EVR

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2007 for Evercore Partners Inc. (Evercore), an investment banking firm organized into two segments: Advisory and Investment Management. The reporting period reflects the "Successor Company" structure following a reorganization and Initial Public Offering (IPO) completed in August 2006. The financial statements consolidate Evercore LP and its subsidiaries, including recent acquisitions of Protego (Latin America) and Braveheart (renamed Evercore Europe).

Key Financial Metrics

Segment Performance (Q1 2007):

• Advisory: Net revenues of $84.5 million; Operating income of $29.9 million.
• Investment Management: Net revenues of $5.0 million; Operating loss of $(2.2) million.

Material Changes vs. Prior Period

Comparability between Q1 2007 and Q1 2006 is limited due to the reorganization, IPO, and acquisitions. Key changes include:

• Revenue Growth: Net revenues increased 96.2% to $89.5 million, driven primarily by a 159.1% increase in Advisory revenue ($83.9 million) due to strong M&A activity and the inclusion of Protego and Braveheart. Conversely, Investment Management revenue decreased 65.9% to $4.5 million, largely due to the non-recurrence of $5.0 million in unrealized carried interest and investment gains recognized in Q1 2006.
• Expense Structure: Total expenses rose 249.6% to $65.4 million. Employee compensation increased 443.7% to $47.6 million. This increase reflects the inclusion of Senior Managing Director compensation (previously treated as distributions) and costs associated with new hires and acquisitions. Non-compensation expenses increased 78.7%, driven by $4.3 million in amortization of intangible assets from acquisitions.
• Taxation: The company became subject to U.S. federal corporate income tax post-IPO. The effective tax rate for the portion of income subject to corporate tax was 43.4%, compared to no federal tax in the prior period.
• Minority Interest: Minority interest expense was $14.9 million in Q1 2007 (vs. negligible in 2006), reflecting the allocation of income to Senior Managing Directors holding Evercore LP units.

Guidance, Outlook, and Risks

Follow-On Offering and Compensation Impact: The company has filed for a Follow-On Offering of Class A common stock. Successful completion is expected to trigger the vesting of 50% of unvested partnership units and Restricted Stock Units (RSUs). Management anticipates recording a non-cash equity-based compensation charge of approximately $127.0 million upon completion, which is expected to result in a significant loss for the quarter of completion and potentially for the full fiscal year 2007.

Outlook: Management expects to hire up to ten additional Senior Managing Directors in 2007, which will increase compensation expenses and may cause the company to exceed its target compensation-to-revenue ratio in the near term.

Risks and Contingencies:

• Internal Controls: Management concluded that disclosure controls and procedures were not effective as of March 31, 2007. Material weaknesses were identified, including a lack of an enterprise-wide internal control environment and deficiencies in the financial statement close process. Remediation efforts are underway.
• Legal Proceedings: The company is involved in litigation regarding a 2003 engagement with High Voltage Engineering Corp. A bankruptcy court denied a motion to claw back fees in January 2007, but the plaintiff has appealed. A separate federal complaint alleging gross negligence is pending.
• Market Risk: Exposure to foreign currency fluctuations (Mexican Peso, British Pound, Euro) due to operations in Latin America and Europe. No hedging transactions are currently in place.

Investor Verification Checklist

• Follow-On Offering Status: Verify if the Follow-On Offering has been completed, as this will trigger a ~$127 million non-cash charge significantly impacting 2007 earnings.
• Internal Control Remediation: Monitor progress on remedying the material weaknesses in internal controls over financial reporting identified in this filing.
• Investment Management Volatility: Assess the sustainability of Investment Management revenues, which are heavily dependent on carried interest and unrealized gains that can fluctuate significantly quarter-to-quarter.
• Compensation Ratio: Track the ratio of employee compensation to revenue, noting that new hires and acquisition-related costs are currently pushing this ratio above the company's historical target.
• Legal Outcomes: Monitor the status of the High Voltage Engineering litigation and any potential financial impact from the appeal or federal complaint.