4. BUSINESS CHANGES AND DEVELOPMENTS

Reorganization and Initial Public Offering

Subsequent to March 31, 2014, Old Holdings reorganized its business in connection with the IPO of Class A common stock by Moelis & Company, a newly-formed Delaware corporation. Following the reorganization, the Advisory operations are owned by Moelis & Company Group LP, a Delaware limited partnership ("Group LP"). Group LP is controlled by Moelis & Company. The new public shareholders are entitled to receive a portion of the economics of the Advisory operations through their direct ownership interests in shares of Class A common stock of Moelis & Company. The existing owners of the Parent will continue to receive the majority of the economics of the Advisory operations, as non-controlling interest holders, primarily through direct and indirect ownership interests in Group LP partnership units. As a corporation, Moelis & Company will be subject to United States federal and state corporate income taxes, which will result in a material increase in the applicable tax rates and current tax expense incurred post reorganization.

Group LP has one principal class of units, Class A partnership units. Group LP issued Class A partnership units to Moelis & Company and to certain existing holders of Old Holdings units who are Class A partnership unitholders. Following the reorganization, a Group LP Class A partnership unit (not held by Moelis & Company or its subsidiaries) is exchangeable into one share of Moelis & Company Class A common stock. In addition, Group LP issued Class B partnership units to Moelis & Company. The Class B partnership units correspond with the economic rights of shares of Moelis & Company Class B common stock. The economic rights of Class B common stock are based on the ratio of the Class B subscription price to the initial public offering price of shares of Class A common stock (.00055 to 1), and the aggregate number of shares of Class B common stock may be converted to Class A common stock (up to a maximum of 20,000 shares). Holders of shares of Class B common stock are entitled to receive dividends of the same type as any dividends payable on outstanding shares of Class A common stock at a ratio of .00055 to 1.

Group LP Class A partnership unitholders have no voting rights by virtue of their ownership of Group LP Class A partnership units, except for the limited rights described in Group LP's Amended and Restated Agreement of Limited Partnership. Moelis & Company Partner Holdings LP holds all shares of Class B common stock, enabling it initially to exercise majority voting control over Moelis & Company and, indirectly, over Group LP. Among other items, the Class B Condition calls for Mr. Moelis to maintain a defined minimum equity stake and that he devote his primary business time to Moelis & Company. So long as the Class B Condition is satisfied, each share of Class B common stock entitles its holder to ten votes for each share held of record on all matters submitted to a vote of stockholders. Shares of Class B common stock are generally not transferrable and, if transferred other than in the limited circumstances set forth in Moelis & Company's Amended and Restated Certificate of Incorporation, such shares shall automatically convert into a number of shares of Class A common stock set forth in Moelis & Company's Amended and Restated Certificate of Incorporation. Upon failure of the Class B Condition, each share of Class B common stock will have one vote for each share held. Each share of Class B common stock may, at the option of the holder, be converted into a number of shares of Class A common stock set forth in Moelis & Company's Amended and Restated Certificate of Incorporation.

Unaudited Pro Forma Combined Statement of Financial Condition

In connection with the Company's reorganization, 1,101,541 pre-reorganization partnership units of Old Holdings became 46,722,753 post-reorganization Class A Group LP partnership units. 39,022,902 of these partnership units are held by the partners of Old Holdings and represent a noncontrolling interest in Group LP, and the remaining 7,699,851 units were converted into Class A common stock of the Company, representing a controlling interest. In addition, the Company distributed approximately $215,000 to its existing owners and to a separate business of the Parent. The unaudited pro forma combined statement of financial condition as of March 31, 2014 gives pro forma effect to this distribution payable in cash as if the distribution had been effected as of March 31, 2014. The unaudited pro forma combined statement of financial condition is presented for illustrative purposes only and does not purport to project the Company's combined financial condition for any future date.

Unaudited Pro Forma Combined Statement of Operations Information

The following calculation reflects net income attributable to common shareholders divided by weighted average shares of Class A common stock outstanding.


Pro forma net income attributable to Class A common shareholders	$	2,248




Weighted average shares of Class A common stock outstanding—basic and diluted		7,699,851




Net income available to holders of Class A common stock per share	$	0.29

Pro forma net income attributable to Class A common shareholders


Income before income taxes	$	22,734
Pro forma provision for income taxes		(2,035)	(a)


Pro forma net income		20,699
Pro forma net income attributable to noncontrolling interests		18,451	(b)


Pro forma net income attributable to Class A common shareholders	$	2,248

(a): In connection with the reorganization, 16.48% of the outstanding partnership interests was converted directly into 7,699,851 shares of Class A common stock of Moelis & Company. An adjustment has been made to increase the effective tax rate, applied to these earnings, to 40%, which assumes the Company is taxed as a corporation.
(b): Reflects an adjustment to record the 83.52% noncontrolling interests, net of tax, that partners of Old Holdings (other than the Company) own in Group LP relating to their partnership units. As part of the reorganization, 7,699,851 shares of Class A common stock are outstanding in Moelis & Company and 39,022,902 partnership units are held by partners of Old Holdings.

Basic and diluted weighted average Class A common stock outstanding

		Basic and Diluted

Class A common stock outstanding upon completion of the reorganization			7,699,851
Class A partnership units(1)			—


Weighted average shares of Class A common stock outstanding upon completion of the reorganization			7,699,851

(1): Class A partnership units may be exchanged for our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for splits, unit distributions and reclassifications and compliance with applicable lock-up, vesting and transfer restrictions. If all Class A partnership units were to be exchanged for Class A common stock immediately following the reorganization, fully diluted Class A common stock outstanding would be 46,722,753. In computing the dilutive effect, if any, that the aforementioned exchange would have on earnings per share, we consider that net income available to holders of Class A common stock would increase due to elimination of the noncontrolling interest in consolidated entities associated with the Group LP Class A partnership units (including any tax impact). For the quarter ended March 31, 2014, such exchange is not reflected in diluted earnings per share as the assumed exchange is not dilutive.

We have not included the impact of shares of Class B common stock because these shares are entitled to an insignificant amount of economic participation.

Investment in Joint Venture

On April 1, 2010, the Company entered into a 50-50 joint venture in Moelis Australia Holdings, investing a combination of cash and certain net assets of its wholly-owned subsidiary, Moelis Australia, in exchange for its interests. The remaining 50% is owned by an Australian trust established by and for the benefit of Moelis Australia senior executives.

On April 1, 2011, the Parent contributed its equity to Moelis Australia Holdings, which in turn granted equity awards to its employees in return for providing future employment related services. These units generally vest over an eight year service period and are recorded as compensation expenses on Moelis Australia Holdings' financial statements. As the recipients are not employees of the Company, but rather employees of the Australian JV, the Company recognizes the entire expense associated with these awards based on the fair value re-measured at each reporting period and amortized over the vesting period. For the three months ended March 31, 2014, the Company recognized $432 in additional parent company equity, $216 in investment in joint venture and $216 in other expenses relating to the contribution of these equity awards in the condensed combined financial statements. For the three months ended March 31, 2013, the Company recognized $470 in additional parent company equity, $235 in investment in joint venture and $235 in other expenses relating to the contribution of these equity awards in the condensed combined financial statements.

During the three months ended March 31, 2013, Moelis Australia Holdings paid dividends to the Company in the amount of $2,375. This dividend was treated as a return on investment in joint venture in the condensed combined financial statements.

During the three months ended March 31, 2014, the Company made a cash contribution to Moelis Australia Holdings in the amount of $4,180. The Company treated this contribution as an increase in investment in joint venture in the condensed combined financial statements.

Summary financial information related to Moelis Australia Holdings is as follows:

	March 31, 2014			December 31, 2013

Total assets	$	29,732		$	38,465
Total liabilities		(4,225	)		(15,760	)


Net equity	$	25,507		$	22,705

	For the Three Months Ended March 31,

	2014			2013
Total revenues	$	3,133		$	13,118
Total expenses		(5,573	)		(10,282	)


Net income (loss)	$	(2,440	)	$	2,836




Ownership percentage		50	%		50	%
Income (loss) from investment in joint venture	$	(1,220	)	$	1,418