's economic interest in D&P Acquisitions totaled 90.7% at June 30, 2012. The noncontrolling unitholders' interest in D&P Acquisitions totaled 9.3% at June 30, 2012.

Net income attributable to the noncontrolling interest on the statement of operations represents the portion of earnings or loss attributable to the economic interest in D&P Acquisitions held by the noncontrolling unitholders. Noncontrolling interest on the balance sheet represents the portion of net assets of D&P Acquisitions attributable to the noncontrolling unitholders based on the portion of total units of D&P Acquisitions owned by such unitholders (“New Class A Units”). The ownership of the New Class A Units is summarized as follows:
 
 
 
Duff &
Phelps
Corporation
 

Noncontrolling
Unitholders
 
Total
 
As of December 31, 2011
 
31,646

 
10,488

 
42,134

 
Sale of Class A common stock for follow-on offering
 
3,707

 

 
3,707

 
Redemption of New Class A Units
 

 
(4,407
)
 
(4,407
)
 
Issuance of Class A common stock for acquisitions
 
3

 

 
3

 
Exchange to Class A common stock
 
2,129

 
(2,129
)
 

 
Net issuance of restricted stock awards
 
1,279

 

 
1,279

 
Issuance of Class A common stock for exercises of stock options
 
1

 

 
1

 
Forfeitures
 
(166
)
 

 
(166
)
 
As of June 30, 2012
 
38,599

 
3,952

 
42,551

 
 
 
 
 
 
 
 
 
Percent of total
 
 

 
 

 
 

 
December 31, 2011
 
75.1
%
 
24.9
%
 
100
%
 
June 30, 2012
 
90.7
%
 
9.3
%
 
100
%



9



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


A reconciliation from “Income before income taxes” to “Net income attributable to the noncontrolling interest” and “Net income attributable to Duff & Phelps Corporation” is detailed as follows:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
2012
 
June 30,
2011
 
June 30,
2012
 
June 30,
2011
 
Income before income taxes
 
$
12,633

 
$
8,203

 
$
21,869

 
$
17,758

 
Less:  provision for income taxes for entities other than Duff & Phelps Corporation(a)(b)
 
(321
)
 
214

 
(914
)
 
(346
)
 
Income before income taxes, as adjusted
 
12,312

 
8,417

 
20,955

 
17,412

 
Ownership percentage of noncontrolling interest(d)
 
9.3
%
 
26.4
%
 
14.0
%
 
26.4
%
 
Net income attributable to noncontrolling interest
 
1,146

 
2,223

 
2,932

 
4,601

 
Income before income taxes, as adjusted, attributable to Duff & Phelps Corporation
 
11,166

 
6,194

 
18,023

 
12,811

 
Less:  provision for income taxes of Duff & Phelps
  Corporation(a)(c)
 
(4,573
)
 
(2,770
)
 
(7,525
)
 
(5,274
)
 
Net income attributable to Duff & Phelps Corporation
 
$
6,593

 
$
3,424

 
$
10,498

 
$
7,537

_______________
(a)
The consolidated provision for income taxes is equal to the sum of (i) the provision for income taxes for entities other than Duff & Phelps Corporation and (ii) the provision for income taxes of Duff & Phelps Corporation. The consolidated provision for income taxes totaled $4,894 and $2,556 for the three months ended June 30, 2012 and 2011, respectively, and $8,439 and $5,620 for the six months ended June 30, 2012 and 2011, respectively.
(b)
The provision for income taxes for entities other than Duff & Phelps Corporation represents taxes imposed directly on Duff & Phelps, LLC, a wholly-owned subsidiary of D&P Acquisitions, and its subsidiaries, such as taxes imposed on certain domestic subsidiaries (e.g., Rash & Associates, L.P.), taxes imposed by certain foreign jurisdictions, and taxes imposed by certain local and other jurisdictions (e.g., New York City). Since Duff & Phelps, LLC is taxed as a partnership and a flow-through entity for U.S. federal and state income tax purposes, there is no provision for these taxes on income allocable to the noncontrolling interest.
(c)
The provision of income taxes of Duff & Phelps Corporation includes all U.S. federal and state income taxes.
(d)
Income before income taxes, as adjusted, is allocated to the noncontrolling interest based on the total New Class A Units vested for income tax purposes (“Tax-Vested Units”) owned by the noncontrolling interest as a percentage of the aggregate amount of all Tax-Vested Units. This percentage may not necessarily correspond to the total number of New Class A Units at the end of each respective period.

Distributions and Other Payments to Noncontrolling Unitholders
The following table summarizes distributions and other payments to noncontrolling unitholders, as described more fully below:
 
 
 
Six Months Ended
 
 
 
June 30,
2012
 
June 30,
2011
 
Distributions for taxes
 
$
467

 
$
416

 
Other distributions
 
1,169

 
1,962

 
Payments pursuant to the Tax Receivable Agreement
 

 

 
 
 
$
1,636

 
$
2,378




10



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Distributions for taxes
As a limited liability company, D&P Acquisitions does not incur significant federal or state and local taxes, as these taxes are primarily the obligations of the members of D&P Acquisitions. As authorized by the Third Amended and Restated LLC Agreement of D&P Acquisitions, D&P Acquisitions is required to distribute cash, generally, on a pro rata basis, to its members to the extent necessary to provide funds to pay the members' tax liabilities, if any, with respect to the earnings of D&P Acquisitions. The tax distribution rate has been set at 45% of each member's allocable share of taxable income of D&P Acquisitions. D&P Acquisitions is only required to make such distributions if cash is available for such purposes as determined by the Company. The Company expects cash will be available to make these distributions. Upon completion of its tax returns with respect to the prior year, D&P Acquisitions may make true-up distributions to its members, if cash is available for such purposes, with respect to actual taxable income for the prior year.
 
Other distributions
Concurrent with the payment of dividends to shareholders of Class A common stock, holders of New Class A Units receive a corresponding distribution per vested unit. These amounts will be treated as a reduction in basis of each member's ownership interests. Pursuant to the terms of the Third Amended and Restated LLC Agreement of D&P Acquisitions, a corresponding amount per unvested unit was deposited into a segregated account and will be distributed once a year with respect to units that vested during that year.  Any amounts related to unvested units that forfeit are returned to the Company.

Payments pursuant to the Tax Receivable Agreement
As a result of the Company's acquisition of New Class A Units of D&P Acquisitions, the Company expects to benefit from depreciation and other tax deductions reflecting D&P Acquisitions' tax basis for its assets. Those deductions will be allocated to the Company and will be taken into account in reporting the Company's taxable income. Further, as a result of a federal income tax election made by D&P Acquisitions applicable to a portion of the Company's acquisition of New Class A Units of D&P Acquisitions, the income tax basis of the assets of D&P Acquisitions underlying a portion of the units the Company has and will acquire (pursuant to the exchange agreement) will be adjusted based upon the amount that the Company has paid for that portion of its New Class A Units of D&P Acquisitions.

The Company has entered into a tax receivable agreement (“TRA”) with the existing unitholders of D&P Acquisitions (for the benefit of the existing unitholders of D&P Acquisitions) that provides for the payment by the Company to the unitholders of D&P Acquisitions of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the Company realizes (i) from the tax basis in its proportionate share of D&P Acquisitions' goodwill and similar intangible assets that the Company receives as a result of the exchanges and (ii) from the federal income tax election referred to above. D&P Acquisitions expects to make future payments under the TRA to the extent cash is available for such purposes.

As of June 30, 2012, the Company recorded a liability of $136,546, representing the payments due to D&P Acquisitions' unitholders under the TRA (see current and non-current portion of “Due to noncontrolling unitholders” on the Company's Condensed Consolidated Balance Sheets).  

Within the next 12 month period, the Company expects to pay $6,209 of the total amount. The basis for determining the current portion of the payments due to D&P Acquisitions' unitholders under the TRA is the expected amount of payments to be made within the next 12 months.  The long-term portion of the payments due to D&P Acquisitions' unitholders under the tax receivable agreement is the remainder. Payments are anticipated to be made annually over 15 years, commencing from the date of each event that gives rise to the TRA benefits, beginning with the date of the closing of the IPO on October 3, 2007.  The payments are made in accordance with the terms of the TRA.  The timing of the payments is subject to certain contingencies including Duff & Phelps Corporation having sufficient taxable income to utilize all of the tax benefits defined in the TRA.



11



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


To determine the current amount of the payments due to D&P Acquisitions' unitholders under the TRA, the Company estimated the amount of taxable income that Duff & Phelps Corporation has generated over the previous fiscal year. Next, the Company estimated the amount of the specified TRA deductions at year end. This was used as a basis for determining the amount of tax reduction that generates a TRA obligation. In turn, this was used to calculate the estimated payments due under the TRA that the Company expects to pay in the next 12 months. These calculations are performed pursuant to the terms of the TRA.

Obligations pursuant to the TRA are obligations of Duff & Phelps Corporation.  They do not impact the noncontrolling interest.  These obligations are not income tax obligations and have no impact on the tax provision or the allocation of taxes. Furthermore, the TRA has no impact on the allocation of the provision for income taxes to the Company's net income.  In general, items of income and expense are allocated on the basis of member's ownership interests pursuant to the Third Amended and Restated Limited Liability Company Agreement of Duff & Phelps Acquisitions, LLC.



12



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Note 4.
Acquisitions

Acquisition of MCR
On October 31, 2011, the Company acquired certain assets of MCR and its subsidiaries, a United Kingdom-based partnership specializing in insolvency, turnaround and restructuring services ("MCR"). The addition of MCR enhances the Company's global restructuring advisory capabilities and expands its presence in Europe. The acquisition included 126 client service professionals, including 19 partners and directors. Its results have been included in the consolidated financial statements as part of the Investment Banking segment since the date of acquisition. Revenues totaled $7,739 and $16,488 during the three and six months ended June 30, 2012, respectively. Operating income totaled $609 and $2,084 during the three and six months ended June 30, 2012, respectively.

The fair value of the purchase price totaled $42,080 and comprised cash, Class A common stock and contingent consideration. The fair value of the contingent consideration will be recalculated each reporting period with any resulting gains or losses being recorded in the Consolidated Statement of Operations. A benefit of $42 and expense of $210 were recorded to transaction and integration costs to reflect the change in fair value of the estimated contingent consideration payable during the three and six months ended June 30, 2012, respectively.

Allocation of the purchase price included $13,864 of net tangible assets, $7,710 of intangible assets and $20,506 of goodwill. The intangible assets acquired include customer relationships and non-compete agreements. The goodwill was assigned to the Investment Banking segment and is expected to be deductible for tax purposes.

Other
On June 30, 2011, the Company acquired Growth Capital Partners and its subsidiaries, a Houston-based investment banking firm focused on transactions in the middle market. The addition of Growth Capital Partners complements the Company's energy, mining and infrastructure expertise, and expands its presence in the southwest United States. The acquisition included 20 client service professionals, including seven managing directors. Its results have been included in the consolidated financial statements as part of the Investment Banking segment since the date of acquisition.

Effective December 9, 2011, the Company acquired the Toronto-based restructuring and insolvency practice from the RSM Richter group. The acquisition enhances the Company's global restructuring capabilities by expanding its presence into Canada. The acquisition added 12 client service professionals, including four managing directors. Its results have been included in the Company's Condensed Consolidated Statement of Operations as part of the Investment Banking segment since the date of acquisition.

Effective December 30, 2011, the Company acquired Pagemill Partners, a Silicon Valley-based investment banking firm. Pagemill provides M&A, private placement advisory and related services to global technology companies in the middle market, as well as emerging organizations. This acquisition enhances the Company's technical capabilities and industry expertise. The acquisition added 22 client service professionals, including 10 managing directors. Its results have been included in the Company's Consolidated Statement of Operations as part of the Investment Banking segment beginning January 1, 2012.

Aggregated revenues totaled $8,573 and $17,593 during the three and six months ended June 30, 2012, respectively. Operating income totaled $1,812 and $3,572 during the three and six months ended June 30, 2012, respectively.

The aggregate fair value of the purchase price of these other acquisitions totaled $44,732 and comprised cash, Class A common stock and contingent consideration. The fair value of the contingent consideration will be recalculated each reporting period with any resulting gains or losses being recorded in the Consolidated Statement of Operations. An expense of $417 and $778 was recorded to transaction and integration costs to reflect the change in fair value of the estimated contingent consideration payable during the three and six months ended June 30, 2012, respectively.


13



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Allocation of the purchase price included $2,226 of net tangible assets, $7,789 of intangible assets and $34,717 of goodwill. The intangible assets acquired include customer relationships and non-compete agreements. The goodwill was assigned to the Investment Banking segment and is expected to be deductible for tax purposes.

Pro Forma Information (Unaudited)
The following table summarizes certain supplemental unaudited pro forma financial information which was prepared as if the acquisitions described above had occurred as of January 1, 2010. The unaudited pro forma financial information was prepared for comparative purposes only and does not purport to be indicative of what would have occurred had the acquisition been made at that time or of results which may occur in the future.
 
 
 
Pro Forma
 
 
 
Three Months Ended
 
Six
Months Ended
 
 
 
June 30, 2011
 
June 30, 2011
 
Revenues
 
$
105,807

 
$
206,829

 
Reimbursable expenses
 
3,669

 
6,015

 
Total revenues
 
$
109,476

 
$
212,844

 
 
 
 
 
 
 
Net income attributable to Duff & Phelps Corporation
 
$
4,685

 
$
9,492

 
 
 
 
 
 
 
Net income per share attributable to stockholders of Class A common stock of Duff & Phelps Corporation
 
 
 
 
 
Basic
 
$
0.15

 
$
0.32

 
Diluted
 
$
0.15

 
$
0.30





14



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Note 5.
Earnings Per Share

Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted earnings per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The treasury stock method is used to determine the dilutive potential of stock options, restricted stock awards and units, performance-based restricted stock awards and units, and New Class A Units and Class B common stock that are exchangeable into the Company's Class A common stock. In accordance with FASB ASC 260, Earnings Per Share, all outstanding unvested share-based payments that contain rights to nonforfeitable dividends participate in the undistributed earnings with the common stockholders and are therefore participating securities. Companies with participating securities are required to apply the two-class method in calculating basic and diluted net income per share.

The Company's restricted stock awards are considered participating securities as they receive nonforfeitable dividends at the same rate as the Company's Class A common stock. The computation of basic and diluted net income per share is reduced for a presumed hypothetical distribution of earnings to the holders of the Company's unvested restricted stock. Accordingly, the effect of the allocation reduces earnings available for common stockholders.

The Company's performance-based restricted stock awards are not considered participating securities as the related dividends are forfeitable to the extent the performance conditions are not met.

The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
2012
 
June 30,
2011
 
June 30,
2012
 
June 30,
2011
 
Basic and diluted net income per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
Net income available to holders of Class A common stock
 
$
6,593

 
$
3,424

 
$
10,498

 
$
7,537

 
Earnings allocated to participating securities
 
(362
)
 
(115
)
 
(469
)
 
(311
)
 
Earnings available for common stockholders
 
$
6,231

 
$
3,309

 
$
10,029

 
$
7,226

 
 
 
 
 
 
 
 
 
 
 
Denominator for basic net income per share of Class A common stock
 
 

 
 

 
 
 
 
 
Weighted average shares of Class A common stock
 
33,788

 
27,296

 
31,245

 
27,104

 
 
 
 
 
 
 
 
 
 
 
Denominator for diluted net income per share of Class A common stock
 
 
 
 
 
 
 
 
 
Weighted average shares of Class A common stock
 
33,788

 
27,296

 
31,245

 
27,104

 
Add dilutive effect of the following:
 
 
 
 
 
 
 
 
 
Restricted stock awards and units
 
1,288

 
771

 
1,269

 
991

 
Dilutive weighted average shares of Class A common stock
 
35,076

 
28,067

 
32,514

 
28,095

 
 
 
 
 
 
 
 
 
 
 
Basic income per share of Class A common stock
 
$
0.18

 
$
0.12

 
$
0.32

 
$
0.27

 
 
 
 
 
 
 
 
 
 
 
Diluted income per share of Class A common stock
 
$
0.18

 
$
0.12

 
$
0.31

 
$
0.26



15



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Antidilution is the result of outstanding options exceeding those outstanding under the treasury stock method. Accordingly, the following shares were anti-dilutive and excluded from this calculation:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
2012
 
June 30,
2011
 
June 30,
2012
 
June 30,
2011
 
Weighted average IPO Options outstanding
 
1,573

 
1,642

 
1,583

 
1,646


The potential dilutive effect of the Company's performance-based restricted stock awards and units were excluded from the calculation as the performance conditions had not been met:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
2012
 
June 30,
2011
 
June 30,
2012
 
June 30,
2011
 
Weighted average performance-based restricted stock awards
 
396

 
183

 
324

 
109


In addition, shares of Class B common stock and the underlying number of New Class A Units do not share in the earnings of the Company and are therefore not participating securities. Accordingly, basic and diluted earnings per share of Class B common stock and the underlying number of New Class A Units have not been presented. Accordingly, the following shares were excluded from this calculation:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
2012
 
June 30,
2011
 
June 30,
2012
 
June 30,
2011
 
Weighted average shares of Class B common stock and underlying New Class A Units outstanding
 
3,961

 
10,947

 
6,506

 
11,038




16



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Note 6.
Fair Value Measurements

The following table presents assets and liabilities measured at fair value on a recurring basis as of June 30, 2012:
 
 
 
Quoted Prices
in Active
Markets for
Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
 
Description
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 
Investments held in conjunction with deferred compensation plan
 
$

 
$
26,890

 
$

 
$
26,890

 
Total assets
 
$

 
$
26,890

 
$

 
$
26,890

 
 
 
 
 
 
 
 
 
 
 
Benefits payable in conjunction with deferred compensation plan
 
$

 
$
26,990

 
$

 
$
26,990

 
Acquisition-related contingent consideration
 

 

 
17,389

 
17,389

 
Total liabilities
 
$

 
$
26,990

 
$
17,389

 
$
44,379


For comparative purposes, the following table presents assets and liabilities measured at fair value on a recurring basis as of December 31, 2011:
 
 
 
Quoted Prices
in Active
Markets for
Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
 
Description
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 
Investments held in conjunction with deferred compensation plan
 
$

 
$
23,542

 
$

 
$
23,542

 
Total assets
 
$

 
$
23,542

 
$

 
$
23,542

 
 
 
 
 
 
 
 
 
 
 
Benefits payable in conjunction with deferred compensation plan
 
$

 
$
23,729

 
$

 
$
23,729

 
Acquisition-related contingent consideration
 

 

 
17,738

 
17,738

 
Total liabilities
 
$

 
$
23,729

 
$
17,738

 
$
41,467


The investments held and benefits payable to participants in conjunction with the deferred compensation plan were primarily based on quoted prices for similar assets in active markets. Changes in the fair value of the investments are recognized as an increase or decrease in compensation expense. Changes in the fair value of the benefits payables to participants are recognized as a corresponding offset to compensation expense. The net impact of changes in fair value is not material. The deferred compensation plan is further discussed in Note 12.

The Company estimated the fair value of the acquisition-related contingent consideration payable using probability-weighted discounted cash flow models. The Company's valuation process incorporates the use of valuation specialists to conduct the valuation and provide a report in accordance with professional standards. The Company utilizes these reports to determine fair value. Typically, a discount factor is applied to the present values of the calculated contingent consideration payable. The key assumptions used in these models are estimated by management, not observable in the market and considered Level 3 inputs within the fair value measurement hierarchy which required significant management judgments, including judgments involving forecasted revenues, gross margin levels and probability weightings. Key assumptions are assessed and updated on a quarterly basis.


17



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


The following table reconciles the changes in the acquisition-related contingent consideration payable:
 
Balance as of December 31, 2011
 
$
17,738

 
Payment of contingent consideration
 
(1,682
)
 
Change in fair market value
 
1,522

 
Impact of foreign currency translation
 
(189
)
 
Balance as of June 30, 2012
 
$
17,389


During the six months ended June 30, 2012, an expense of $1,522 was recorded to transaction and integration costs to reflect the change in fair value of the estimated contingent consideration payable. The current portion of the acquisition-related contingent consideration payable is reflected in "Accrued expenses" and the long-term portion in "Other long-term liabilities" on the Condensed Consolidated Balance Sheets.

The significant unobservable inputs used in the fair value measurement of the acquisition-related contingent consideration payable primarily comprise forecasted revenues and forecasted margins. Significant changes in forecasted revenues would result in a significantly higher or lower fair value measurement. As of June 30, 2012, the fair market value of acquisition-related contingent consideration totaled $17,389 compared to a maximum remaining potential payout of $21,547.

The Company does not have any material financial assets in a market that is not active.



18



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Note 7.
Long-Term Debt

On July 15, 2009, Duff & Phelps, LLC entered into a credit agreement with Bank of America, N.A., as administrative agent and the lenders from time to time party thereto, as amended by (i) the first amendment to the credit agreement dated as of November 8, 2010, (ii) the second amendment to credit agreement dated as of February 23, 2011, (iii) the third amendment to credit agreement dated as of August 15, 2011 and (iv) the fourth amendment to credit agreement dated as of October 13, 2011 (collectively, the “Credit Agreement”). The Credit Agreement provides for a $75,000 senior secured revolving credit facility ("Credit Facility"), including a $10,000 sub-limit for the issuance of letters of credit.

The proceeds of the facility are permitted to be used for working capital, permitted acquisitions and general corporate purposes. The maturity date is October 13, 2016. Amounts borrowed may be voluntarily prepaid at any time without penalty or premium, subject to customary breakage costs. There was $22,500 outstanding under the Credit Facility as of June 30, 2012. As of June 30, 2012, the Company had $2,384 of outstanding letters of credit issued against the Credit Facility. These letters of credit were issued in connection with real estate leases.

Loans under the Credit Facility will, at the Company's option, bear interest on the principal amount outstanding at either (a) a rate equal to LIBOR, plus an applicable margin or (b) a base rate, plus an applicable margin. The applicable margin rate is based on the Company's most recent consolidated leverage ratio and ranges from 1.25% to 2.25% per annum for the LIBOR rate or 0.25% to 1.25% per annum for the base rate. In addition, the Company is required to pay an unused commitment fee on the actual daily amount of the unutilized portion of the commitments of the lenders at a rate ranging from 0.30% to 0.50% per annum, based on the Company's most recent consolidated leverage ratio. Based on the Company's consolidated leverage ratio at June 30, 2012, the Company qualifies for the 1.25% applicable margin for the LIBOR rate or 0.25% applicable margin for the base rate, and 0.30% for the unused commitment fee.

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, limitations on (a) the incurrence of liens, (b) the incurrence of indebtedness, (c) the ability to make dividends and distributions, as well as redeem and repurchase equity interests and (d) acquisitions, mergers, consolidations and sales of assets. In addition, the Credit Agreement contains financial covenants that do not permit (i) a total leverage ratio of greater than 3.00 to 1.00 until the quarter ending March 31, 2013; and 2.75 to 1.00 thereafter and (ii) a consolidated fixed charge coverage ratio of less than 1.15 to 1.00 beginning July 1, 2011 through and including June 30, 2012; 1.20 to 1.00 beginning July 1, 2012 through and including September 30, 2013; and 1.25 to 1.00 thereafter. The financial covenants are tested on the last day of each fiscal quarter based on the last four fiscal quarter periods. Management believes that the Company was in compliance with all of its covenants as of June 30, 2012.

The obligation of the Company to pay amounts outstanding under the Credit Facility may be accelerated upon the occurrence of an "Event of Default" as defined in the Credit Agreement. The Company's obligations under the Credit Agreement are guaranteed by D&P Acquisitions, and certain domestic subsidiaries of the Company (collectively, the "Guarantors"). The Credit Agreement is secured by a lien on substantially all of the personal property of the Company and each of the Guarantors.


19



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Note 8.
Equity-Based Compensation
 
Equity-based compensation with respect to (a) ownership units of D&P Acquisitions ("Legacy Units"), (b) options to purchase shares of the Company's Class A common stock granted in connection with the IPO (“IPO Options”) and (c) restricted stock awards and units and performance-vesting restricted stock awards and units issued in connection with the Company's ongoing long-term compensation program (“Ongoing RSAs”) is detailed in the table below:
 
 
 
Three Months Ended
 
Three Months Ended
 
 
 
June 30, 2012
 
June 30, 2011
 
 
 
Legacy Units
and
IPO Options
 
Ongoing RSAs
 
Total
 
Legacy Units
and
IPO Options
 
Ongoing RSAs
 
Total
 
Compensation and benefits
 
$
(47
)
 
$
4,131

 
$
4,084

 
$
(55
)
 
$
4,185

 
$
4,130

 
Acquisition retention expenses
 

 
722

 
722

 

 
297

 
297

 
Selling, general and administrative
 
(2
)
 
810

 
808

 
111

 
658

 
769

 
Total
 
$
(49
)
 
$
5,663

 
$
5,614

 
$
56

 
$
5,140

 
$
5,196

 
 
 
 
Six Months Ended
 
Six Months Ended
 
 
 
June 30, 2012
 
June 30, 2011
 
 
 
Legacy Units
and
IPO Options
 
Ongoing RSAs
 
Total
 
Legacy Units
and
IPO Options
 
Ongoing RSAs
 
Total
 
Compensation and benefits
 
$
(43
)
 
$
10,172

 
$
10,129

 
$
178

 
$
8,887

 
$
9,065

 
Acquisition retention expenses
 

 
1,444

 
1,444

 

 
379

 
379

 
Selling, general and administrative
 
65

 
1,798

 
1,863

 
295

 
1,997

 
2,292

 
Total
 
$
22

 
$
13,414

 
$
13,436

 
$
473

 
$
11,263

 
$
11,736

 
Legacy Units
Immediately prior to the closing of the IPO on October 3, 2007, D&P Acquisitions effectuated certain transactions intended to simplify the capital structure of D&P Acquisitions (the “Recapitalization Transactions”). Prior to the Recapitalization Transactions, D&P Acquisitions' capital structure consisted of seven different classes of membership interests (collectively, “Legacy Units”), each of which had different capital accounts and amounts of aggregate distributions above which its holders share in future distributions. Certain units were issued in conjunction with acquisitions and as long-term incentive compensation to management and independent members of the board of directors.

The net effect of the Recapitalization Transactions was to convert the Legacy Units into a single new class of units called “New Class A Units.” The holders of New Class A Units also own one share of the Company's Class B common stock for each New Class A Unit. Pursuant to an exchange agreement, the New Class A Units are exchangeable on a one-for-one basis for shares of the Company's Class A common stock. In connection with an exchange, a corresponding number of shares of the Company's Class B common stock are cancelled.

The Company accounts for equity-based compensation in accordance with the fair value provisions of FASB ASC 718. As of October 3, 2007, the value used for the purpose of FASB ASC 718 for the above referenced units was based on the price of $16.00 per share of Class A common stock sold in the IPO, which determined the conversion of Legacy Units of D&P Acquisitions into New Class A Units pursuant to the Recapitalization Transactions. In all cases of graded vesting, equity-based compensation expense is being accrued through charges to operations over the respective vesting periods of the equity grants using the accelerated method of amortization.


20



DUFF & PHELPS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Generally, Legacy Units were vested upon grant or have certain vesting provisions on each anniversary date over a four to five year year requisite service period assuming that the holder remains employed by the Company, as more precisely defined in the individual grant agreements. Accelerated vesting occurs in the case of a sale of the Company or a qualified liquidity event.

The following table summarizes activity for New Class A Units attributable to equity-based compensation:
 
 
 
New
Class A Units
Attributable to
Equity-Based
Compensation
 
Balance as of December 31, 2011
 
867

 
Redeemed or exchanged
 
(87
)
 
Forfeited
 

 
Balance as of June 30, 2012
 
780

 
 
 
 

 
Vested
 
780

 
Unvested