Our revenues, expenses and net earnings for the second quarter of 2013 are impacted by the following acquisition accounting related items:
- Revenues include an additional $27 million of positive net interest income due to the amortization of premiums arising upon adjusting our long-term debt to fair value and the assumption of our mandatorily redeemable convertible preferred stock by Leucadia.
- Non Compensation expenses include the following items for an additional cost of $17 million. Rent expense includes additional costs of $2 million upon recognizing existing leases at their current market value. Other expenses include $6 million of incremental amortization expense associated with intangible assets and internally developed software recognized at the merger date and $9 million in merger-related investment banking and filing fees. 3
- As required by GAAP, compensation expense includes $5 million of additional amortization cost related to the acquisition-related write-up of the cost of outstanding share-based awards which had future service requirements at the merger date -- they were written up from their initial grant date fair value to the merger date (March 1) share value.
Rent expense for the three months ended May 31, 2013 includes a $7 million charge associated with relocating certain London office space.
The above items have the effect of increasing income tax expense by $1 million. Without the impact of these items, our effective tax would have been 36.1% or 2.2% lower.
Also, the compensation and revenue items above had the effect of reducing the compensation ratio from 59.6% to 57.8%. Our total headcount at May 31, 2013, was 3,785, down slightly from three months before and consistent with our goals of driving operating leverage through growth in our market share, coupled with cost containment. Our total headcount has remained relatively constant since our Bache acquisition in July 2011.
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