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BUSINESS CHANGES AND DEVELOPMENTS | 12 Months Ended
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Dec. 31, 2016
BUSINESS CHANGES AND DEVELOPMENTS |
BUSINESS CHANGES AND DEVELOPMENTS | 4. BUSINESS CHANGES AND DEVELOPMENTS Reorganization and Initial Public Offering In April 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 Group LP and Group LP is controlled by Moelis & Company. The shareholders are entitled to receive a portion of the economics of the operations through their direct ownership interests in shares of Class A common stock of Moelis & Company. The existing owners of Group LP will continue to receive the majority of the economics of the operations, as noncontrolling interest holders, primarily through direct and indirect ownership interests in Group LP partnership units. As a corporation, Moelis & Company is subject to United States federal and state corporate income taxes, which results 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. Following the reorganization, each 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. 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. Among other items, Class B common stock contains a condition (the “Class B Condition”) that calls for Mr. Moelis to maintain a defined minimum equity stake. 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, or dollar equivalent, 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, or dollar set forth in Moelis & Company’s Amended and Restated Certificate of Incorporation. In connection with the reorganization and IPO described above, several transactions took place which impacted the Company’s consolidated and combined financial statements as of, and for the year ended, December 31, 2014, which included the following:
| · |  | A pre‑offering distribution to the partners of Old Holdings of $195,017 reflected within financing activities in the consolidated and combined statements of cash flows and in the consolidated and combined statements of changes in equity;
| · |  | The purchase by Moelis & Company of Class A partnership units directly from Group LP with the proceeds of the IPO. The proceeds received related to the issuance of Class A common stock in connection with the IPO is recorded net of underwriting discounts, commissions and offering expenses. Net cash received of $163,682 during the year ended December 31, 2014 is reflected within financing activities in the consolidated and combined statements of cash flows. Net proceeds recorded in the consolidated and combined statements of changes in equity of $162,107 during the period ended December 31, 2014, adjusts for IPO related expenses paid during 2013 and any accruals remaining as of December 31, 2014;
| · |  | The one‑time cash distribution of $139,429 by Group LP to the partners of Old Holdings of a portion of the proceeds arising from the sale of Class A partnership units to Moelis & Company is reflected within financing activities in the consolidated and combined statements of cash flows and in the consolidated and combined statements of changes in equity;
| · |  | The tax impact associated with the one‑time cash distribution to certain partners of Old Holdings is treated as an acquisition for U.S. federal income tax purposes of Class A partnership units in Group LP from certain partners of Old Holdings. This transaction resulted in a deferred tax asset of which approximately $60,946 is attributable to exchanges by certain of the partners of Old Holdings who are party to the tax receivable agreement. Pursuant to this agreement, 85% (or $51,804) of the tax benefits associated with this portion of the deferred tax asset are payable to certain partners of Old Holdings over 15 years following this transaction and is recorded as amount due pursuant to tax receivable agreement in the consolidated statements of financial condition. The remaining tax benefit is allocable to the Company and is recorded in additional paid‑in‑capital.
| · |  | Expenses related to the reorganization and IPO recorded in the consolidated and combined statements of operations for the year ended December 31, 2014 included the following:
| · |  | $87,601 of compensation and benefits expense associated with the one‑time non‑cash acceleration of unvested equity held by Managing Directors. Excluded from this acceleration was $10,349 of compensation and benefits expense associated with the amortization of equity held by Managing Directors during the three months ended March 31, 2014 which was subsequently accelerated upon completion of the IPO;
| · |  | $1,167 of compensation and benefits expense associated with the amortization of RSUs granted in connection with the IPO (excludes expense associated with RSUs granted at the time of the IPO in connection with 2013 equity incentive compensation); amortization expense of RSUs granted in connection with the IPO will be recognized over a five year vesting period;
| · |  | $3,109 of compensation and benefits expense associated with the amortization of stock options granted in connection with the IPO; amortization expense of stock options granted in connection with the IPO will be recognized over a five year vesting period;
| · |  | $4,014 of compensation and benefits expense associated with the issuance of cash (expense of $2,004) and fully vested shares of Class A common stock (expense of $2,010) in settlement of appreciation rights issued in prior years;
| · |  | $1,240 of professional fees expense associated with the one‑time non‑cash acceleration of unvested equity held by non‑employee members of Moelis & Company’s Global Advisory Board; and
| · |  | $4,916 of expenses associated with the one‑time non‑cash acceleration of unvested equity held by employees of the Australian JV. Half of the expenses associated with acceleration of equity held by employees of the Australian JV is included in other expenses and the other half is included in income (loss) from equity method investments.
Follow-on Offerings In November 2014, the Company completed an offering of 6,325,000 shares of Class A common stock by the Company and selling stockholders. The Company conducted the offering to facilitate organized liquidity in its Class A common stock and to increase the public float of its Class A common stock. In connection with the offering, the Company issued 4,509,400 shares of Class A common stock and used the proceeds to acquire the same quantity (4,509,400) of Group LP Class A partnership units. The remaining 1,815,600 shares of Class A common stock included in the offering were sold by current holders of Class A common stock, thus having no impact on the quantity of shares of Class A common stock outstanding. In addition, in connection with the Company’s acquisition of Group LP Class A partnership units, 4,507,453 shares of Class B common stock were either purchased (1,509,131 shares for $28) or converted to Class A common stock (2,998,322 shares of Class B common stock converted to 1,658 shares of Class A common stock based on a conversion ratio of .00055 to 1). The Company did not retain any proceeds from the offering. Immediately following the transactions described above;
| · |  | 19,770,893 shares of Class A common stock were outstanding;
| · |  | the Company owned 19,770,893 Group LP Class A partnership units and its economic ownership in Group LP increased from 28% to 36%;
| · |  | the noncontrolling interest holders owned 34,479,961 Group LP Class A partnership units and their economic ownership in Group LP decreased from 72% to 64%;
| · |  | Partner Holdings owned all 31,621,542 shares of Class B common stock, enabling it to exercise majority voting control of the Company. Class B common stock is entitled to an insignificant amount of economic participation in the Company.
This transaction is treated for U.S. federal income tax purposes as an acquisition of Class A partnership units in Group LP from certain partners of Group LP, which resulted in a deferred tax asset of which approximately $80,117 is attributable to exchanges by certain partners of Group LP who are party to the tax receivable agreement. Pursuant to the tax receivable agreement, 85% (or $68,099) of the tax benefits associated with this portion of the deferred tax asset are payable to certain partners of Group LP over 15 years following this transaction and is recorded as amount due pursuant to tax receivable agreement in the consolidated statements of financial condition. The remaining tax benefit is allocable to the Company and is recorded in additional paid‑in‑capital. On January 11, 2017, the Company completed an offering of 5,750,000 shares of Class A common stock in order to facilitate organized liquidity and increase the public float of its Class A common stock. See Note 17 in these consolidated and combined financial statements for further information.

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