10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
Fiscal Year Ended December 31, 2008
Commission File Number 1-15799
LADENBURG THALMANN FINANCIAL
SERVICES INC.
(Exact Name Of Registrant As Specified In Its Charter)
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Florida
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65-0701248
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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4400 Biscayne Boulevard, 12th Floor
Miami, Florida
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33137
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(Address of principal executive
offices)
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(Zip Code)
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(212) 409-2000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common stock, par value $.0001 per share
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NYSE Amex
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statement incorporated by reference in Part III
of this
Form 10-K
or any amendment to this
Form 10-K. þ
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.
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2008 (the last business day of the
registrants most recently completed second fiscal
quarter), the aggregate market value of the registrants
common stock (based on the closing price on the NYSE Amex on
that date) held by non-affiliates of the registrant was
approximately $133,124,925.
As of March 11, 2009, there were 171,715,854 shares of
the registrants common stock outstanding.
Documents
Incorporated by Reference:
Part III (Items 10, 11, 12, 13 and 14) from the
definitive Proxy Statement for the 2009 Annual Meeting of
Shareholders to be filed with the Securities and Exchange
Commission no later than 120 days after the end of the
Registrants fiscal year covered by this report.
LADENBURG
THALMANN FINANCIAL SERVICES INC.
Form 10-K
TABLE
OF CONTENTS
PART I
General
We are engaged in investment banking, equity research,
institutional sales and trading, independent brokerage and
advisory services and asset management services through our
principal subsidiaries, Ladenburg Thalmann & Co. Inc.
(Ladenburg), Investacorp, Inc. (collectively with
related companies, Investacorp) and Triad Advisors,
Inc. (Triad). We are committed to establishing a
significant presence in the financial services industry by
meeting the varying investment needs of our corporate,
institutional and retail clients.
Ladenburg is a full service broker-dealer that has been a member
of the New York Stock Exchange (NYSE) since 1879. It
provides its services principally for middle market and emerging
growth companies and high net worth individuals through a
coordinated effort among corporate finance, capital markets,
asset management, brokerage and trading professionals.
Investacorp, headquartered in Miami Lakes, Florida, is an
independent broker-dealer and registered investment advisor that
has been serving the independent registered representative
community since 1978. Investacorps national network of
independent registered representatives primarily serves retail
clients. We acquired Investacorp in October 2007.
Triad, headquartered in Norcross, Georgia, is an independent
broker-dealer and registered investment advisor that offers a
broad menu of products, services and total wealth management
solutions to independent contractor registered representatives
located nationwide. Triads independent registered
representatives primarily serve retail clients. In August 2008,
we acquired Triad, which was founded in 1998.
Through our acquisitions of Investacorp and Triad, we have
become a significant presence in the independent broker-dealer
space. During the past decade, this has been one of the fastest
growing segments of the financial services industry. With
combined pro forma revenues of approximately $122 million
for 2008 for Investacorp and Triad, we have become one of the
approximately 25 largest firms in the independent broker-dealer
space. We believe that, as a result of the current market
turmoil, we have the opportunity through acquisition and
recruiting to significantly expand our market position in this
segment over the next several years. Our goal remains as a
public financial services company to marry the more recurring
and predictible revenue and cash flows of the independent
broker-dealer business with Ladenburgs traditional
investment banking, capital markets, institutional equity and
related businesses. These Ladenburg businesses are generally
more volatile and subject to the cycles of the capital markets,
but historically have enjoyed strong operating margins in good
market conditions.
Each of Ladenburg, Investacorp and Triad is subject to
regulation by, among others, the Securities and Exchange
Commission (SEC), the Financial Industry Regulatory
Authority (FINRA), and the Municipal Securities
Rulemaking Board (MSRB) and is a member of the
Securities Investor Protection Corporation (SIPC).
Ladenburg is also subject to regulation by the Commodities
Futures Trading Commission (CFTC) and National Futures
Association (NFA).
Ladenburgs private client services and institutional sales
departments serve approximately 12,000 accounts nationwide and
its asset management area provides investment management
services to numerous individuals and institutions. At
December 31, 2008, Investacorps 500 registered
representatives served approximately 172,000 accounts nationwide
and Investacorp had more than $6.1 billion in client
assets. Triads 400 registered representatives served
approximately 123,000 accounts nationwide and had more than
$9.0 billion in client assets at December 31, 2008.
We were incorporated under the laws of the State of Florida in
February 1996. Our principal executive offices are located at
4400 Biscayne Boulevard, 12th Floor, Miami, Florida 33137.
Our telephone number is
(212) 409-2000.
Ladenburgs principal executive offices are located at 520
Madison Avenue, New York, New York 10022. Ladenburg has branch
offices located in Melville, New York, Miami and Boca Raton,
Florida, Lincolnshire, Illinois, Los Angeles, California and
Princeton, New Jersey. Investacorps principal executive
offices are located at 15450 New Barn Road, Miami Lakes, Florida
33014. Investacorps independent registered
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representatives are located in approximately 326 offices in
41 states. Triads principal executive offices are
located at 5185 Peachtree Parkway, Suite 280, Norcross, GA
30092. Triads independent registered representatives are
located in approximately 233 offices in 42 states.
Available
Information
Our corporate filings, including our annual reports on
Form 10-K,
our quarterly reports on
Form 10-Q,
our current reports on
Form 8-K,
our proxy statements and reports filed by our officers and
directors under Section 16(a) of the Securities Exchange
Act, and any amendments to those filings, are available, free of
charge, on Ladenburgs website, www.ladenburg.com,
as soon as reasonably practicable after we electronically file
or furnish such material with the SEC. We do not intend for
information contained in our website, or those of our
subsidiaries, to be a part of this annual report on
Form 10-K.
In February 2004, our board of directors adopted a code of
ethics that applies to our directors, officers and employees as
well as those of our subsidiaries. We will provide to any
person, without charge, a copy of our code of ethics. Requests
for copies of our code of ethics should be sent in writing to
Ladenburg Thalmann Financial Services Inc., 4400 Biscayne Blvd.,
12th Floor, Miami, FL 33137, Attn: Corporate Counsel.
Caution
Concerning Forward-Looking Statements and Risk Factors
This annual report on
Form 10-K
includes certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on managements current
expectations or beliefs and are subject to uncertainty and
changes in circumstances. Actual results may vary materially
from the expectations contained in this report due to changes in
economic, business, competitive, strategic
and/or
regulatory factors, and other factors affecting the operation of
our businesses. For more detailed information about these
factors, and risk factors about our operations, see
Item 1A, Risk Factors, and
Managements Discussion and Analysis of Results of
Operations and Financial Condition Special Note
Regarding Forward-Looking Statements below. We are not
required (and expressly disclaim any obligation) to update or
alter any forward-looking statements, whether as a result of new
information, subsequent events or otherwise.
Recent
Developments
Difficult
Market Conditions
During 2008 and continuing in the first quarter of 2009, the
U.S. and global economies have deteriorated into a
recession, which could be long-term. We, like other companies in
the financial services sector, are exposed to volatility and
trends in the general securities markets and the economy. The
significant market downturn and poor economic conditions have
reduced significantly investment banking, capital markets and
retail and institutional client activity levels. It is difficult
to predict when conditions will change. Given the difficult
market and economic conditions, we have focused on reducing
redundancies and unnecessary expense, including implementing
headcount reductions. However, we also continue to seek to
selectively upgrade our talent pool given the availability of
experienced professionals.
Sale of
American Stock Exchange and Boston Stock Exchange Membership
Interests
On October 1, 2008, NYSE Euronext acquired the American
Stock Exchange. In exchange for its American Stock Exchange
membership, Ladenburg received 8,138 shares of NYSE
Euronext stock valued at $328,000 resulting in a $214,000 gain
in the fourth quarter of 2008. Ladenburg may receive additional
amounts from the sale of this membership if NYSE Euronext sells
the former American Stock Exchange headquarters building.
Ladenburg also owned a Boston Stock Exchange membership. On
August 29, 2008, the Nasdaq OMX Group, Inc. acquired the
Boston Stock Exchange. Ladenburg received a cash payment of
$310,000 for its interest, resulting in a gain of $305,000 in
the third quarter of 2008.
Triad
Advisors Acquisition
On August 13, 2008, we acquired Triad by way of merger. We
believe that the Triad acquisition significantly expands our
presence in the independent broker-dealer area.
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All outstanding shares of Triads common stock were
converted into an aggregate of $6,826,000 in cash (net of a
post-closing adjustment of $674,000), 7,993,387 shares of
our common stock subject to certain transfer restrictions valued
at $10,427,000 and a $5,000,000 promissory note (the Triad
Note) valued at $4,384,000. If Triad meets certain
cumulative profit targets during the three-year period following
completion of the merger, we will also pay to Triads
former shareholders up to $7,500,000 in cash and up to
4,134,511 shares of common stock (Additional
Contingent Consideration). We also pledged the stock of
Triad to Triads shareholders under a pledge agreement as
security for the payment of the Triad Note. The Triad Note
contains customary events of default, which if uncured, entitle
the Triad Note holders to accelerate the due date of the unpaid
principal amount of, and all accrued and unpaid interest on, the
Triad Note. We are entitled to setoff for indemnification claims
against the Triad Note and any Additional Contingent
Consideration.
Punk,
Ziegel Acquisition
On May 2, 2008, Punk, Ziegel & Company, L.P., a
specialty investment bank based in New York City, was merged
into Ladenburg. As a result, Ladenburg offers Punk Ziegels
full range of research, equity market making, corporate finance,
retail brokerage and asset management services focused on high
growth sectors within the healthcare, healthcare technology,
biotechnology and life sciences industries.
Acquisition
Strategy
We continue to explore opportunities to grow our businesses,
including through potential acquisitions of other securities and
investment banking firms, both domestically and internationally.
These acquisitions may involve payments of material amounts of
cash or debt or the issuance of significant amounts of our
equity securities, which may be dilutive to our existing
shareholders
and/or may
increase our leverage. We cannot assure you that we will be able
to complete any such potential acquisitions on acceptable terms
or at all or, if we do, that any acquired business will be
profitable. Also we may not be able to integrate successfully
acquired businesses into our existing business and operations.
Business
Segments
Effective as of October 19, 2007 (the date we acquired
Investacorp), we have two operating segments which correspond to
our Ladenburg subsidiary and our independent brokerage and
advisory services business conducted by Investacorp and Triad.
Financial and other information by segment for the years ended
December 31, 2008 and 2007 is set forth in Note 18 to
our consolidated financial statements.
Ladenburg
Ladenburgs principal business areas are: investment
banking, retail and institutional brokerage, equity research,
asset management and investing activities.
Investment
Banking Activities
Investment banking revenues consist of underwriting revenues,
strategic advisory revenues and private placement fees.
Underwriting revenues arise from securities offerings in which
Ladenburg acts as an underwriter and include management fees,
selling concessions and underwriting fees, net of related
syndicate expenses. Revenues generated from the investment
banking activities of Ladenburg represented 12%, 58%, and 40% of
our total revenues in 2008, 2007 and 2006, respectively. Our
investment banking professionals maintain relationships with
businesses, private equity firms, and other financial
institutions, as well as high net worth individuals. Our bankers
provide them with extensive corporate finance and investment
banking services. At March 11, 2009, we had approximately
20 professionals in Ladenburgs investment banking group,
located in Miami, Florida and New York, New York.
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In addition to general investment banking and corporate finance
consulting services, Ladenburg provides the following services:
Underwriting of public equity and debt offerings, including
SPAC underwritings. Ladenburg has been active as
lead and co-managing underwriter, general underwriter
and/or a
selling group member in numerous public equity transactions.
We are a leader in underwriting offerings by blank check
companies known as Specified Purpose Acquisition Companies
(SPACs). The revenues associated with these offerings have been
an important contributor to our investment banking business
since 2006. These companies are formed for the purpose of
raising funds in an initial public offering, a significant
portion of which is placed in trust, and then acquiring a target
business, thereby making the target business public.
In recent years, there has been a surge of activity in this
segment of the market, although the number of new SPAC
offerings, as well as the equity capital markets generally,
declined significantly during 2008. Since 2006, Ladenburg had
lead or co-managed 40 SPAC offerings raising approximately
$8 billion, and our professionals provide unique deal
structures and a proprietary retail distribution network that
adds value and validity to the offering. Compensation derived
from these underwritings includes normal discounts and
commissions as well as deferred fees that will be payable to us
only upon the SPACs completion of a business combination.
Generally, these fees may be received within 24 months from
the respective date of the offering, or not received at all if
no business combination transactions are completed during such
time period. SPACs are experiencing significant difficulty in
recent periods in obtaining shareholder approval of business
combination transactions because, among other things, many of
their shareholders hold common stock trading at a discount to
the cash amount per share held in trust. During 2008, Ladenburg
received deferred fees of $5,300,000 (included in investment
banking revenues) and incurred commissions and related expenses
of $2,100,000. As of December 31, 2008, we had unrecorded
potential deferred fees for our SPAC-related transactions of
approximately $36,250,000, which, net of commissions and related
expenses, amounted to approximately $21,400,000.
Private placement of debt and equity, including PIPES and
registered direct offerings. Ladenburg has
extensive experience in both the equity and debt capital markets
and has developed relationships with private equity firms,
mezzanine, senior debt and other institutional financing
sources. Ladenburg undertakes a process-oriented approach to
targeting institutional sources. When applicable, Ladenburg also
works with its clients to target other types of investors,
including strategic parties with whom a synergistic relationship
might be formed.
Ladenburg has expanded its private placement activities to
include PIPE (private investment in public equity) and
registered direct offering transactions and has added additional
personnel dedicated to this practice area. Ladenburg intends to
use its relationships with both public companies seeking to
engage in PIPE and registered direct transactions, as well as
hedge funds and other institutional investors. We believe there
is a significant opportunity for continued growth in this area
given issuers continuing desire to identify and pursue
faster and less costly financing alternatives to traditional
follow-on public offerings and institutional investors
continuing interest in participating in these financing
transactions.
Merger, acquisition, and divestiture advisory
services. Ladenburg reviews a merger or
acquisition clients individual situation and specific
needs and then provides that client with targeted services to
better suit the client. Ladenburg also acts as a financial
advisor and assists its clients with merger and acquisition
services in a variety of scenarios. Ladenburg is a member of
M&A International Inc., the worlds largest M&A
alliance, with 40 members that focus primarily on mid-market
acquisitions that have offices in 37 countries.
Rendering fairness and solvency
opinions. Ladenburg has developed a proven
expertise in the fairness and solvency opinion market, including
rendering fairness opinions for SPACs in connection with
business combinations.
Fairness and solvency opinions are often necessary or requested
in a variety of situations, including mergers, acquisitions,
restructurings, financings and privatizations. Given recent
regulations and growing concerns regarding potential conflicts
of interest between a company and its shareholders, a fairness
opinion serves to mitigate possible risks and associated
litigation. A fairness opinion from a qualified financial
advisor is one of the most effective risk management tools
available to assure sound business judgment has been exercised
in varying types of corporate transactions.
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Ladenburg provides both fairness and solvency opinions and
analyses to boards of directors, independent committees of
boards of directors and shareholders. The firm also provides
objective advice on the valuation of businesses and securities
in connection with mergers, acquisitions, leveraged buyouts and
restructurings, going-private transactions and certain other
market activities.
Due to the increased scrutiny and regulation arising from
inherent conflicts of interest where investment banks serve as a
clients exclusive financial advisor and assist in both the
sale of a company and provide a fairness opinion on the
transaction, there has been an increased need for
second fairness opinions from an independent party.
Ladenburg has experience in issuing these second
opinions and provides unbiased and independent evaluations to
assist in these situations.
Financial valuations. The value of a business
can become a matter of concern in a variety of transactions,
including but not limited to, sale or purchase transactions,
recapitalizations, tax planning and accounting compliance.
Ladenburg has extensive valuation expertise. Ladenburgs
professionals are well qualified to determine the value of
private companies, closely-held business interests, limited
partnership interests, intellectual property and other
intangible assets and corporate securities with marketability
concerns.
Retail
and Institutional Brokerage Business
Historically, Ladenburgs retail and institutional
brokerage business generated a significant percentage of our
revenues. This is no longer true due to the growth of our
independent brokerage and advisory services. Ladenburgs
private client services and institutional sales departments
currently serve a total of approximately 12,000 accounts
nationwide. Ladenburg charges commissions to its individual and
institutional clients for executing securities trading orders.
Our sales and trading operation distributes our equity research
product and communicates our proprietary investment
recommendations to our growing base of institutional investors.
Also, our sales and trading staff executes equity trades on
behalf of our clients and sells the securities of companies for
which we act as an underwriter.
We have established a broad institutional client base through a
consistent focus on the investment and trading objectives of our
clients. Our sales and trading professionals work closely with
our equity research staff to provide insight and differentiated
investment advice to institutional clients nationwide.
We believe that our sales and trading clients turn to us for
timely, differentiated investment advice. Our equity research
features proprietary themes and actionable ideas about
industries and companies that are not widely evaluated by many
other investment banks without our middle-market emphasis. In
recent years, many investment banks have reduced equity research
coverage and market making activities for companies with market
capitalizations below certain thresholds. However, we continue
to commit research and sales and trading resources to
smaller-capitalization companies with the belief that
institutional investors will value such specialized knowledge
and service.
Our sales and trading personnel are also central to our ability
to market equity offerings and provide after-market support. Our
equity capital markets group manages the syndication, marketing,
execution and distribution of equity offerings. Our syndicate
activities include managing the marketing and order-taking
process for underwritten transactions and conducting
after-market stabilization and initial market making. Our
syndicate staff is also responsible for developing and
maintaining relationships with the syndicate departments of
other investment banks.
Research
Services
Ladenburgs research department takes a fresh, critical
approach to analyzing primary sources and developing proprietary
research. Many individuals, institutions, portfolio managers and
hedge fund managers, on all levels, have been neglected by
brokerage firms that ignore the demand for unbiased research.
Ladenburg provides a branded in-depth research product.
Ladenburgs research department focuses on investigating
investment opportunities by utilizing fundamental, technical and
quantitative methods to conduct in-depth analysis. Currently,
our research department specializes in small- to mid-cap
companies in the power and electric utilities, exploration and
production, oil services, healthcare, healthcare technology and
on a special situations basis and may expand to
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additional sectors in the future. Ladenburg recently initiated
research coverage on numerous Florida-based companies and
intends to increase its coverage in this geographic area.
Research is provided on a fee basis to certain institutional
accounts.
Our research department:
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reviews and analyzes general market conditions and other
industry groups;
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issues written reports on companies, with recommendations on
specific actions to buy, sell or hold; or hold;
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furnishes information to retail and institutional
customers; and
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responds to inquires from customers and account executives.
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Asset
Management
Ladenburg
Thalmann Asset Management
Ladenburg Thalmann Asset Management Inc. (LTAM) is a
registered investment advisor and sister company to Ladenburg.
LTAM offers various asset management products utilized by
Ladenburg clients as well as clients of Investacorp and
Triads financial advisors.
Ladenburg
Asset Management Program
The Ladenburg Asset Management Program (LAMP)
provides centralized management of mutual fund and
exchange-traded fund portfolios based on asset allocation
models. Features of the program include active rebalancing at
the asset class and security level, minimum account balance,
risk analysis, customized investment policy statements and
comprehensive performance reporting. The LAMP program is
available to financial advisors of each of our broker-dealers.
Investment
Consulting Services
LTAMs Investor Consulting Services (ICS)
provides clients with access to professional money managers
usually only available to large institutions, across the
spectrum of major asset classes. Whether the client requires a
complete asset allocation strategy or an investment manager for
a single asset class, each of our managers has been thoroughly
examined for inclusion in the ICS program. Once a manager has
been added to the platform, they are regularly reviewed in order
to ensure that they represent a suitable solution.
Private
Investment Management
The Private Investment Management program allows internal
managers to provide portfolio services to clients on a
discretionary basis with specific styles of investing for an
annual asset-based fee. The Private Investment Management
Program Accredited (PIMA) is offered for accredited
investors. The internal PIMA managers manage certain accounts
using the same investment strategy used to manage LTAMs
private funds and other investment strategies involving
short-selling and use of leverage. In addition to an annual
asset-based fee, certain customers also are charged an incentive
fee, if earned, at the end of each calendar year.
Retirement
Plan Sponsor Services
LTAM provides investment consulting services to sponsors of
retirement plans, such as 401(k) plans. These services include:
identifying mutual funds for the plan sponsors review and
final selection based on the selection criteria stated in the
plans investment policy statement; assisting in the
planning and coordination of, and participating in, enrollment
and communication meetings; and providing to the plan sponsor a
detailed quarterly performance report for the purpose of meeting
the plan fiduciarys obligation to monitor plan assets.
Certain plan participants also may engage LTAM to manage their
plan assets on a discretionary basis.
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Alternative
Investments
LTAM provides high net worth clients and institutional investors
the opportunity to invest in proprietary and third party
alternative investments. These include, but are not limited to,
hedge funds, funds of funds, private equity, venture capital and
real estate.
Ladenburg
Architect Program
LTAM provides its customers the Ladenburg Architect Program as a
non-discretionary, fee-based, advisory account that allows them
to maintain control over the management of the account and
choose from a diverse group of securities. The program features
quarterly performance monitoring, check writing, a debit card
and online account access.
Third
Party Advisory Services
Together with its affiliates, LTAM may also provide advisory
services, ranging from proprietary investment solutions to
access to professional money managers for the clients of Triad
and Investacorp Advisory Services, Inc. (IAS),
Investacorps registered investment advisor.
Investment
Activities
Ladenburg may from time to time seek to realize investment gains
by purchasing, selling and holding securities for its own
account on a daily basis. Ladenburg may also from time to time
engage for its own account in the arbitrage of securities. We
are required to commit the capital necessary for use in these
investment activities. The amount of capital committed at any
particular time will vary according to market, economic and
financial factors, including the other aspects of our business.
Additionally, in connection with investment banking activities,
Ladenburg regularly receives shares or warrants that entitle it
to purchase securities of the corporate issuers for which it
raises capital or provides advisory services.
Independent
Brokerage and Advisory Services
Overview
Investacorp and Triad are independent broker-dealers, whose
non-employee registered representatives offer securities
brokerage services to their clients and may emphasize packaged
products such as mutual funds and variable annuities. We believe
that the financial services industry is witnessing an increase
in the number of independent broker-dealer representatives and
registered investment advisors as registered representatives are
leaving large national firms to become independent registered
representatives. These independent registered representatives
need client and back office support services and access to
technology and typically become affiliated with an independent
broker-dealer. We expect this trend to continue and possibly
accelerate in the future.
A registered representative who becomes affiliated with
Investacorp or Triad establishes his or her own office and is
solely responsible for the payment of all expenses associated
with the operation of the branch office (including rent,
utilities, furniture, equipment, stock quotations, and general
office supplies); although all of that branchs revenues
from securities brokerage transactions accrue to Investacorp or
Triad. Because an independent registered representative bears
the responsibility for these expenses, the registered
representative receives a significant percentage of the
commissions they generate, typically at least 80%. This compares
with a payout rate of approximately 25% to 50% to financial
advisors working in a traditional brokerage setting where the
brokerage firm bears substantially all of sales force costs,
including providing employee benefits, office space, sales
assistants, telephone service and supplies. The independent
brokerage model permits Investacorp and Triad to expand their
respective base of revenue and retail distribution network of
investment products without the capital expenditures that would
be required to open company-owned offices and the additional
administrative and other costs of hiring financial advisors as
in-house employees.
Investacorps and Triads registered representatives
must possess a sufficient level of business experience to enable
the individual to independently operate his or her own office.
Insurance agents, financial planners, accountants and other
financial professionals, who already provide financial services
to their clients, often affiliate
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with independent broker-dealers. These professionals then offer
financial products and services to their clients through
Investacorp and Triad and earn commissions and fees for these
transactions and services. Investacorps and Triads
registered representatives have the ability to structure their
own practices and to specialize in different areas of the
securities business, subject to Investacorps and
Triads supervisory procedures as well as compliance with
all applicable regulatory requirements.
Many of Investacorps and Triads financial advisors
provide financial planning services to their clients, wherein
the financial advisor evaluates a clients financial needs
and objectives, develops a detailed plan, and then implements
the plan with the clients approval. When the
implementation of such objectives involves the purchase or sale
of securities (including the placement of assets within a
managed account) such transactions may be effected through
Investacorp or Triad, for which Investacorp or Triad earns
either a commission or a fee. Representatives may be permitted
to conduct other approved businesses unrelated to their
Investacorp or Triad activities such as offering fixed insurance
products, accounting, estate planning and tax services, among
others.
Each representative is required to obtain and maintain in good
standing each license required by the SEC and FINRA to conduct
the type of securities business in which he or she engages, and
to register in the various states in which
he/she has
customers. Each of Investacorp and Triad is ultimately
responsible for supervising all of its registered
representatives wherever they are located. We can incur
substantial liability from improper actions of any of
Investacorps or Triads registered representatives.
Many of Investacorps and Triads financial advisors
are also authorized agents of insurance companies. Investacorp
and Triad process insurance business through subsidiaries or
sister companies which are licensed insurance brokers, as well
as through other licensed insurance brokers. We do not act as an
insurance company and therefore retain no insurance risk related
to insurance and annuity products.
Investacorp and Triad financial advisors also may provide
consultation and financial planning services including: estate
planning, retirement and financial goal planning, educational
funding, asset allocation and insurance needs analysis, as well
as general analysis and planning. These financial advisors may
prepare a written financial plan based upon the clients
stated goals, needs and investment profile.
Strategy
for our Independent Brokerage and Advisory Services
Business
Investacorp and Triad are focused on increasing their networks
of registered representatives, revenues and client assets as
described below.
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Recruit experienced financial
professionals. Each of Investacorp and Triad
actively recruits experienced financial professionals. These
efforts are supported by advertising, targeted direct mail and
inbound and outbound telemarketing. Although Investacorp and
Triad will continue to attempt to recruit those financial
advisors who sell primarily annuities, insurance and mutual
funds, it also intends to pursue financial advisors who focus on
the sale of different types of securities, namely equities and
fixed income products.
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Provide technological solutions to employees and independent
representatives. We believe that it is imperative
that Investacorp and Triad continue to possess state-of-the-art
technology so that their employees and independent registered
representatives can effectively transact, facilitate, measure
and record business activity in a timely, accurate and efficient
manner. By continuing our commitment to provide a highly capable
technology platform to process business, Investacorp and Triad
believe that they can achieve economies of scale and potentially
reduce the need to hire additional personnel.
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Build recurring revenue. We have recognized
the trend toward increased investment advisory business and each
of Investacorp and Triad is focused on building its fee based
investment advisory business, which may be better for certain
clients. While these fees generate substantially lower first
year revenue than most commission products, the recurring nature
of these fees provides a platform for accelerating future
revenue growth.
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Acquire other independent brokerage firms. We
may also pursue the acquisition of other independent brokerage
firms. The ability to realize growth through acquisitions,
however, will depend on the availability of suitable
broker-dealer candidates and our ability to successfully
negotiate favorable terms. There can be
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no assurance that we will be able to consummate any such
acquisitions. Further, there are costs associated with the
integration of new businesses and personnel, which may be more
than anticipated.
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Assist registered representatives to increase their
sales. Investacorp and Triad are aligned with
their registered representatives in seeking to increase their
sales and improve productivity. Investacorp and Triad undertake
initiatives to assist their registered representatives with
client recruitment, training, compliance and product support.
Investacorp and Triad also focus on improving back-office
support to allow representatives more time to focus on serving
their clients, rather than administrative burdens.
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Investacorp
Investacorp supports approximately 500 independent contractor
registered representatives in providing products and services to
their clients in approximately 326 branch offices located in
41 states. Approximately one-quarter of the registered
representatives are located in Florida. A significant number of
Investacorps registered representatives also are located
in New York. The number of registered representatives in these
offices ranges from one to 15. Revenues generated from
Investacorps business represented 48% of our total
revenues in 2008.
Triad
Triad supports approximately 400 independent contractor
registered representatives in providing products and services to
their clients in approximately 233 branch offices located in
42 states. Approximately 15% of the registered
representatives are located in Georgia. A significant number of
Triads registered representatives also are located in
Michigan. The number of registered representatives in these
offices ranges from one to seven. Revenues generated from the
business of Triad, acquired in August 2008, represented 18% of
our total revenues in 2008.
Investacorps
and Triads Brokerage Business
Each of Investacorp and Triad provides full support services to
each of its registered representatives, including: access to
stock and options execution; products such as insurance, mutual
funds, unit trusts and investment advisory programs; and
research, compliance, supervision, accounting and related
services.
While an increasing number of clients are electing asset-based
fee platforms rather than the traditional commission schedule,
in most cases Investacorp and Triad charge commissions on
variable annuity, mutual fund, equity and fixed income
transactions. Investacorp and Triad primarily derive revenue
from commissions from the sale of variable annuity products and
mutual funds by their independent registered representatives.
Investacorp and Triad continue to focus on growing asset-based
fee platforms.
Investacorps
Asset Management Business
Advisor
Managed Accounts
IAS offers five account structures for advisor managed accounts,
based on National Financial Services LLC (NFS)
technologies, allowing its advisors and their clients to
determine the best structure for their needs. These accounts
consist of:
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Architect a complete WRAP account with a
$50,000 minimum; no transaction costs for mutual fund, equity,
fixed income or ETF trades.
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Structure a fee-based account with a $25,000
minimum; allowing transactions in mutual funds, equities, fixed
income or ETFs with transaction costs.
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Choice a fee-based account with a $25,000 minimum;
allowing transactions in mutual funds and ETFs with transaction
costs.
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Edge a lower cost alternative fee-based account with
a $25,000 minimum; allowing transactions in non-transaction fee
mutual funds with no transaction costs.
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Managed Account Solutions a fee-based account
allowing transactions in mutual funds, equities, fixed income
and ETFs with transaction costs which leverages NFS direct
technology.
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IAS currently offers other account structures for advisor
managed accounts, based on the technologies of each of its three
clearing firms, allowing its advisors and their clients to
determine the best structure for their needs across multiple
clearing options. The accounts in this series are titled Target.
The services may include advisory, administrative and processing
functions.
Third
Party Programs
For advisors who prefer not to act as portfolio manager, IAS
offers third party management options. These options employ
managers who select diversified, fee-based asset management
investment portfolios based on a clients needs. The types
of portfolios may include separately managed portfolios,
multi-managed accounts, and mutual fund model portfolios. These
portfolios may also include portfolio analytics, performance
reporting and position-specific reporting.
Triads
Asset Management Business
Advisor
Managed Accounts
Triad offers four account structures for advisor managed
accounts allowing its advisors and their clients to determine
the best structure for their needs. These accounts consist of:
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Summit a mutual fund wrap account with a
$50,000 minimum; no transaction costs for mutual fund
transactions.
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Pinnacle a complete wrap account with a
$150,000 minimum; no transaction costs for mutual fund, equity,
ETF or fixed income trades.
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Apex no account minimum; discounted transaction
costs.
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Crown no account minimum; $20 annual fee; discounted
transaction costs.
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Third
Party Managed Accounts
For advisors that prefer not to act as portfolio manager, Triad
offers the following third party management options:
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Privately managed accounts provides broad selection
of managers to select and consultation with Triad regarding
appropriate options.
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Odyssey designed for
mid-net-worth
accounts; provides diversified, fee based asset management
solution providing portfolio analytics.
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Managed Account Solutions provides a turnkey asset
management platform offering fee-based asset management through
separate managed accounts, multi-managed accounts and mutual
fund model portfolios; includes analytics and performance and
position-specific reporting.
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Administration,
Operations, Securities Transactions Processing and Customer
Accounts
Our broker-dealer subsidiaries do not hold funds or securities
for their customers. Instead, Ladenburg and Triad use the
services of NFS, and Investacorp uses the services of NFS,
J.P. Morgan Clearing Corp. and Ridge Clearing and
Outsourcing Solutions, Inc. as their clearing agents on a fully
disclosed basis. The clearing agents process all securities
transactions and maintain customer accounts on a fee basis. SIPC
coverage protects client accounts up to $500,000 per customer,
including up to $100,000 for cash. Our clearing agents (except
for J.P. Morgan Clearing Corp.) also maintain excess
securities bonds, Excess SIPC, providing additional
protection. Clearing agent services include billing, credit
control, and receipt, custody and delivery of securities. The
clearing agent provides operational support necessary to
process, record and maintain securities transactions for
Ladenburgs, Investacorps and Triads brokerage
activities. The clearing agent also lends funds to
Ladenburgs, Investacorps and Triads customers
through the use of margin credit. These loans are made to
customers on a secured basis, with the clearing agent
maintaining collateral in the form of saleable securities, cash
or cash
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equivalents. We have agreed to indemnify the clearing agents for
losses they may incur on these credit arrangements.
Seasonality
and Cyclical Factors
Historically, our revenues were affected by U.S. vacation
seasons, such as July, August and December. However, the growth
of our independent brokerage and advisory services business has
reduced the impact of seasonality on our results. Our revenues
may be adversely affected by cyclical factors, such as the
current financial market downturn as well as problems or
recessions in the U.S. or global economies. These downturns
may cause investor concern, which results in fewer investment
banking transactions and less investing by institutional and
retail investors, thereby reducing our revenues and potential
profits. Such conditions might also expose us to the risk of
being unable to raise additional capital to offset related
significant reductions in revenues.
Competition
We encounter intense competition in all aspects of our business
and compete directly with many other providers of financial
services for clients as well as registered representatives. We
compete directly with many other national and regional full
service financial services firms, discount brokers, investment
advisors, broker-dealer subsidiaries of major commercial bank
holding companies, insurance companies and other companies
offering financial services in the U.S., globally, and through
the Internet. Many of our competitors have significantly greater
financial, technical, marketing and other resources than we do.
Also, many firms offer discount brokerage services and generally
effect transactions at substantially lower commission rates on
an execution only basis, without offering other
services such as investment recommendations and research.
Moreover, there is substantial commission discounting by
full-service broker-dealers competing for institutional and
retail brokerage business.
A growing number of brokerage firms offer online trading which
has further intensified the competition for brokerage customers.
Ladenburg, Investacorp and Triad currently do not offer any
online trading services to their customers, although they offer
on-line account access to their customers to review their
account balances and activity. Competition also is increasing
from other financial institutions, notably banking institutions,
insurance companies and other organizations, which offer
customers some of the same services and products presently
provided by securities firms. We seek to compete through the
quality of our registered representatives and investment
bankers, our level of service, the products and services we
offer and our expertise in certain areas.
There is significant competition for qualified personnel in the
financial services industry. Our ability to compete effectively
depends on attracting, retaining and motivating qualified
registered representatives, investment bankers, trading
professionals, portfolio managers and other revenue-producing or
specialized personnel.
Government
Regulation
The securities industry, including our business, is subject to
extensive regulation by the SEC, state securities regulators and
other governmental regulatory authorities. The principal purpose
of these regulations is the protection of customers and the
securities markets. The SEC is the federal agency charged with
the administration of the federal securities laws. Much of the
regulation of broker-dealers, however, has been delegated to
self-regulatory organizations, principally FINRA and the MSRB.
These self-regulatory organizations adopt rules, subject to
approval by the SEC, which govern their members and conduct
periodic examinations of member firms operations.
Securities firms are also subject to regulation by state
securities commissions in the states in which they are
registered. Ladenburg is a registered broker-dealer with the SEC
and a member firm of the NYSE. Each of Investacorp and Triad is
a registered broker-dealer with the SEC. Each of Ladenburg,
Investacorp and Triad is licensed to conduct activities as a
broker-dealer in all 50 states.
The regulations to which broker-dealers are subject cover all
aspects of the securities industry, including:
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sales methods and supervision;
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trading practices among broker-dealers;
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use and safekeeping of customers funds and securities;
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capital structure of securities firms;
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record keeping;
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conduct of directors, officers and employees; and
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advertising, including regulations related to telephone
solicitation.
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As registered investment advisors under the Investment Advisers
Act of 1940, as amended, Triad, LTAM and IAS are subject to the
regulations under both the Investment Advisers Act and certain
state securities laws and regulations. Such requirements relate
to, among other things:
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limitations on the ability of investment advisors to charge
performance-based or non-refundable fees to clients;
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record-keeping and reporting requirements;
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disclosure requirements;
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limitations on principal transactions between an advisor or its
affiliates and advisory clients; and
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general anti-fraud prohibitions.
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Additional legislation, changes in rules promulgated by the SEC
and by self-regulatory bodies and changes in the interpretation
or enforcement of existing laws and rules often directly affect
the method of operation and profitability of broker-dealers. The
SEC and the self-regulatory bodies may conduct administrative
proceedings which can result in censure, fine, suspension or
expulsion of a broker-dealer, its officers, employees or
registered representatives.
Net
Capital Requirements
Our registered broker-dealer subsidiaries are subject to the
SECs net capital rule, which is designed to measure the
general financial integrity and liquidity of a broker-dealer.
Net capital is defined as the net worth of a broker-dealer
subject to certain adjustments. In computing net capital,
various adjustments are made to net worth which exclude assets
not readily convertible into cash. Additionally, the regulations
require that certain assets, such as a broker-dealers
position in securities, be valued in a conservative manner so as
to avoid over-inflation of the broker-dealers net capital.
Ladenburg is subject to the SECs Uniform Net Capital
Rule 15c3-1
and the Commodity Futures Trading Commissions
Regulation 1.17. Ladenburg has elected to compute its net
capital under the alternative method allowed by these rules. At
December 31, 2008, Ladenburg had net capital, as defined,
of approximately $5,226,000, which exceeded its minimum capital
requirement of $500,000 by $4,726,000. Each of Ladenburg,
Investacorp and Triad claims an exemption from the provisions of
the SECs
Rule 15c3-3
pursuant to paragraph (k)(2)(ii) as it clears its customer
transactions through its correspondent broker on a fully
disclosed basis.
Investacorp is subject to SEC
Rule 15c3-1,
which requires the maintenance of minimum net capital and
requires that the ratio of aggregate indebtedness to net
capital, both as defined, shall not exceed 15 to 1. At
December 31, 2008, Investacorp had net capital of
approximately $1,709,000, which was $1,417,000 in excess of its
required net capital of $292,000. At December 31, 2008,
Investacorps net capital ratio was 2.57 to 1.
Triad is also subject to SEC
Rule 15c3-1.
At December 31, 2008, Triad had net capital of
approximately $775,000, which was $525,000 in excess of its
required net capital of $250,000. At December 31, 2008,
Triads net capital ratio was 2.92 to 1.
Compliance with the net capital rule limits those operations of
broker-dealers which require the intensive use of their capital,
such as underwriting commitments and principal trading
activities. In the past, Ladenburg has entered into, and from
time to time in the future may enter into, temporary
subordinated loan arrangements to borrow funds on a short-term
basis from our shareholders or clearing broker to supplement the
capital of our broker-dealers to facilitate underwriting
transactions.
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Also, funds invested as equity capital may not be withdrawn, nor
may any unsecured advances or loans be made to any stockholder
of a registered broker-dealer, if, after giving effect to the
withdrawal, advance or loan and to any other withdrawal, advance
or loan as well as to any scheduled payments of subordinated
debt which are scheduled to occur within six months, the net
capital of the broker-dealer would fall below 120% of the
minimum dollar amount of net capital required or the ratio of
aggregate indebtedness to net capital would exceed 10 to 1.
Further, any funds invested in the form of subordinated debt
generally must be invested for a minimum term of one year and
repayment of such debt may be suspended if the broker-dealer
fails to maintain certain minimum net capital levels. For
example, scheduled payments of subordinated debt are suspended
in the event that the ratio of aggregate indebtedness to net
capital of the broker-dealer would exceed 12 to 1 or its net
capital would be less than 120% of the minimum dollar amount of
net capital required. The net capital rule also prohibits
payments of dividends, redemption of stock and the prepayment,
or payment in respect of principal or subordinated indebtedness
if net capital, after giving effect to the payment, redemption
or repayment, would be less than the specified percentage (120%)
of the minimum net capital requirement.
Failure to maintain the required net capital may subject a firm
to suspension or expulsion by FINRA, the SEC and other
regulatory bodies and ultimately may require its liquidation.
Compliance with the net capital rule could limit
Ladenburgs operations that require the intensive use of
capital, such as underwriting and trading activities, and also
could restrict our ability to withdraw capital from it, which in
turn could limit our ability to pay dividends, repay debt and
redeem or purchase shares of our outstanding capital stock.
In addition to regulatory net capital restrictions, Investacorp
is contractually restricted from declaring a dividend to us that
would result in its retained earnings and paid-in capital
falling below the lesser of $5,000,000 or the then outstanding
principal balance of the $15,000,000 promissory note we issued
to Investacorps former principal shareholder. At
December 31, 2008, this note had an outstanding principal
balance of $9,384,996.
Geographic
Area
We are domiciled in the United States and virtually all of our
revenue is attributed to activities in the United States. All of
our long-lived assets are located in the United States.
Personnel
At December 31, 2008, Ladenburg had a total of
approximately 176 employees, of which 108 are producers and
68 are other full time employees; Investacorp had approximately
500 non-employee registered representatives and 62 full time
employees; and Triad had approximately 400 non-employee
registered representatives and 41 full time employees. No
employees are covered by a collective bargaining agreement. We
consider our relationship with our employees and independent
contractors to be good.
You should carefully consider all of the material risks
described below regarding our company. Our business, financial
condition or results of operation could be materially adversely
affected by any of these risks. Additional risks and
uncertainties not currently known to us or that we currently
deem immaterial also may materially and adversely affect our
business operations.
Risk
Factors Relating to Our Business
Our
business has been materially adversely affected by the recent
severe downturn in the financial markets.
Our business has been materially adversely affected by the
recent severe downturn in the financial markets and economic
conditions generally, both in the United States and globally.
Our investment banking revenues, in the form of financial
advisory and underwriting fees, are directly related to the
number and size of the transactions in which we participate and
have been adversely affected by the recent significant downturn
in the securities markets. Additionally, the downturn in market
conditions has led to a decline in assets under management and
the volume of transactions that we execute for our customers
and, therefore, to a decline in the revenues we would otherwise
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receive from commissions, fees and spreads. Also, market
uncertainty may cause clients to transfer assets out of funds,
other products and brokerage accounts, thereby reducing
revenues. To the extent that clients do not withdraw funds, they
may invest in products that generate less fee income. The extent
and duration of the current adverse market condition is not
clear, and while these adverse financial and economic conditions
persist, we may continue to incur a further decline in
transactions and revenues that we receive from commissions, fees
and spreads.
We have
incurred, and may continue to incur, significant operating
losses.
Although we had net income for the years ended December 31,
2007 and 2006, we incurred significant losses from operations
during the year ended December 31, 2008 and during each of
the four years ended December 31, 2005. We cannot assure
you that we will be able to achieve revenue growth,
profitability or positive cash flow on either a quarterly or
annual basis. Although we believe that we have adequate cash and
regulatory capital to fund our current level of operating
activities through December 31, 2009, if we are unable to
sustain profitability, we may not be financially viable in the
future and may have to curtail, suspend or cease operations.
A large
portion of our revenue for any period may result from a limited
number of underwriting transactions.
A large part of our revenue for any period may be derived from a
limited number of underwritings in which Ladenburg serves as
either the lead or co-manager. We cannot assure you that
Ladenburg will continue to serve as lead or co-manager of
similar underwritings in the future. If Ladenburg is not able to
do so, our revenue may significantly decrease and our results of
operations may be adversely affected.
Our
revenues will continue to suffer if the market for SPAC
offerings does not resume.
The number of new SPAC offerings, as well as the equity capital
markets generally, have declined significantly during the past
year. A continuation of the significant downturn in the market
for SPAC transactions will adversely affect our results of
operations. Underwritings for SPAC transactions have been an
important source of revenues for us since 2006. SPAC
transactions are currently exempt from rules adopted by the SEC
to protect investors of blank check companies, such as
Rule 419 under the Securities Act of 1933. However, the SEC
may determine to adopt new rules relating to SPAC transactions
which could impact our ability to successfully underwrite these
transactions.
Deferred
underwriting fees may not be received by us.
At December 31, 2008, we were owed deferred fees from SPAC
underwritings that Ladenburg participated in of approximately
$36,250,000, or $21,400,000 after expenses. These deferred fees
are not included in our revenues, however, until a business
combination is completed by the SPAC and Ladenburg is paid.
Accordingly, if the SPACs from which we are owed deferred fees
are unable to consummate business combinations, we will not be
entitled to receive the deferred fees we are owed. SPACs are
experiencing significant difficulty in recent periods in
obtaining shareholder approval of business combination
transactions because, among other things, many of their
shareholders hold common stock trading at a discount to the cash
amount per share held in trust. Since August 2003, based upon
publicly available information, approximately 161 SPACs have
completed initial public offerings as of March 2, 2009. Of
these companies, only 63 companies have consummated a
business combination, while 17 other companies have announced
they have entered into a definitive agreement for a business
combination, but have not consummated such business combination
and 36 companies have failed to complete business
combinations and are being dissolved or have dissolved and
returned trust proceeds to their stockholders. Accordingly, if
the SPACs that owe us deferred fees do not consummate business
combinations, we will not receive these fees and our results of
operations may be adversely affected.
Our
quarterly operating results may fluctuate substantially due to
the nature of our business and therefore we may fail to meet
profitability expectations.
Our revenue and operating results may fluctuate from quarter to
quarter and from year to year due to a combination of factors,
including the level of underwritings and advisory transactions
completed by us and the level
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of fees we receive from those underwritings and transactions.
Accordingly, our results of operations may fluctuate
significantly due to an increased or decreased number of
transactions in any particular quarter or year.
Our
financial leverage impairs our ability to obtain financing and
limits cash flow available for operations.
Our indebtedness:
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limits our ability to obtain additional financing for working
capital, regulatory capital requirements, acquisitions or
general corporate purposes;
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requires us to dedicate a substantial portion of cash flows from
operations to the payment of principal and interest on our
indebtedness, resulting in less cash available for operations
and other purposes; and
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increases our vulnerability to downturns in our business or in
general economic conditions.
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Our ability to satisfy our obligations and to reduce our total
debt depends on our future operating performance and prospects.
Our future operating performance is subject to many factors,
including economic, financial and competitive factors, which may
be beyond our control. As a result, we may not be able to
generate sufficient cash flow, and future financings may not be
available to provide sufficient net proceeds, to meet these
obligations.
Our
business depends on commissions and fees generated from the
distribution of financial products.
An important portion of our revenues is generated from
commissions and fees related to the distribution of financial
products such as mutual funds and variable annuities by the
Investacorp and Triad registered representatives, and to a
lesser extent, Ladenburgs registered representatives.
Changes in the structure or amount of the fees paid by the
sponsors of these products could materially adversely affect our
revenues and results of operation.
Also, regulatory agencies and other industry participants have
suggested that
Rule 12b-1
distribution fees in the mutual fund industry should be
reconsidered and, potentially, reduced or eliminated. Any
reduction or restructuring of
Rule 12b-1
distribution fees could have a material adverse effect on our
results of operations.
Misconduct
by our employees and independent registered representatives is
difficult to detect and deter and could harm our business,
results of operations or financial condition.
Misconduct by our employees and independent registered
representatives could result in violations of law by us,
regulatory sanctions
and/or
serious reputational or financial harm.
Misconduct could include:
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binding us to transactions that exceed authorized limits;
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hiding unauthorized or unsuccessful activities resulting in
unknown and unmanaged risks or losses;
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improperly using or disclosing confidential information;
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recommending transactions that are not suitable;
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engaging in fraudulent or otherwise improper activity;
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engaging in unauthorized or excessive trading to the detriment
of customers; or
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otherwise not complying with laws or our control procedures.
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We cannot always deter misconduct by our employees and
independent registered representatives, and the precautions we
take to prevent and detect this activity may not be effective in
all cases. Prevention and detection among our independent
registered representatives, who are not employees of our company
and tend to be located in small, decentralized offices, presents
additional challenges. We also cannot assure that misconduct by
our employees and independent registered representatives will
not lead to a material adverse effect on our business or results
of operations.
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We may
incur significant losses from trading and investment activities
due to market fluctuations and volatility.
We may maintain trading and investment positions in the equity
markets. To the extent that we own assets, i.e., have long
positions, in those markets, a downturn in those markets could
result in losses from a decline in the value of those long
positions. Conversely, to the extent that we have sold assets
that we do not own, i.e., have short positions, in any of those
markets, an upturn in those markets could expose us to
potentially unlimited losses as we attempt to cover our short
positions by acquiring assets in a rising market.
We may from time to time use a trading strategy consisting of
holding a long position in one security and a short position in
another security from which we expect to earn a positive return
based on changes in the relative value of the two securities.
If, however, the relative value of the two securities changes in
a direction or manner that we did not anticipate or against
which we are not hedged, we might realize a loss in those paired
positions. Also, we maintain trading positions that can be
adversely affected by the level of volatility in the financial
markets, i.e., the degree to which trading prices fluctuate over
a particular period, in a particular market, regardless of
market levels.
We may be
prohibited from underwriting securities due to capital
limits.
From time to time, our underwriting activities may require that
we temporarily receive an infusion of capital for regulatory
purposes. This is predicated on the amount of commitment
Ladenburg makes for each underwriting. In the past, we entered
into temporary subordinated loan arrangements with our
shareholders or clearing firm. Should we no longer be able to
receive such funding from these sources, and if there are no
other viable sources available, it would have an adverse impact
on our ability to generate profits, recruit financial
consultants and retain existing customers.
Our
capital markets and strategic advisory engagements are singular
in nature and do not generally provide for subsequent
engagements.
Ladenburgs investment banking clients generally retain it
on a short-term,
engagement-by-engagement
basis in connection with specific capital markets or mergers and
acquisitions transactions, rather than on a recurring basis
under long-term contracts. As these transactions are typically
singular in nature and our engagements with these clients may
not recur, Ladenburg must seek out new engagements when its
current engagements are successfully completed or are
terminated. As a result, high activity levels in any period are
not necessarily indicative of continued high levels of activity
in any subsequent period. If we are unable to generate a
substantial number of new engagements that generate fees from
new or existing clients, our business and results of operations
would likely be adversely affected.
We depend
on our senior employees and the loss of their services could
harm our business.
Our success is dependent in large part upon the services of
several of our senior executives and employees, including those
of our broker-dealer subsidiaries. We do not maintain and do not
intend to obtain key man insurance on the life of any executive
or employee. If our senior executives or employees terminate
their employment with us and we are unable to find suitable
replacements in relatively short periods of time, our business
and results of operations may be materially and adversely
affected.
We face
significant competition for professional employees.
From time to time, individuals we employ may choose to leave our
company to pursue other opportunities. We have experienced
losses of registered representatives, trading and investment
banking professionals in the past, and the level of competition
for key personnel remains intense. We cannot assure you that the
loss of key personnel will not occur again in the future. The
loss of a registered representative or a trading or investment
banking professional, particularly a senior professional with a
broad range of contacts in an industry, could materially and
adversely affect our results of operations.
16
Poor
performance of the investment products and services recommended
or sold to asset management clients may have a material adverse
effect on our business.
Our investment advisory clients generally may terminate their
contracts upon 30 days notice. These clients can
terminate their relationship, reduce the aggregate amount of
assets under management or shift their funds to other types of
accounts with different rate structures for any number of
reasons, including investment performance, changes in prevailing
interest rates, financial market performance and personal client
liquidity needs. Poor performance of the investment products and
services recommended or sold to such clients relative to the
performance of other products available in the market or the
performance of other investment management firms tends to result
in the loss of accounts. The decrease in revenue that could
result from such an event could have a material adverse effect
on our results of operations.
Systems
failures could significantly disrupt our business.
Our business depends on our and our clearing firms ability
to process, on a daily basis, many transactions across numerous
and diverse markets and the transactions we process have become
increasingly complex. We rely heavily on our communications and
financial, accounting and other data processing systems,
including systems we maintain and systems provided by our
clearing brokers and service providers. We face operational risk
arising from mistakes made in the confirmation or settlement of
transactions or from transactions not being properly recorded,
evaluated or accounted.
If any of these systems do not operate properly or are disabled,
we could suffer financial loss, a disruption of our business,
liability to clients, regulatory intervention or reputational
damage. Any failure or interruption of our systems, the systems
of our clearing brokers, or third party trading systems could
cause delays or other problems in our securities trading
activities, which could have a material adverse effect on our
operating results. Also, our clearing brokers provide our
principal disaster recovery system. We cannot assure you that we
or our clearing brokers will not suffer any systems failures or
interruption, including ones caused by earthquake, fire, other
natural disasters, power or telecommunications failure, act of
God, act of war, terrorism, or otherwise, or that our or our
clearing brokers
back-up
procedures and capabilities in the event of any such failure or
interruption will be adequate. The inability of our or our
clearing brokers systems to accommodate an increasing
volume of transactions could also constrain our ability to
expand our business.
A
relatively small number of institutional customers generate a
significant portion of our institutional trading
revenue.
A relatively small number of our institutional investor
customers generate a substantial portion of our institutional
trading revenue. If any key customers depart or reduce their
business with us and we fail to attract new customers that are
capable of generating significant trading volumes, our business
and results of operations will be adversely affected.
Our
expenses may increase due to real estate commitments.
We have subleased office space in various locations to
subtenants, some of whom are engaged in the financial services
industry. Should any of the sub-tenants experience financial
difficulty, or otherwise not pay their rent for an extended
period of time, it may have a material adverse effect on our
results of operations.
Our risk
management policies and procedures may leave us exposed to
unidentified risks or an unanticipated level of risk.
The policies and procedures we employ to identify, monitor and
manage risks may not be fully effective. Some methods of risk
management are based on the use of observed historical market
behavior. As a result, these methods may not predict future risk
exposures, which could be significantly greater than the
historical measures indicate. Other risk management methods
depend on evaluation of information regarding markets, clients
or other matters that are publicly available or otherwise
accessible by us. This information may not be accurate,
complete, up-to-date or properly evaluated. Management of
operational, legal and regulatory risk requires, among other
things,
17
policies and procedures to properly record and verify a large
number of transactions and events. We cannot assure you that our
policies and procedures will effectively and accurately record
and verify this information.
We seek to monitor and control our risk exposure through a
variety of separate but complementary financial, credit,
operational and legal reporting systems. We believe that we
effectively evaluate and manage the market, credit and other
risks to which we are exposed. Nonetheless, the effectiveness of
our ability to manage risk exposure can never be completely or
accurately predicted or fully assured. For example, unexpectedly
large or rapid movements or disruptions in one or more markets
or other unforeseen developments can have a material adverse
effect on our results of operations and financial condition. The
consequences of these developments can include losses due to
adverse changes in inventory values, decreases in the liquidity
of trading positions, higher volatility in earnings, increases
in our credit risk to customers as well as to third parties and
increases in general systemic risk.
Risk
Factors Relating to Our Industry
We rely
on clearing brokers and the termination of the agreements with
any one of these clearing brokers could disrupt our
business.
Each of Ladenburg and Triad primarily uses one clearing broker
and Investacorp currently uses three clearing brokers to process
securities transactions and maintain customer accounts on a fee
basis. The clearing brokers also provide billing services,
extend credit and provide for control and receipt, custody and
delivery of securities. Ladenburg, Investacorp and Triad depend
on the operational capacity and ability of the clearing brokers
for the orderly processing of transactions. By engaging the
processing services of a clearing firm, each of Ladenburg,
Investacorp and Triad is exempt from some capital reserve
requirements and other regulatory requirements imposed by
federal and state securities laws. If any of these clearing
agreements were terminated for any reason, we would be forced to
find an alternative clearing firm. We cannot assure you that we
would be able to find an alternative clearing firm on acceptable
terms to us or at all. Also, the loss of any particular clearing
firm could hamper Investacorps ability to recruit and
retain its independent registered representatives.
Our
clearing brokers extend credit to our clients and we are liable
if the clients do not pay.
Each of Ladenburg, Investacorp and Triad permits its clients to
purchase securities on a margin basis or sell securities short,
which means that the clearing firm extends credit to the client
secured by cash and securities in the clients account.
During periods of volatile markets, the value of the collateral
held by the clearing broker could fall below the amount borrowed
by the client. If margin requirements are not sufficient to
cover losses, the clearing broker sells or buys securities at
prevailing market prices, and may incur losses to satisfy client
obligations. Each of Ladenburg, Investacorp and Triad has agreed
to indemnify the clearing broker for losses it may incur while
extending credit to its clients.
Credit
risk exposes us to losses caused by financial or other problems
experienced by third parties.
We are exposed to the risk that third parties that owe us money,
securities or other assets will not perform their obligations.
These parties include:
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trading counterparties;
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customers;
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clearing agents;
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other broker-dealers;
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exchanges;
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clearing houses; and
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other financial intermediaries as well as issuers whose
securities we hold.
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18
These parties may default on their obligations owed to us due to
bankruptcy, lack of liquidity, operational failure or other
reasons. This risk may arise, for example, from:
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holding securities of third parties;
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executing securities trades that fail to settle at the required
time due to non-delivery by the counterparty or systems failure
by clearing agents, exchanges, clearing houses or other
financial intermediaries; and
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extending credit to clients through bridge or margin loans or
other arrangements.
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Significant failures by third parties to perform their
obligations owed to us could adversely affect our revenues and
perhaps our ability to borrow in the credit markets.
Intense
competition from existing and new entities may adversely affect
our revenues and profitability.
The securities industry is rapidly evolving, intensely
competitive and has few barriers to entry. We expect competition
to continue and intensify in the future. Many of our competitors
have significantly greater financial, technical, marketing and
other resources than we do. Some of our competitors also offer a
wider range of services and financial products than we do and
have greater name recognition and a larger client base. These
competitors may be able to respond more quickly to new or
changing opportunities, technologies and client requirements.
They may also be able to undertake more extensive promotional
activities, offer more attractive terms to clients, and adopt
more aggressive pricing policies. We may not be able to compete
effectively with current or future competitors and competitive
pressures faced by us may harm our business.
Errors
and omissions claims may negatively affect our business and
results of operations.
Our subsidiaries are subject to claims and litigation in the
ordinary course of business resulting from alleged and actual
errors and omissions in placing insurance, effecting securities
transactions and rendering investment advice. These activities
involve substantial amounts of money. Since errors and omissions
claims against our subsidiaries or their registered
representatives may allege liability for all or part of the
amounts in question, claimants may seek large damage awards.
These claims can involve significant defense costs. Errors and
omissions could include, for example, failure, whether
negligently or intentionally, to effect securities transactions
on behalf of clients, to choose suitable investments for any
particular client, to supervise a registered representative or
to provide insurance carriers with complete and accurate
information. It is not always possible to prevent or detect
errors and omissions, and the precautions our subsidiaries take
may not be effective in all cases. Moreover, our Ladenburg
subsidiary and its registered representatives do not carry
errors and omissions insurance coverage and some of
Investacorps registered representatives do not carry such
coverage either. Our liability for significant and successful
errors and omissions claims may materially and negatively affect
our results of operations.
We are
subject to various risks associated with the securities
industry.
We are subject to uncertainties that are common in the
securities industry. These uncertainties include:
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the volatility of domestic and international financial, bond and
stock markets;
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extensive governmental regulation;
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litigation;
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intense competition;
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substantial fluctuations in the volume and price level of
securities; and
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dependence on the solvency of various third parties.
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As a result, revenues and earnings may vary significantly from
quarter to quarter and from year to year. In periods of low
volume, profitability is impaired because certain expenses
remain relatively fixed. We are much smaller and have much less
capital than many competitors in the securities industry. In the
event of a market downturn, our business could be adversely
affected in many ways. Our revenues are likely to decline in
such circumstances and, if we are unable to reduce expenses at
the same pace, our profit margins would erode.
19
Legal
liability may harm our business.
Many aspects of our business involve substantial risks of
liability. An underwriter is exposed to substantial liability
under federal and state securities laws, other federal and state
laws, and court decisions, including decisions about
underwriters liability and limitations on indemnification
of underwriters by issuers. For example, a firm that acts as an
underwriter may be held liable for material misstatements or
omissions of fact in a prospectus used in connection with the
securities being offered or for statements made by its
securities analysts or other personnel. In recent years, there
has been an increasing incidence of litigation involving the
securities industry, including class actions that seek
substantial damages. Our underwriting activities often involve
offerings of the securities of smaller companies, which may
involve a higher degree of risk and are more volatile than the
securities of more established companies. In comparison with
more established companies, smaller companies are also more
likely to be the subject of securities class actions, to carry
directors and officers liability insurance policies with lower
limits or not at all, and to become insolvent. Each of these
factors increases the likelihood that an underwriter of a
smaller companys securities will be required to contribute
to an adverse judgment or settlement of a securities lawsuit.
In the normal course of business, our operating subsidiaries
have been and continue to be the subject of numerous civil
actions and arbitrations arising out of customer complaints
relating to our activities as a broker-dealer, as an employer or
as a result of other business activities. In general, the cases
involve various allegations that our employees or registered
representatives had mishandled customer accounts. We believe
that, based on our historical experience and the reserves
established by us, the resolution of the claims presently
pending will not have a material adverse effect on our financial
condition. However, although we typically reserve an amount we
believe will be sufficient to cover any damages assessed against
us, we have in the past been assessed damages that exceeded our
reserves. If we misjudged the amount of damages that may be
assessed against us from pending or threatened claims, or if we
are unable to adequately estimate the amount of damages that
will be assessed against us from claims that arise in the future
and reserve accordingly, our financial condition may be
materially adversely affected.
Risk
Factors Relating to the Regulatory Environment
We are
subject to extensive securities regulation and the failure to
comply with these regulations could subject us to penalties or
sanctions.
The securities industry and our business is subject to extensive
regulation by the SEC, state securities regulators and other
governmental regulatory authorities. We are also regulated by
industry self-regulatory organizations, including FINRA and the
MSRB. The regulatory environment is also subject to change and
we may be adversely affected as a result of new or revised
legislation or regulations imposed by the SEC, other federal or
state governmental regulatory authorities, or self-regulatory
organizations. We also may be adversely affected by changes in
the interpretation or enforcement of existing laws and rules by
these governmental authorities and self-regulatory organizations.
Each of Ladenburg, Investacorp and Triad is a registered
broker-dealer with the SEC and FINRA. Broker-dealers are subject
to regulations which cover all aspects of the securities
business, including:
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sales methods and supervision;
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trading practices among broker-dealers;
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use and safekeeping of customers funds and securities;
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capital structure of securities firms;
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record keeping; and
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conduct of directors, officers and employees.
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Compliance with many of these regulations involves a number of
risks, particularly in areas where applicable regulations may be
subject to varying interpretation. The requirements imposed by
these regulators are designed to ensure the integrity of the
financial markets and to protect customers and other third
parties who deal with us. Consequently, these regulations often
serve to limit our activities, including through net capital,
customer
20
protection and market conduct requirements. Much of the
regulation of broker-dealers has been delegated to
self-regulatory organizations, principally FINRA. FINRA adopts
rules, subject to SEC approval, that govern broker-dealers and
conducts periodic examinations of firms operations.
If we are found to have violated any applicable regulation,
formal administrative or judicial proceedings may be initiated
against us that may result in:
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censure;
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fine;
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civil penalties, including treble damages in the case of insider
trading violations;
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the issuance of
cease-and-desist
orders;
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the deregistration or suspension of our broker-dealer activities;
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the suspension or disqualification of our officers or
employees; or
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other adverse consequences.
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The imposition of any of these or other penalties could have a
material adverse effect on our operating results and financial
condition.
Legislative,
judicial or regulatory changes to the classification of
independent contractors could increase our operating
expenses.
From time to time, various legislative or regulatory proposals
are introduced at the federal or state levels to change the
status of independent contractors classification to
employees for either employment tax purposes (withholding,
social security, Medicare and unemployment taxes) or other
benefits available to employees. Currently, most individuals are
classified as employees or independent contractors for
employment tax purposes based on 20 common law
factors, rather than any definition found in the Internal
Revenue Code or Internal Revenue Service (IRS)
regulations. Each of Investacorp and Triad classifies its
registered representatives as independent contractors for all
purposes, including employment tax and employee benefit
purposes. We cannot assure you that legislative, judicial, or
regulatory (including tax) authorities will not introduce
proposals or assert interpretations of existing rules and
regulations that would change the employee/independent
contractor classification of Investacorps and Triads
registered representatives. The costs associated with potential
changes, if any, to these independent contractor classifications
could have a material adverse effect on us, including our
results of operations and financial condition.
Failure
to comply with net capital requirements could subject us to
suspension or revocation by the SEC or suspension or expulsion
by FINRA.
Our broker-dealer subsidiaries are subject to the SECs net
capital rule which requires the maintenance of minimum net
capital. In addition, Ladenburg is subject to the net capital
requirements of CFTC Regulation 1.17. At December 31,
2008, each of our broker-dealer subsidiaries exceeded its
minimum net capital requirement. The net capital rule is
designed to measure the general financial integrity and
liquidity of a broker-dealer. In computing net capital, various
adjustments are made to net worth which exclude assets not
readily convertible into cash. The regulations also require that
certain assets, such as a broker-dealers position in
securities, be valued in a conservative manner to avoid
over-inflation of the broker-dealers net capital. The net
capital rule requires a broker-dealer to maintain a minimum
level of net capital. The particular levels vary depending upon
the nature of the activity undertaken by a firm. Compliance with
the net capital rule limits those operations of broker-dealers
which require the intensive use of their capital, such as
underwriting commitments and principal trading activities. The
rule also limits the ability of securities firms to pay
dividends or make payments on certain indebtedness such as
subordinated debt as it matures. A significant operating loss or
any charge against net capital could adversely affect the
ability of a broker-dealer to expand or, depending on the
magnitude of the loss or charge, maintain its then present level
of business. FINRA may enter the offices of a broker-dealer at
any time, without notice, and calculate the firms net
capital. If the calculation reveals a net capital deficiency,
FINRA may immediately restrict or suspend
21
some or all of the broker-dealers activities, including
its ability to make markets. Our broker-dealer subsidiaries may
not be able to maintain adequate net capital, or their net
capital may fall below requirements established by the SEC or
the CFTC, as applicable, and subject us to disciplinary action
in the form of fines, censure, suspension, expulsion or the
termination of business altogether.
A change
in the tax treatment of insurance products or a determination
that these products are not insurance contracts for federal tax
purposes could reduce the demand for these products, which may
reduce our revenue.
The market for many insurance products sold by
Investacorps and Triads registered representatives
depends on the favorable tax treatment, including the tax-free
build up of cash values and the tax-free nature of death
benefits that these products receive relative to other
investment alternatives. A change in the tax treatment of
insurance products or a determination by the IRS that certain of
these products are not insurance contracts for federal tax
purposes could remove many of the tax advantages policyholders
seek in these policies. Also, the IRS periodically releases
guidance on the tax treatment of products. If the provisions of
the tax code were changed or new federal tax regulations and IRS
rulings and releases were issued in a manner that would make it
more difficult for holders of these insurance contracts to
qualify for favorable tax treatment or subject holders to
special tax reporting requirements, the demand for the insurance
contracts could decrease, which may reduce our revenue and
negatively affect our business.
Risk
Factors Relating to Strategic Acquisitions and the Integration
of Acquired Operations
We may be
unable to successfully integrate acquired businesses into our
existing business and operations.
We made two acquisitions in 2008, one acquisition in 2007 and
two acquisitions in 2006. We continue to explore opportunities
to grow our businesses, including through potential acquisitions
of other securities firms, both domestically and
internationally. These acquisitions may involve payments of
material amounts of cash or debt or the issuance of significant
amounts of our equity securities, which may be dilutive to our
existing shareholders. We may experience difficulty integrating
the operations of these entities or any other entities acquired
in the future into our existing business and operations.
Furthermore, we may not be able retain all of the employees we
acquire as a result of these transactions. If we are unable to
effectively address these risks, we may be required to
restructure the acquired businesses or write-off the value of
some or all of the assets of the acquired business. If we are
unable to successfully integrate acquired businesses into our
existing business and operations in the future, it could have a
material adverse effect on our results of operations.
We may be
adversely affected if the firms we acquire do not perform as
expected.
Even if we successfully complete acquisitions, we may be
adversely affected if the acquired firms do not perform as
expected. The firms we acquire may perform below expectations
after the acquisition for various reasons, including legislative
or regulatory changes that affect the products in which a firm
specializes, the loss of key clients, employees
and/or
registered representatives after the acquisition closing,
general economic factors and the cultural incompatibility of an
acquired firms management team with us. The failure of
firms to perform as expected at the time of acquisition may have
an adverse effect on our earnings and revenue growth rates, and
may result in impairment charges
and/or
generate losses or charges to earnings.
We face
numerous risks and uncertainties as we expand our
business.
We expect the growth of our business to come primarily from
internal expansion and through acquisitions. As we expand our
business, there can be no assurance that our financial controls,
the level and knowledge of our personnel, our operational
abilities, our legal and compliance controls and our other
corporate support systems will be adequate to manage our
business and our growth. The ineffectiveness of any of these
controls or systems could adversely affect our business and
prospects. In addition, as we acquire new businesses, we face
numerous risks and uncertainties integrating their controls and
systems into ours, including financial controls, accounting and
data
22
processing systems, management controls and other operations. A
failure to integrate these systems and controls, and even an
inefficient integration of these systems and controls, could
adversely affect our business and prospects.
Risk
Factors Relating to Owning Our Stock
The price
of our common stock may fluctuate significantly, and this may
make it difficult for you to resell the shares of our common
stock at prices you find attractive.
The trading price of our common stock has ranged between $0.36
and $2.59 per share for the 52 week period ended
March 11, 2009. We expect that the market price of our
common stock will continue to fluctuate.
The market price of our common stock may fluctuate in response
to numerous factors, many of which are beyond our control. These
factors include:
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variations in quarterly operating results;
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general economic and business conditions, including conditions
in the securities brokerage and investment banking markets;
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our announcements of significant contracts, milestones or
acquisitions;
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our relationships with other companies;
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our ability to obtain needed capital commitments;
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additions or departures of key personnel;
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the initiation or outcome of litigation or arbitration
proceedings;
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sales of common stock, conversion of securities convertible into
common stock, exercise of options and warrants to purchase
common stock or termination of stock transfer restrictions;
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changes in financial estimates by securities analysts; and
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fluctuation in stock market price and volume.
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Many of these factors are beyond our control. Any one of these
factors could have an adverse effect on the value of our common
stock.
In addition, the stock market in recent years has experienced
significant price and volume fluctuations that have particularly
affected the market prices of equity securities of many
companies and that often have been unrelated to such
companies operating performance. These market fluctuations
have adversely impacted the price of our common stock in the
past and may do so in the future. Also, shareholders may
initiate securities class action lawsuits if the market price of
our stock drops significantly, which may cause us to incur
substantial costs and divert our managements time and
attention. These factors, among others, could significantly
depress the price of our common stock.
Our
principal shareholders including our directors and officers
control a large percentage of our shares of common stock and can
significantly influence our corporate actions.
At March 11, 2009, our executive officers, directors and
companies that these individuals are affiliated with
beneficially owned approximately 45% our common stock.
Accordingly, these individuals and entities can significantly
influence most, if not all, of our corporate actions, including
the election of directors and the appointment of officers. Also,
this ownership of our common stock may make it difficult for a
third party to acquire control of us, therefore possibly
discouraging third parties from seeking to acquire us. A third
party would have to negotiate any possible transactions with
these principal shareholders, and their interests may be
different from the interests of our other shareholders. This may
depress the price of our common stock.
Possible
additional issuances will cause dilution.
At December 31, 2008, we had outstanding
171,715,514 shares of common stock and options and warrants
to purchase a total of 28,862,415 shares of common stock.
We are authorized to issue up to 400,000,000 shares of
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common stock and are therefore able to issue additional shares
without being required under corporate law to obtain shareholder
approval. If we issue additional shares, or if our existing
shareholders exercise their outstanding options and warrants,
our other shareholders may find their holdings drastically
diluted, which if it occurs, means that they will own a smaller
percentage of our company.
We may
issue preferred stock with preferential rights that may
adversely affect your rights.
The rights of our shareholders will be subject to and may be
adversely affected by the rights of holders of any preferred
stock that we may issue in the future. Our articles of
incorporation authorize our board of directors to issue up to
2,000,000 shares of blank check preferred stock
and to fix the rights, preferences, privilege and restrictions,
including voting rights, of these shares without further
shareholder approval.
We do not
expect to pay any cash dividends in the foreseeable
future.
We intend to retain any future earnings to fund the development
and growth of our business. We do not anticipate paying cash
dividends in the foreseeable future. Accordingly, you must rely
on sales of your common stock after price appreciation, which
may never occur, as the only way to realize any future gains on
your investment. Net capital requirements imposed on our
broker-dealer subsidiaries by the SEC and covenants contained in
our outstanding debt agreements may also restrict our ability to
pay future dividends.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS.
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Not applicable.
Our principal executive offices are located at 4400 Biscayne
Boulevard, 12th Floor, Miami, Florida 33137, where we lease
approximately 15,800 square feet of office space. The
lessor is Frost Real Estate Holdings, LLC, an entity affiliated
with Dr. Phillip Frost, our Chairman of the Board and
principal shareholder. Our lease expires in January 2012.
Ladenburgs principal executive offices are located at 520
Madison Avenue, 9th Floor, New York, New York 10022, where
it subleases approximately 15,400 square feet of office
space under a lease that expires in September 2014. Ladenburg
previously leased office space at 590 Madison Avenue, New York,
New York and has subleased all of this space to various
unrelated parties at various terms and lease periods. The lease,
under which Ladenburg is still obligated as the main lessor,
expires in June 2015. Ladenburg also operates branch offices
located in California, Illinois, Florida, New Jersey and New
York.
Investacorps principal executive offices are located at
15450 New Barn Road, Miami Lakes, Florida 33014, where it leases
approximately 15,100 square feet of office space under a
lease that expires in July 2011. Investacorps independent
registered representatives are responsible for the leases for
office space they occupy.
Triads principal executive offices are located at 5185
Peachtree Parkway, Suite 280 Norcross, Georgia, 30092,
where it leases approximately 11,300 square feet of office
space under a lease that expires in June 2012. Triads
independent registered representatives are responsible for the
leases for office space they occupy.
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ITEM 3.
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LEGAL
PROCEEDINGS.
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The information under the heading Litigation and
Regulatory Matters contained in Note 12 to our
consolidated financial statements included in Part II,
Item 8 of this annual report on
Form 10-K
is incorporated by reference in this Item 3.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
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PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
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Our common stock trades on the NYSE Amex under the symbol
LTS. The following table sets forth the high and low
sales prices of our common stock for the periods specified:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Period
|
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High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
2.45
|
|
|
$
|
1.60
|
|
|
$
|
3.74
|
|
|
$
|
1.18
|
|
Second Quarter
|
|
|
2.03
|
|
|
|
1.51
|
|
|
|
3.18
|
|
|
|
2.11
|
|
Third Quarter
|
|
|
2.59
|
|
|
|
1.22
|
|
|
|
2.60
|
|
|
|
1.49
|
|
Fourth Quarter
|
|
|
1.88
|
|
|
|
0.65
|
|
|
|
2.35
|
|
|
|
1.72
|
|
Holders
At March 11, 2009, there were approximately 4,100 record
holders of our common stock.
Dividends
We have never paid or declared any dividends on our common
stock. The payment of future dividends, if any, will be at our
board of directors discretion after taking into account
our financial condition, operating results, anticipated cash
needs and any other factors that our board of directors may deem
relevant. The net capital requirements imposed on our
broker-dealer subsidiaries by the SEC and covenants contained in
our outstanding debt agreements also restrict our ability to pay
dividends.
Recent
Sales of Unregistered Securities
We did not effect the sale of any unregistered securities during
the fourth quarter of 2008.
Issuer
Purchases of Equity Securities
Our purchases of our common stock during the fourth quarter of
2008 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
of Shares that
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
May Yet Be
|
|
|
|
Total
|
|
|
|
|
|
Purchased as
|
|
|
Purchased
|
|
|
|
Number of
|
|
|
Average Price
|
|
|
Part of Publicly
|
|
|
Under the
|
|
|
|
Shares
|
|
|
Paid
|
|
|
Announced Plans
|
|
|
Plans or
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
or Programs
|
|
|
Programs(1)
|
|
|
October 1 to October 31, 2008
|
|
|
49,400
|
|
|
$
|
.97
|
|
|
|
49,400
|
|
|
|
1,583,578
|
|
November 1 to November 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,583,578
|
|
December 1 to December 31, 2008
|
|
|
2
|
|
|
|
1.50
|
|
|
|
2
|
|
|
|
1,583,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
49,402
|
|
|
$
|
.97
|
|
|
|
49,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In March 2008, our board of directors authorized the repurchase
of up to 2,500,000 shares of our common stock from time to
time on the open market or in privately negotiated transactions
depending on market conditions. The repurchase program is being
funded using approximately 15% of our EBITDA, as adjusted. Since
inception through December 31, 2008, 916,424 shares
had been repurchased under the program. |
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
The selected financial data set forth below is derived from our
audited consolidated financial statements. You should read this
selected financial data together with the section under the
caption Managements Discussion and
25
Analysis of Financial Condition and Results of Operations
and the consolidated financial statements and the notes thereto
included elsewhere in this annual report on
Form 10-K:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
120,970
|
(a)
|
|
$
|
95,826
|
(b)
|
|
$
|
46,858
|
|
|
$
|
30,690
|
|
|
$
|
38,441
|
|
Total expenses
|
|
|
140,214
|
|
|
|
85,922
|
|
|
|
42,010
|
|
|
|
56,607
|
|
|
|
48,354
|
|
(Loss) income from operations before income taxes
|
|
|
(19,244
|
)
|
|
|
9,904
|
(c)
|
|
|
4,848
|
(d)
|
|
|
(25,917
|
)(c)
|
|
|
(9,913
|
)
|
Net (loss) income
|
|
|
(20,263
|
)
|
|
|
9,391
|
(c)
|
|
|
4,659
|
(d)
|
|
|
(25,971
|
)(c)
|
|
|
(9,854
|
)
|
Per common and equivalent share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per common share
|
|
$
|
(0.12
|
)
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
(0.24
|
)
|
|
$
|
(0.22
|
)
|
Basic weighted average common shares
|
|
|
165,812,495
|
|
|
|
157,355,540
|
|
|
|
148,693,521
|
|
|
|
108,948,623
|
|
|
|
45,144,481
|
|
Diluted weighted average common shares
|
|
|
165,812,495
|
|
|
|
168,484,469
|
|
|
|
153,087,961
|
|
|
|
108,948,623
|
|
|
|
45,144,481
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
101,668
|
|
|
$
|
114,132
|
|
|
$
|
47,343
|
|
|
$
|
39,299
|
|
|
$
|
21,631
|
|
Total liabilities, excluding subordinated liabilities
|
|
|
50,378
|
|
|
|
60,029
|
|
|
|
19,009
|
|
|
|
26,332
|
|
|
|
27,657
|
|
Subordinated debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,010
|
|
Shareholders equity (capital deficit)
|
|
|
51,290
|
|
|
|
54,103
|
|
|
|
28,334
|
|
|
|
12,967
|
|
|
|
(24,036
|
)
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
|
|
$
|
0.30
|
|
|
$
|
0.33
|
|
|
$
|
0.18
|
|
|
$
|
0.09
|
|
|
$
|
|
|
|
|
|
(a) |
|
Includes $21,190 of revenue from Triad (acquired August 13,
2008). |
|
(b) |
|
Includes $12,191 of revenue from Investacorp (acquired
October 19, 2007). |
|
(c) |
|
Includes losses on extinguishment of debt of $1,833 in 2007 and
$19,359 in 2005. |
|
(d) |
|
Includes $4,983 net gain on sale of NYSE and CBOE
memberships. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
(Dollars in thousands, except share and per share
amounts)
|
Overview
We are engaged in investment banking, equity research,
institutional sales and trading, independent brokerage and
advisory services and asset management services through our
principal subsidiaries, Ladenburg, Investacorp and Triad. We are
committed to establishing a significant presence in the
financial services industry by meeting the varying investment
needs of our corporate, institutional and retail clients.
Ladenburg is a leader in underwriting offerings by blank check
companies known as Specified Purpose Acquisition Companies
(SPACs). The revenues associated with these offerings have been
an important contributor to our investment banking business
since 2005. These companies are formed for the purpose of
raising funds in an initial public offering, a significant
portion of which is placed in trust, and then acquiring a target
business, thereby making the target business public.
In recent years, there has been a surge of activity in this
segment of the market, although the number of new SPAC
offerings, as well as the equity capital markets generally,
declined significantly during 2008. Since 2006, Ladenburg had
lead or co-managed 40 SPAC offerings raising approximately
$8,000,000, and our professionals provide unique deal structures
and a proprietary retail distribution network that adds value
and validity to the offering. Compensation derived from these
underwritings includes normal discounts and commissions as well
as deferred fees that will be payable to us only upon the
SPACs completion of a business combination. Generally,
these fees may be received within 24 months from the
respective date of the offering, or not received at all if no
business combination transactions are completed during such time
period. SPACs are experiencing significant difficulty in recent
periods in obtaining shareholder approval of business
combination transactions because, among other things, many of
their shareholders hold common stock trading at a discount to
the cash amount per share held in trust. During 2008, Ladenburg
received deferred fees of $5,300 (included in investment
26
banking revenues) and incurred commissions and related expenses
of $2,100. As of December 31, 2008, we had unrecorded
potential deferred fees for our SPAC-related transactions of
approximately $36,250, which, net of commissions and related
expenses, amounted to approximately $21,400.
We have two operating segments which correspond to our Ladenburg
subsidiary and our independent brokerage and advisory services
business conducted by Investacorp and Triad.
Recent
Developments
Difficult
Market Conditions
During 2008 and continuing in the first quarter of 2009, the
U.S. and global economies have deteriorated into a
recession, which could be long-term. We, like other companies in
the financial services sector, are exposed to volatility and
trends in the general securities markets and the economy. The
significant market downturn and poor economic conditions have
reduced significantly investment banking, capital markets and
retail and institutional client activity levels. It is difficult
to predict when conditions will change. Given the difficult
market and economic conditions, we have focused on reducing
redundancies and unnecessary expense, including implementing
headcount reductions. However, we also continue to seek to
selectively upgrade our talent pool given the availability of
experienced professionals.
Sale of
American Stock Exchange and Boston Stock Exchange Membership
Interests
On October 1, 2008, NYSE Euronext acquired the American
Stock Exchange. In exchange for its American Stock Exchange
membership, Ladenburg received 8,138 shares of NYSE
Euronext stock valued at $328 resulting in a $214 gain in the
fourth quarter of 2008. Ladenburg may receive additional amounts
from the sale of this membership if NYSE Euronext sells the
former American Stock Exchange headquarters building.
Ladenburg also owned a Boston Stock Exchange membership. On
August 29, 2008, the Nasdaq OMX Group, Inc. acquired the
Boston Stock Exchange. Ladenburg received a cash payment of $310
for its interest, resulting in a gain of $305 for the third
quarter of 2008.
Triad
Advisors Acquisition
On August 13, 2008, we acquired Triad by way of merger. We
believe that the Triad acquisition significantly expands our
presence in the independent broker dealer area, one of the
fastest growing segments of the financial services industry.
All outstanding shares of Triads common stock were
converted into an aggregate of $6,826 in cash (net of a
post-closing adjustment of $674), 7,993,387 shares of our
common stock subject to certain transfer restrictions valued at
$10,427 and a $5,000 promissory note valued at $4,384 (the
Triad Note). If Triad meets certain cumulative
profit targets during the three-year period following completion
of the merger, we will also pay to Triads former
shareholders up to $7,500 in cash and up to
4,134,511 shares of common stock (Additional
Contingent Consideration). We also pledged the stock of
Triad to Triads former shareholders under a pledge
agreement as security for the payment of the Triad Note. The
Triad Note contains customary events of default, which if
uncured, entitle the Triad Note holders to accelerate the due
date of the unpaid principal amount of, and all accrued and
unpaid interest on, the Triad Note. We are entitled to setoff
for indemnification claims against the Triad Note and any
Additional Contingent Consideration.
Punk,
Ziegel Acquisition
On May 2, 2008, Punk, Ziegel & Company, L.P., a
specialty investment bank based in New York City, was merged
into Ladenburg for $2,700 in cash (including acquisition costs)
plus 250,000 shares of our common stock valued at $435. As
a result, Ladenburg offers Punk Ziegels full range of
research, equity market making, corporate
27
finance, retail brokerage and asset management services focused
on high growth sectors within the healthcare, healthcare
technology, biotechnology and life sciences industries.
Acquisition
Strategy
We continue to explore opportunities to grow our businesses,
including through potential acquisitions of other securities and
investment banking firms, both domestically and internationally.
These acquisitions may involve payments of material amounts of
cash or debt or the issuance of significant amounts of our
equity securities, which may be dilutive to our existing
shareholders
and/or may
increase our leverage. We cannot assure you that we will be able
to consummate any such potential acquisitions on terms
acceptable to us or, if we do, that any acquired business will
be profitable. There is also a risk that we will not be able to
successfully integrate acquired businesses into our existing
business and operations. See Item 1A. Risk
Factors Risk Factors Relating to Strategic
Acquisitions and the Integration of Acquired Operations.
Option
Grants
On October 31, 2008, we granted ten-year stock options to
purchase 600,000, 600,000, 600,000 and 300,000 shares of
our common stock at an exercise price of $1.58 per share to
Dr. Phillip Frost, Richard Lampen, Mark Zeitchick and
Howard Lorber, respectively. Dr. Frost and Mr. Lorber
serve as directors of our company and Messrs. Lampen and
Zeitchick serve as executive officers and directors of our
company. The options vest over four years and the exercise price
was 25% in excess of the fair value ($1.26) of our common stock
on the grant date, subject to earlier vesting upon the
recipients death or disability or if we undergo a change
of control.
Critical
Accounting Policies
General. The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses.
Actual results could differ from those estimates.
Clearing Arrangements. Our broker-dealer
subsidiaries do not carry accounts for customers or perform
custodial functions related to customers securities. Each
of Ladenburg, Investacorp and Triad introduces all of its
customer transactions, which are not reflected in these
financial statements, to its clearing broker or brokers, which
maintain the customers accounts and clear such
transactions. Also, the clearing brokers provide the clearing
and depository operations for Ladenburgs and
Investacorps proprietary securities transactions. These
activities may expose us to off-balance-sheet risk in the event
that customers do not fulfill their obligations with the
clearing broker, as we have agreed to indemnify the clearing
brokers for any resulting losses. We continually assess risk
associated with each customer who is on margin credit and record
an estimated loss when we believe collection from the customer
is unlikely. We incurred losses from these arrangements, prior
to any recoupment from our registered representatives, of $74,
$58 and $18 for the years ended December 31, 2008, 2007 and
2006, respectively.
Customer Claims, Litigation and Regulatory
Matters. In the ordinary course of business, our
operating subsidiaries have been and continue to be the subject
of numerous civil actions and arbitrations arising out of
customer complaints relating to their activities as a
broker-dealer, as an employer or supervisor and as a result of
other business activities. In general, the cases involve various
allegations that our employees or independent registered
representatives had mishandled customer accounts. Due to the
uncertain nature of litigation in general, we are unable to
estimate a range of possible loss related to lawsuits filed
against us, but based on our historical experience and
consultation with counsel, we typically reserve an amount we
believe will be sufficient to cover any damages assessed against
us. We have accrued $460 at December 31, 2008 and $768 at
December 31, 2007 for potential arbitration and lawsuit
losses. However, we have in the past been assessed damages that
exceeded our reserves. If we misjudged the amount of damages
that may be assessed against us from pending or threatened
claims, or if we are unable to adequately estimate the amount of
damages that will be assessed against us from claims that arise
in the future and reserve accordingly, our operating income
would be reduced. Such costs may have a material adverse effect
on our future financial position, results of operations or
liquidity.
28
Exit or Disposal Activities. During the fourth
quarter of 2002, we early adopted SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. Under SFAS No. 146, a cost
associated with an exit or disposal activity shall be recognized
and measured initially at its fair value in the period in which
the liability is incurred. For operating leases, a liability for
costs that will continue to be incurred under the lease for its
remaining term without economic benefit to the entity shall be
recognized and measured at its fair value when the entity ceases
using the right conveyed by the lease (the cease-use
date). The fair value of the liability at the
cease-use date shall be determined based on the
remaining lease rentals, reduced by estimated sublease rentals
that could be reasonably obtained for the property.
Fair Value. Trading securities
owned and Securities sold, but not yet
purchased on our consolidated statements of financial
condition are carried at fair value or amounts that approximate
fair value, with related unrealized gains and losses recognized
in our results of operations. The determination of fair value is
fundamental to our financial condition and results of operations
and, in certain circumstances, it requires management to make
complex judgments.
Fair values are based on listed market prices, where possible.
If listed market prices are not available or if the liquidation
of our positions would reasonably be expected to impact market
prices, fair value is determined based on other relevant
factors, including dealer price quotations. Fair values for
certain derivative contracts are derived from pricing models
that consider market and contractual prices for the underlying
financial instruments or commodities, as well as time value and
yield curve or volatility factors underlying the positions.
Pricing models and their underlying assumptions impact the
amount and timing of unrealized gains and losses recognized, and
the use of different pricing models or assumptions could produce
different financial results. Changes in the fixed income and
equity markets will impact our estimates of fair value in the
future, potentially affecting principal trading revenues. The
illiquid nature of certain securities or debt instruments also
requires a high degree of judgment in determining fair value due
to the lack of listed market prices and the potential impact of
the liquidation of our position on market prices, among other
factors.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements.
SFAS No. 157 clarifies that fair value should be based
on assumptions that market participants would use when pricing
an asset or liability and establishes a fair value hierarchy of
three levels that prioritizes the information used to develop
those assumptions. The provisions of SFAS No. 157
became effective for us beginning January 1, 2008.
Generally, the provisions of this statement are to be applied
prospectively. Certain situations, however, require
retrospective application as of the beginning of the year of
adoption through the recognition of a cumulative effect
adjustment to the opening balance of retained earnings. Such
retrospective application is required for positions in a
financial instrument that trades in a certain market held by a
broker-dealer that was measured at a fair value using a blockage
factor which is no longer permitted upon application of this
statement. The adoption of SFAS No. 157 did not have a
material impact on our consolidated financial statements.
Valuation of Deferred Tax Assets. We account
for taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires the
recognition of tax benefits or expense on the temporary
differences between the tax basis and book basis of our assets
and liabilities. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled. Deferred tax amounts as
of December 31, 2008, which consist principally of the tax
benefit of net operating loss carryforwards and compensation
charges related to equity instruments, amount to $31,754. After
consideration of all the evidence, both positive and negative,
especially the fact we sustained a cumulative pre-tax loss for
the periods 2006 through 2008, we have determined that a
valuation allowance at December 31, 2008 was necessary to
fully offset the deferred tax assets based on the likelihood of
future realization. At December 31, 2008, we had net
operating loss carryforwards of approximately $53,500, expiring
in various years from 2015 through 2026.
Expense Recognition of Employee Stock
Options. Effective January 1, 2006, we
adopted SFAS No. 123 (Revised 2004), Share-Based
Payment (SFAS No. 123R), which requires an
entity to measure the cost of employee, officer and director
services received in exchange for an award of equity
instruments, including stock options, based on the grant-date
fair value of the award. The cost is recognized as compensation
expense over the
29
service period, which would normally be the vesting period of
the options. SFAS No. 123R supersedes our previous
accounting under SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123),
which permitted us to account for such compensation under
Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB No. 25).
Pursuant to APB No. 25, and related interpretations, no
compensation cost had been recognized in connection with the
issuance of stock options, as all options granted under our
Amended and Restated 1999 Performance Equity Plan (the
Option Plan) and all options granted outside the
Option Plan had an exercise price equal to or greater than the
market value of the underlying common stock on the date of
grant. We adopted SFAS No. 123R using the modified
prospective transition method, which requires that compensation
cost be recorded as earned, (i) for all unvested stock
options outstanding at the beginning of the first fiscal year of
adoption of SFAS No. 123R based upon the grant- date
fair value estimated in accordance with the original provisions
of SFAS No. 123 and (ii) for all share-based
payments granted subsequent to the adoption, based on the
grant-date fair value estimated in accordance with the
provisions of SFAS No. 123R. In addition, balances of
unearned compensation attributable to awards granted prior to
the adoption of SFAS No. 123R were netted against
additional paid-in capital.
Intangible assets. Intangible assets are being
amortized over their estimated useful lives generally on a
straight-line basis. Intangible assets subject to amortization
are tested for recoverability whenever events or changes in
circumstances indicate that the carrying amount may be not
recoverable. We assess the recoverability of our intangible
assets by determining whether the unamortized balance can be
recovered over the assets remaining life through
undiscounted forecasted cash flows. If undiscounted forecasted
cash flows indicate that the unamortized amounts will not be
recovered, an adjustment will be made to reduce such amounts to
an amount consistent with forecasted future cash flows
discounted at a rate commensurate with the risk associated with
achieving future discounted cash flows. Future cash flows are
based on trends of historical performance and our estimate of
future performances, giving consideration to existing and
anticipated competitive and economic conditions.
Goodwill. Goodwill is not subject to
amortization and is tested for impairment annually or more
frequently if events or changes in circumstances indicate that
the asset may be impaired. The impairment test consists of a
comparison of the fair value of the reporting unit with its
carrying amount. Fair value is typically based upon future cash
flows discounted at a rate commensurate with the risk involved
or market based comparables. If the carrying amount of the
reporting unit exceeds its fair value then an analysis will be
performed to compare the implied fair value of goodwill with its
carrying amount of goodwill. An impairment loss will be
recognized in an amount equal to excess of the carrying amount
over the implied fair value. After an impairment loss is
recognized, the adjusted carrying amount of goodwill is its new
accounting basis.
Results
of Operations
The following discussion provides an assessment of our results
of operations, capital resources and liquidity and should be
read in conjunction with our audited consolidated financial
statements and related notes included elsewhere in this report.
Our consolidated financial statements include our accounts and
the accounts of Ladenburg, Investacorp (since October 19,
2007), Triad (since August 13, 2008) and our other
wholly-owned subsidiaries.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Total revenues
|
|
$
|
120,970
|
(1)
|
|
$
|
95,826
|
(2)
|
|
$
|
46,858
|
(4)
|
Total expenses
|
|
|
140,214
|
|
|
|
85,922
|
(3)
|
|
|
42,010
|
|
Pre-tax (loss) income
|
|
|
(19,244
|
)
|
|
|
9,904
|
(3)
|
|
|
4,848
|
(4)
|
Net (loss) income
|
|
|
(20,263
|
)
|
|
|
9,391
|
(3)
|
|
|
4,659
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA, as adjusted
|
|
$
|
(5,891
|
)
|
|
$
|
22,005
|
|
|
$
|
3,824
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
219
|
|
|
|
221
|
|
|
|
220
|
|
Sale of exchange memberships
|
|
|
519
|
|
|
|
|
|
|
|
4,983
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4,534
|
)
|
|
|
(2,304
|
)
|
|
|
(499
|
)
|
Income tax expense
|
|
|
(1,019
|
)
|
|
|
(513
|
)
|
|
|
(189
|
)
|
Depreciation and amortization
|
|
|
(3,292
|
)
|
|
|
(1,491
|
)
|
|
|
(754
|
)
|
Write-off of furniture, fixtures and leasehold improvements, net
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
Non-cash compensation
|
|
|
(6,265
|
)
|
|
|
(6,694
|
)
|
|
|
(2,885
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
(1,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(20,263
|
)
|
|
$
|
9,391
|
|
|
$
|
4,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $21,190 of revenue from Triad (acquired August 13,
2008). |
|
(2) |
|
Includes $12,191 of revenue from Investacorp (acquired
October 19, 2007). |
|
(3) |
|
Includes loss on extinguishment of debt of $1,833 in 2007. |
|
(4) |
|
Includes $4,983 net gain on NYSE Euronext common stock,
including NYSE merger transaction, and sale of CBOE membership. |
Earnings before interest, taxes, depreciation and amortization,
or EBITDA, adjusted for gains or losses on sales of assets,
non-cash compensation expense, and loss on extinguishment of
debt is a key metric we use in evaluating our financial
performance. EBITDA is considered a non-GAAP financial measure
as defined by Regulation G promulgated by the SEC under the
Securities Act of 1933, as amended. We consider EBITDA, as
adjusted, important in evaluating our financial performance on a
consistent basis across various periods. Due to the significance
of non-recurring items, EBITDA, as adjusted, enables our Board
of Directors and management to monitor and evaluate the business
on a consistent basis. We use EBITDA, as adjusted, as a primary
measure, among others, to analyze and evaluate financial and
strategic planning decisions regarding future operating
investments and potential acquisitions. We believe that EBITDA,
as adjusted, eliminates items that are not part of our core
operations, such as debt extinguishment expense, or do not
involve a cash outlay, such as stock-related compensation.
EBITDA should be considered in addition to, rather than as a
substitute for, pre-tax income, net income and cash flows from
operating activities.
Our EBITDA, as adjusted, decreased $27,896 in 2008 compared to
2007 and increased $18,181 in 2007 compared to 2006.
As a result of the Investacorp acquisition on October 19,
2007, we have two operating segments. For periods prior to
October 19, 2007, we operated in only one segment. The
Ladenburg segment includes the retail and institutional
securities brokerage, investment banking services, asset
management services and investment activities conducted by
Ladenburg. The independent brokerage and advisory services
segment includes the broker-dealer and investment advisory
services provided by Investacorp and Triad to its independent
contractor registered representatives.
31
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Ladenburg
|
|
$
|
41,997
|
|
|
$
|
83,313
|
|
Independent brokerage and advisory services
|
|
|
79,190
|
(1)
|
|
|
12,191
|
(1)
|
Corporate
|
|
|
(217
|
)
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
120,970
|
|
|
$
|
95,826
|
|
|
|
|
|
|
|
|
|
|
Pre-tax (loss) income:
|
|
|
|
|
|
|
|
|
Ladenburg
|
|
$
|
(8,140
|
)
|
|
$
|
18,435
|
|
Independent brokerage and advisory services
|
|
|
203
|
(1)
|
|
|
411
|
(1)
|
Corporate
|
|
|
(11,307
|
)
|
|
|
(8,942
|
)
|
|
|
|
|
|
|
|
|
|
Total pre-tax (loss) income
|
|
$
|
(19,244
|
)
|
|
$
|
9,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes Investacorp from the date of its acquisition on
October 19, 2007 and Triad from the date of its acquisition
on August 13, 2008. |
|
|
|
Year
ended December 31, 2008 compared to year ended
December 31, 2007
|
For the fiscal year ended December 31, 2008, we had a net
loss of $20,263 compared to net income of $9,391 for the fiscal
year ended December 31, 2007. Net loss for 2008 included
$6,265 of non-cash compensation expense and was reduced by a
$519 gain on the sale of exchange memberships. Net income for
2007 was reduced by a $1,833 loss on extinguishment of debt and
$6,694 of non-cash compensation expense.
Our total revenues for 2008 increased $25,144 (26%) from 2007,
primarily as a result of increased commissions and fees of
$65,657 generated by Investacorp and Triad, offset by decreased
investment banking revenue of $40,687. 2008 revenues include
$58,000 of revenues from Investacorp and $21,190 of revenues
from Triad from the date of acquisition (August 13, 2008).
2007 revenue did not include Triad and only included Investacorp
revenue of $12,191 from October 19, 2007 to year end.
Excluding non-cash compensation expense of $6,265 in 2008 and
$6,694 in 2007 and loss on extinguishment of debt of $1,833 in
2007, our expenses increased in 2008 by $56,554 (73%) from 2007
primarily as a result of an increase in commissions and fees of
$51,994 primarily from Investacorp and Triad, an increase in
interest expense of $2,230, an increase in professional services
of $2,032, an increase in brokerage, communication and clearance
fees of $2,011, an increase in rent and occupancy of $1,915, an
increase in depreciation and amortization of $1,801, and an
increase in other expenses of $1,111, offset by a decrease in
compensation and benefits of $6,540. The 2008 expenses included
$20,858 of expenses attributable to Triads operations
commencing August 13, 2008 and the 2008 and 2007 periods
included expenses for Investacorp of $55,976 and $11,246,
respectively, attributable to Investacorps operations
commencing with its acquisition on October 19, 2007. We
expect 2009 expenses to increase from 2008 levels primarily due
to commissions and fees expense for Triad, which in 2009 will
reflect the full year period.
The $40,687 (73%) decrease in 2008 investment banking revenue
was primarily due to unfavorable market conditions, a decrease
in the number of SPAC offerings in which Ladenburg participated
and a decrease in the number of completed SPAC business
combinations. Ladenburg led or co-managed five SPAC offerings in
2008 compared to 29 offerings in 2007. This reduction in the
number of new SPAC offerings caused a $35,796 decline in
revenues in 2008. The reduction in the number of completed SPAC
business combinations resulted in a $4,420 decrease in
investment banking revenue. Revenues from advisory services and
private placement transaction fees decreased $471 from the prior
year period. Due to current market conditions, we expect similar
trends in investment banking revenue for at least the first
quarter of 2009.
The $65,657 (205%) increase in commissions and fees revenue in
2008 as compared to 2007 is attributable to an additional
$63,101 from the operations of Triad and Investacorp and an
increase in the number of institutional sales representatives at
Ladenburg.
32
The $307 (10%) decrease in asset management revenue in 2008 as
compared to 2007 was primarily due to unfavorable market
conditions resulting in decreased assets under management. If
current market conditions continue, we expect that asset
management revenue will decrease. Revenues associated with Triad
and Investacorp client assets are included in commissions and
fees revenue, rather than asset management revenue, which
relates to Ladenburg and LTAM.
The $2,987 (1,190%) decrease in principal transactions revenue
in 2008 as compared to 2007 was primarily due to unfavorable
market conditions, partially offset by realized gains in sales
of Ladenburgs Boston Stock Exchange and American Stock
Exchange memberships.
The $1,004 (34%) increase in interest and dividends in 2008 as
compared to 2007 is primarily attributable to the addition of
Investacorp and Triad, which combined had an increase of $1,343
in interest and dividends. Ladenburg interest and dividends
decreased due to lower interest rates.
The $2,464 (111%) increase in other income in 2008 as compared
to 2007 is primarily attributable to the addition of Investacorp
and Triad which together contributed $3,669 and $804 in 2008 and
2007, respectively. Ladenburgs other income decreased
$397, primarily due to a decrease of $294 in transaction fee
rebates.
The $6,540 (13%) decrease in compensation and benefits expense
in 2008 as compared to 2007 was primarily due to a $18,092
decrease in producers compensation which is directly
correlated with a decrease in Ladenburgs revenue
production, a $12,174 increase in salaries, bonuses, payroll
taxes and employee benefits, and a $622 decrease in amortization
of cash held in escrow as security for obligations under a prior
acquisition agreement. The increase in salaries, bonuses and
benefits resulted from an increase in the average headcount for
salaried Ladenburg employees primarily resulting from the Punk
Ziegel acquisition, and an increase of $6,807 for
Investacorps and Triads employees in the 2008
period. During the fourth quarter of 2008 and the first quarter
of 2009, Ladenburg reduced the size of its workforce. We expect
this workforce reduction will result in lower compensation and
benefits expense in 2009.
The $429 (6%) decrease in non-cash compensation expense in 2008
as compared to 2007 is primarily due to a decrease of $3,162 for
the amortization of unearned compensation for our warrants and
common stock held in escrow for the principal shareholders of
Capitalink which was amortized over 15 months beginning on
October 18, 2006, the date of acquisition, and a decrease
of $90 for the amortization of unearned compensation from stock
issued to employees in 2005 at below market prices, partially
offset by increased compensation expense of $2,823 attributable
to option grants to employees, directors and consultants
(including $1,619 to Investacorp employees).
The $2,011 (51%) increase in brokerage, communication and
clearance fees expense is primarily attributable to increased
institutional trading and the addition of Investacorp and Triad
expense of $1,562.
The $1,915 (147%) increase in rent and occupancy, net of
sublease revenue in 2008 as compared to 2007 is primarily
attributed to an increase of $1,371 for Ladenburgs
additional leased property and Investacorp and Triad expense of
$551.
The $2,032 (52%) increase in professional services expense
during 2008 is primarily due to an increase of $1,569 in legal,
$414 for audit, tax and 404 compliance and $49 in consulting
fees and corporate development activities. We expect similar
levels of professional services expense for the near future.
The $2,230 (97%) increase in interest expense in 2008 as
compared to 2007 is a result of borrowings under our credit
facility which we entered into 2007 and promissory notes issued
in connection with the Investacorp and Triad acquisitions. An
approximate $35,000 average balance was outstanding for the 2008
period, as compared with an average debt outstanding of $6,000
for the 2007 period. We expect interest expense to continue at
an increased level in future periods due to our outstanding debt.
The $1,801 (121%) increase in depreciation and amortization
expense is primarily attributable to the addition of Triad and
Investacorp expense of $1,524 and the additional expense related
to Punk Ziegel.
The $1,111 (17%) increase in other expense in 2008 as compared
to 2007 is primarily attributable to the addition of Investacorp
for the full year in 2008 and Triad expense of $2,381, partially
offset by a decrease of $1,136 in Ladenburgs bad debt and
settlement expense.
33
We incurred income tax expense of $1,019 in 2008 as compared to
$513 in 2007. After consideration of all the evidence, both
positive and negative, management has determined that a
valuation allowance at December 31, 2008 was necessary to
fully offset the deferred tax assets based on the likelihood of
future realization. Our current deferred income tax liabilities
increased by approximately $780 during 2008 due to goodwill
amortization for tax purposes. The income tax rates for the 2008
and 2007 periods do not bear a customary relationship to
effective tax rates primarily as a result of the increase in the
valuation allowance in the 2008 period and recognized tax
benefits from net operating loss carryforwards from prior years
utilized to offset taxable income in the 2007 and 2006 periods.
|
|
|
Year
ended December 31, 2007 compared to year ended
December 31, 2006
|
For the fiscal year ended December 31, 2007, we had net
income of $9,391 compared to net income of $4,659 for the fiscal
year ended December 31, 2006. Net income for 2007 was
reduced by a $1,833 loss on extinguishment of debt and $6,694 of
non-cash compensation expense. Net income for 2006 included a
gain of $4,859 from the NYSE merger, offset by losses of $1,001
on the sale and decline in fair value of NYSE Euronext common
stock, a $1,125 gain from the sale of Ladenburgs CBOE
membership and $2,885 of non-cash compensation expense.
Our total revenues for 2007 increased $48,968, or 105%, from
2006 primarily as a result of increased investment banking of
$36,870, increased commissions and fees of $16,178, and
increased asset management of $647 offset by a net gain of
$4,983 on the sale of exchange memberships in 2006. The 2007
revenues also included $12,191 of revenue from Investacorp from
the date of acquisition (October 19, 2007), which were not
included in 2006.
Excluding non-cash compensation expense of $6,694 in 2007 and
$2,885 in 2006 and loss on extinguishment of debt of $1,833 in
2007, our expenses increased $38,270, or 98%, from 2006
primarily as a result of an increase in compensation and
benefits of $22,183, an increase in other expense of $3,011, an
increase in interest expense of $1,805, an increase in
professional fees of $1,386, an increase in brokerage,
communication and clearance fees of $1,053 and an increase in
depreciation and amortization of $737, offset by a decrease in
rent and occupancy expense of $876. The 2007 period included
expenses of $11,780 attributable to Investacorps
operations commencing with its acquisition on October 19,
2007. These expenses consisted primarily of commissions and fees
expense of $9,012.
The $36,870 (199%) increase in investment banking revenues in
2007 as compared to 2006 was primarily the result of an increase
in the size and number of public offerings, primarily SPACs,
where Ladenburg acted as either a lead or co-manager from 16
offerings in 2006 to 29 offerings in 2007, and an increase in
advisory and valuation work resulting from the addition of the
Capitalink investment banking group in October 2006.
The $16,178 (103%) increase in commissions and fees revenue in
2007 as compared to 2006 is attributable to an additional
$11,077 from Investacorp and an increase in the number of
institutional sales representatives at Ladenburg.
The $647 (27%) increase in asset management revenue in 2007 as
compared to 2006 was primarily the result of an increase in
assets under management.
The $22,183 (83%) increase in compensation and benefits expense
in 2007 as compared to 2006 was primarily due to a $17,774
increase in producers compensation which is directly
correlated to revenue production, a $3,059 increase in salaries,
payroll taxes and employee benefits, an increase of $705 in
discretionary bonuses which vary with revenue, and $645
representing amortization of cash held in escrow for former
Telluride shareholders. The increase in salaries and bonuses is
due to an increase in the average headcount for salaried
Ladenburg employees and $1,202 is attributable to the additional
employees from Investacorp.
The $3,809 (132%) increase in non-cash compensation expense in
2007 as compared to 2006 is primarily a result of an increase of
$2,482 for the amortization of unearned compensation for our
warrants and common stock held in escrow for the principal
shareholders of Capitalink which is being amortized over
15 months beginning on October 18, 2006, the date of
acquisition, an increase in employee compensation expense of
$1,915 attributable to option grants to employees and directors,
and an increase of $125 for options granted to the members of
our former
34
advisory board and consultants. These amounts were offset by a
$713 decrease in the amortization of unearned compensation from
stock issued to employees in 2005 at below market prices.
The $1,053 (36%) increase in brokerage, communication and
clearance fee expense in 2007 as compared to 2006 is primarily
attributable to an increase in clearing and execution charges of
$536 and an increase in third party trading platforms of $91,
which corresponds to the increase in institutional transactions,
increased news and quotes subscriptions of $339 and increased
communications of $87 attributable to new institutional sales
and investment banking personnel.
The $1,386 (54%) increase in professional services expense
during 2007 is primarily due to an increase in legal, audit and
consulting fees and corporate development activities.
Interest expense increased to $2,304 in the 2007 period from
$499 in the 2006 period as a result of debt incurred in
connection with the Investacorp acquisition and subordinated
loans in connection with underwritings, offset by the debt
exchange described herein. We expect interest expense to
continue at an increased level in future periods due to the debt
relating to the Investacorp acquisition.
Depreciation and amortization expense increased $737 in the 2007
period from the 2006 period, primarily from increased
amortization of intangible assets of $960 offset by decreased
depreciation of fixed assets and amortization of leasehold
improvements of $223. Of this expense, $285 is attributable to
Investacorps operations.
The $3,011 (88%) increase in other expense in 2007 as compared
to 2006 is primarily due to an $1,228 increase in travel and
entertainment and office expense, $159 increase in license, dues
and regulatory fees, $686 increase in reserve for legal
settlements, $166 increase in stock and bond errors, and a $283
increase in write-off of receivables. Travel and entertainment
expense primarily consists of business development costs for our
investment banking business, and costs for our research analysts
to visit the companies they cover. In 2007 the average number of
investment bankers and research analysts increased significantly
over the prior year. In addition, $391 of other expenses is
attributable to the addition of Investacorps operations.
The $876 (40%) decrease in rent and occupancy, net of sublease
revenue is primarily due to Ladenburg entering into an agreement
with the landlord at its former NYC office space to amend the
lease and surrender a third floor which had been subleased by
it. In consideration, the landlord gave up an option to require
Ladenburg to occupy additional space and agreed to an annual
rent abatement of approximately $79 through June 2015, the
expiration of the lease term, with respect to the remaining
leased floors. As a result thereof, in 2007, the liability with
respect to the lease obligation, which amounted to $589 at
December 31, 2006, was reduced by $439 with a corresponding
reduction of occupancy expense.
We incurred income tax expense of $513 in 2007 as compared to
$189 in 2006. After consideration of all the evidence, both
positive and negative, management has determined that a
valuation allowance at December 31, 2007 was necessary to
fully offset the deferred tax assets based on the likelihood of
future realization. The income tax rate for the 2007 and 2006
periods does not bear a customary relationship to effective tax
rates primarily as a result of the decrease in the valuation
allowance in the 2007 and 2006 period and recognized tax
benefits from net operating loss carryforwards from prior years
utilized to offset taxable income in the 2007 and 2006 periods.
Liquidity
and Capital Resources
Approximately 26% of our total assets at December 31, 2008
consisted of cash and cash equivalents, securities owned and
receivables from clearing brokers and other broker-dealers, all
of which fluctuate, depending upon the levels of customer
business and trading activity. Receivables from broker-dealers,
which are primarily from clearing brokers, turn over rapidly. As
a securities dealer, our broker-dealer subsidiaries may carry
significant levels of securities inventories to meet customer
needs. A relatively small percentage of our total assets are
fixed. The total assets or the individual components of total
assets may vary significantly from period to period because of
changes relating to economic and market conditions, and
proprietary trading strategies.
Each of Ladenburg, Investacorp and Triad is subject to the
SECs net capital rules. Ladenburg is also subject to the
CFTCs net capital rules. Therefore, they are subject to
certain restrictions on the use of capital and their related
liquidity. At December 31, 2008, Ladenburgs
regulatory net capital, as defined, of $5,226, exceeded minimum
35
capital requirements of $500, by $4,726. At December 31,
2008, Investacorps regulatory net capital, as defined, of
$1,709, exceeded minimum capital requirements of $292, by
$1,417. At December 31, 2008, Triads regulatory net
capital, as defined, of $775, exceeded minimum net capital
requirements of $525. Failure to maintain the required net
capital may subject Ladenburg, Investacorp and Triad to
suspension or expulsion by FINRA, the SEC and other regulatory
bodies and ultimately may require its liquidation. The net
capital rule also prohibits the payment of dividends, redemption
of stock and prepayment or payment of principal of subordinated
indebtedness if net capital, after giving effect to the payment,
redemption or prepayment, would be less than specified
percentages of the minimum net capital requirement. Compliance
with the net capital rule could limit the operations of
Ladenburg, Investacorp and Triad that requires the intensive use
of capital, such as underwriting and trading activities, and
also could restrict our ability to withdraw capital from our
subsidiaries, which in turn, could limit our ability to pay
dividends and repay and service our debt.
In addition to regulatory net capital restrictions, Investacorp
also is contractually restricted from declaring a dividend to us
which would result in its retained earnings and paid-in capital
falling below the lesser of the then outstanding principal
balance of the promissory note issued to Investacorps
former principal shareholder and $5,000. At December 31,
2008, the outstanding principal balance of the promissory note
issued to Investacorps former principal shareholder was
$9,385.
Each of Ladenburg, Investacorp and Triad, as guarantor of its
customer accounts to its clearing brokers, is exposed to
off-balance-sheet risks in the event that its customers do not
fulfill their obligations with the clearing broker. Also, if
Ladenburg, Investacorp or Triad maintains a short position in
certain securities, it is exposed to future off-balance-sheet
market risk, since its ultimate obligation may exceed the amount
recognized in the financial statements.
Our primary sources of liquidity include our cash flow from
operations, the sale of our securities and other financing
activities, including borrowings under our $30,000 revolving
credit agreement. We believe that we have sufficient funds from
operations and, to the extent necessary, from borrowings under
our revolving credit agreement, to fund our ongoing operating
requirements through at least December 31, 2009.
Net cash provided by operating activities for 2008 was $23,765
as compared to $2,860 used in the 2007 period. The increase in
net cash provided by operating activities was primarily due to a
decrease in receivables from clearing brokers of $24,562 in 2008
compared to an increase of $9,749 in 2007, a decrease in
receivables from other broker-dealers of $15,511 in 2008
compared to an increase of $9,559 in 2007, a decrease in
securities sold, but not yet purchased of $865 in 2008 compared
to a decrease of $1,096 in 2007, a decrease in accrued
compensation of $3,876 in 2008 compared to an increase of 2,929
in 2007, net of net income and adjustments to reconcile net
income of ($8,319) in 2008 as compared to $20,513 in 2007.
Net cash used in investing activities for the year ended
December 31, 2008 was $8,259 compared to $24,393 for 2007.
These investing activities relate principally to the acquisition
of Investacorp, Triad and Punk Ziegel.
Net cash flows used in financing activities amounted to $17,480
for the year ended December 31, 2008 compared to net cash
flows provided by financing activities of $28,865 in 2007. Cash
flows used in financing activities in 2008 resulted from loan
repayments of $17,232 and $1,060 used to repurchase shares for
retirement under our stock repurchase program. Cash provided by
financing activities for the year ended December 31, 2007,
resulted primarily from borrowings of $30,000 under our $30,000
credit agreement to finance the Investacorp acquisition.
At December 31, 2008, we were obligated under several
non-cancelable lease agreements for office space, which provide
for future minimum lease payments aggregating approximately
$39,178 through 2015, exclusive of escalation charges. We have
subleased vacant space under subleases which entitle us to
receive rents aggregating approximately $23,575 through such
date.
In connection with the Investacorp acquisition, we entered into
the $30,000 credit agreement and issued a $15,000 promissory
note to Investacorps former principal shareholder. During
2008, we repaid $12,000 of the $30,000 of outstanding borrowings
under the $30,000 credit agreement. Under the revolving credit
facility, we may prepay outstanding amounts without penalties,
and reborrow amounts up to the credit limit, prior to the
October 19,
36
2012 maturity date. The $15,000 promissory note bears interest
at 4.11% per annum and is payable in 36 monthly
installments. At December 31, 2008, the outstanding balance
of this note was $9,759.
In connection with the Triad acquisition, we issued a $5,000
promissory note to Triads former shareholders. The note
bears interest at a rate of 2.51% per annum and is payable
quarterly. The outstanding balance of this note at
December 31, 2008 was $4,772.
In 2002, we borrowed a total of $5,000 from New Valley, our
former parent. The notes, which bore interest at 1% above the
prime rate, were due on March 31, 2007, as subsequently
extended. In February 2007, we entered into a debt exchange
agreement with New Valley, where New Valley agreed to exchange
the principal amount of the notes for shares of our common stock
at an exchange price of $1.80 per share, representing the
average closing price of our common stock for the 30 trading
days ending on the date of the agreement.
On June 29, 2007 after our shareholders approved the debt
exchange, we issued 2,777,778 shares for the principal
amount of the notes and paid $1,732 to New Valley for accrued
interest on the notes. The exchange resulted in debt
extinguishment expense of $1,833, representing the excess of the
quoted market value of the 2,777,778 shares of stock at the
date of the debt exchange agreement ($2.46 per share) over the
carrying amount of the notes.
In March 2007, our board of directors authorized the repurchase
of up to 2,500,000 shares of our common stock from time to
time on the open market or in privately negotiated transactions
depending on market conditions. The repurchase program is being
funded using approximately 15% of our EBITDA, as adjusted. As of
December 31, 2008, 916,424 shares had been repurchased
for $1,673 under the program.
In October 2007, Ladenburg received a temporary cash
subordinated loan in the amount of $72,000 from an affiliate of
Dr. Frost to provide additional regulatory capital required
for additional underwriting participations. The loan was repaid
during the following month, with the interest at the rate of
LIBOR plus 2%, which amounted to $354. We also paid the lender a
commitment fee of $420.
Off-Balance
Sheet Arrangements and Contractual Obligations
The table below summarizes information about our contractual
obligations as of December 31, 2008 and the effects these
obligations are expected to have on our liquidity and cash flow
in the future years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
4-5 years
|
|
|
5 years
|
|
|
|
|
|
Note payable to former Investacorp principal shareholder(1)
|
|
$
|
9,759
|
|
|
$
|
5,323
|
|
|
$
|
4,436
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Note payable to former Triad shareholders(2)
|
|
|
4,772
|
|
|
|
1,735
|
|
|
|
3,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit agreement with affiliate of our principal
shareholder(3)
|
|
|
25,425
|
|
|
|
1,980
|
|
|
|
23,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases(4)
|
|
|
39,178
|
|
|
|
6,820
|
|
|
|
13,160
|
|
|
|
11,595
|
|
|
|
7,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
79,134
|
|
|
$
|
15,858
|
|
|
$
|
44,078
|
|
|
$
|
11,595
|
|
|
$
|
7,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Note bears interest at 4.11% per annum and is payable in 36
equal monthly installments. See Note 11 to our consolidated
financial statements. |
|
(2) |
|
Note bears interest at 2.51% per annum and is payable in 12
equal quarterly installments. See Note 11 to our
consolidated financial statements. |
|
(3) |
|
Revolving credit agreement has a five-year term and bears
interest at a rate of 11% per annum, payable quarterly. Assumes
no payments of principal prior to maturity. See Note 11 to
our consolidated financial statements. |
|
(4) |
|
Excludes sublease revenues of $23,575. See Note 12 to our
consolidated financial statements. |
37
We have subleased office space in various locations to
subtenants, some of whom are engaged in the financial services
industry. Should any of the sub-tenants experience financial
difficulty, or otherwise not pay their rent for an extended
period of time, it may have a material adverse effect on our
results of operations.
Market
Risk
Market risk generally represents the risk of loss that may
result from the potential change in the value of a financial
instrument as a result of fluctuations in interest and currency
exchange rates, equity and commodity prices, changes in the
implied volatility of interest rates, foreign exchange rates,
equity and commodity prices and also changes in the credit
ratings of either the issuer or its related country of origin.
Market risk is inherent to both derivative and non-derivative
financial instruments, and accordingly, the scope of our market
risk management procedures extends beyond derivatives to include
all market risk sensitive financial instruments.
Current and proposed underwriting, corporate finance, merchant
banking and other commitments are subject to due diligence
reviews by our senior management, as well as professionals in
the appropriate business and support units involved. Credit risk
related to various financing activities is reduced by the
industry practice of obtaining and maintaining collateral. We
monitor our exposure to counterparty risk through the use of
credit exposure information, the monitoring of collateral values
and the establishment of credit limits.
Special
Note Regarding Forward-Looking Statements
We and our representatives may from time to time make oral or
written forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including any statements that may be contained in the foregoing
discussion in Managements Discussion and Analysis of
Financial Condition and Results of Operations, in this
report and in other filings with the Securities and Exchange
Commission and in our reports to shareholders, which reflect our
expectations or beliefs with respect to future events and
financial performance. These forward-looking statements are
subject to certain risks and uncertainties and, in connection
with the safe-harbor provisions of the Private
Securities Litigation Reform Act, we have identified under
Risk Factors in Item 1A above, important
factors that could cause actual results to differ materially
from those contained in any forward-looking statement made by or
on behalf of us.
Results actually achieved may differ materially from expected
results included in these forward-looking statements as a result
of these or other factors. Due to such uncertainties and risks,
readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of the date on
which such statements are made. We do not undertake to update
any forward-looking statement that may be made from time to time
by or on behalf of us.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
The information under the caption Managements
Discussion and Analysis of Financial Condition and Results of
Operations Market Risk is incorporated herein
by reference.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
See the Consolidated Financial Statements and Notes thereto,
together with the report thereon of Eisner LLP dated
March 13, 2009, beginning on
page F-1
of this report.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
|
None.
38
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES.
|
Evaluation
of Disclosure Controls and Procedures
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required
to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs
rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure
that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our principal
executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding disclosure.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we have evaluated the effectiveness
of our disclosure controls and procedures as of the end of the
period covered by this report, and, based on that evaluation,
our principal executive officer and principal financial officer
have concluded that these controls and procedures are effective.
Managements
Report on Internal Control Over Financial Reporting
Our internal control over financial reporting is a process
designed by, or under the supervision of, our chief executive
officer and chief financial officer and effected by our board of
directors, management and other personnel, to provide reasonable
assurance regarding the reliability of our financial reporting
and the preparation of our financial statements for external
purposes in accordance with generally accepted accounting
principles. Internal control over financial reporting includes
policies and procedures that pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of our assets; provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of our financial statements in accordance
with generally accepted accounting principles, and that our
receipts and expenditures are being made only in accordance with
the authorization of our board of directors and management; and
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial
statements.
We acquired Triad in August 2008. We have excluded Triad from
the scope of our annual report on internal control over
financial reporting as of December 31, 2008. These
operations represent approximately 23% of our total assets at
December 31, 2008 and approximately 18% of our revenues for
the year ended December 31, 2008. Triads net income
represented approximately 1% of our net loss for the year ended
December 31, 2008.
Under the supervision and with the participation of our
management, including our chief executive officer and chief
financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
our evaluation under the criteria established in Internal
Control Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2008.
Our internal control over financial reporting as of
December 31, 2008 has been audited by Eisner LLP, an
independent registered certified public accounting firm, as
stated in their report which is included below.
Attestation
Report of the Companys Independent Registered Public
Accounting Firm
To the Board of Directors and Shareholders of
Ladenburg Thalmann Financial Services Inc.
We have audited Ladenburg Thalmann Financial Services Inc. and
its subsidiaries (the Company) internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the
accompanying Managements Report on Internal Control over
Financial Reporting under Item 9A. Our
39
responsibility is to express an opinion on the effectiveness of
the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. A companys internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our audit did not include the internal controls over financial
reporting of Triad Advisors, Inc. and subsidiaries
(Triad) because they were acquired by the Company in
August 2008. Triad is included in the 2008 consolidated
financial statements and constituted $23,190,000 of total assets
as of December 31, 2008 and $21,190,441 of total revenues
and $332,000 of net income for the year then ended.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control- Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, changes in shareholders equity,
and cash flows for each of the three years in the period ended
December 31, 2008, and our report dated March 13, 2009
expressed an unqualified opinion thereon.
/s/ Eisner LLP
New York, New York
March 13, 2009
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting during the fourth quarter that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION.
|
None.
40
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
This information will be contained in our definitive proxy
statement for our 2009 Annual Meeting of Shareholders, to be
filed with the SEC not later than 120 days after the end of
our fiscal year covered by this report, and incorporated herein
by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.
|
This information will be contained in our proxy statement and
incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
|
This information will be contained in our proxy statement and
incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
This information will be contained in our proxy statement and
incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
This information will be contained in our proxy statement and
incorporated herein by reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES.
|
(a)(1): Index to 2008 Consolidated Financial Statements
The consolidated financial statements and the notes thereto,
together with the report thereon of Eisner LLP dated
March 13, 2009, appear beginning on
page F-1
of this report.
(a)(2): Financial Statement Schedules
Financial statement schedules not included in this report have
been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or
the notes thereto.
41
(a)(3): Exhibits Filed
The following exhibits are filed as part of this annual report
on
Form 10-K.
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated
|
|
|
|
|
|
|
By Reference
|
|
|
|
|
|
|
from
|
|
No. in
|
Exhibit No.
|
|
Description
|
|
Document
|
|
Document
|
|
|
3
|
.1
|
|
Articles of Incorporation
|
|
A
|
|
3.1
|
|
3
|
.2
|
|
Articles of Amendment to the Articles of Incorporation, dated
August 24, 1999
|
|
B
|
|
3.2
|
|
3
|
.3
|
|
Articles of Amendment to the Articles of Incorporation, dated
April 3, 2006
|
|
C
|
|
3.1
|
|
3
|
.4
|
|
Amended and Restated Bylaws
|
|
D
|
|
3.2
|
|
4
|
.1
|
|
Form of common stock certificate
|
|
A
|
|
4.1
|
|
4
|
.2
|
|
Credit Agreement, dated as of October 19, 2007, by and
between the Company and Frost Gamma Investments Trust, including
the form of note thereto
|
|
E
|
|
4.1
|
|
4
|
.3
|
|
Non-Negotiable Promissory Note, dated as of October 19,
2007, made by the Company in favor of Bruce A. Zwigard
|
|
E
|
|
4.2
|
|
4
|
.4
|
|
Pledge Agreement, dated as of October 19, 2007, by and
between the Company and Bruce A. Zwigard
|
|
E
|
|
4.3
|
|
4
|
.5
|
|
Non-Negotiable Promissory Note, dated as of August 13,
2008, made by Ladenburg Thalmann Financial Services Inc. in
favor of Mark C. Mettelman and Robert W. Bruderman as
representatives of the shareholders of Triad Advisors, Inc.
|
|
U
|
|
4.1
|
|
4
|
.6
|
|
Pledge Agreement, dated as of August 13, 2008, by and
between Ladenburg Thalmann Financial Services Inc. and Mark C.
Mettelman and Robert W. Bruderman as representatives of the
shareholders of Triad Advisors, Inc.
|
|
U
|
|
4.2
|
|
10
|
.1
|
|
Amended and Restated 1999 Performance Equity Plan*
|
|
F
|
|
4.1
|
|
10
|
.2
|
|
Form of Stock Option Agreement, dated as of May 7, 2001,
between the Company and certain directors*
|
|
G
|
|
10.3
|
|
10
|
.2.1
|
|
Schedule of Stock Option Agreements in the form of
Exhibit 10.2, including material detail in which such
documents differ from Exhibit 10.2*
|
|
G
|
|
10.3.1
|
|
10
|
.3
|
|
Stock Option Agreement, dated as of January 10, 2002,
between the Company and Richard J. Lampen*
|
|
H
|
|
10.2
|
|
10
|
.4
|
|
Form of Stock Option Agreement, dated January 10, 2002,
between the Company and each of Richard J. Rosenstock and Mark
Zeitchick*
|
|
H
|
|
10.3
|
|
10
|
.4.1
|
|
Schedule of Stock Option Agreements in the form of
Exhibit 10.4, including material detail in which such
documents differ from Exhibit 10.4*
|
|
H
|
|
10.3.1
|
|
10
|
.5
|
|
Ladenburg Thalmann Financial Services Inc. Qualified Employee
Stock Purchase Plan*
|
|
I
|
|
Exhibit A
|
|
10
|
.6
|
|
Form of Stock Option Agreement, dated November 15, 2002,
between the Company and each of Bennett S. LeBow, Howard M.
Lorber, Henry C. Beinstein, Robert J. Eide and Richard J. Lampen*
|
|
J
|
|
10.48
|
|
10
|
.6.1
|
|
Schedule of Stock Option Agreements in the form of
Exhibit 10.6, including material detail in which such
documents differ from Exhibit 10.6*
|
|
J
|
|
10.48.1
|
|
10
|
.7
|
|
Form of Stock Option Agreement, dated September 17, 2003,
between the Company and each of Howard M. Lorber, Henry C.
Beinstein and Richard J. Lampen*
|
|
K
|
|
10.1
|
|
10
|
.7.1
|
|
Schedule of Stock Option Agreements in the form of
Exhibit 10.7, including material detail in which such
documents differ from Exhibit 10.7*
|
|
K
|
|
10.1.1
|
|
10
|
.8
|
|
Office Lease dated March 30, 2007 between the Company and
Frost Real Estate Holdings, LLC
|
|
L
|
|
10.1
|
|
10
|
.9
|
|
Stock Option Agreement, dated July 13, 2006, issued to
Dr. Phillip Frost*
|
|
M
|
|
10.2
|
|
10
|
.10
|
|
Warrant issued to BroadWall Capital LLC
|
|
N
|
|
10.1
|
|
10
|
.11
|
|
Form of Stock Option Agreement issued to employees of BroadWall
|
|
N
|
|
10.2
|
|
10
|
.12
|
|
Letter Agreement, dated September 14, 2006, between
Ladenburg Thalmann Financial Services Inc. and Vector Group Ltd.
(Vector Agreement)
|
|
O
|
|
10.1
|
|
10
|
.13
|
|
First Amendment to Vector Agreement dated as of
December 20, 2007
|
|
P
|
|
10.1
|
|
10
|
.14
|
|
Form of Warrant to be issued to the stockholders of Telluride
Holdings, Inc.
|
|
Q
|
|
10.2
|
|
10
|
.15
|
|
Amendment to Employment Agreement between Ladenburg Thalmann
Financial Services Inc., Ladenburg Thalmann & Co. Inc.
and Mark Zeitchick.*
|
|
R
|
|
10.3
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated
|
|
|
|
|
|
|
By Reference
|
|
|
|
|
|
|
from
|
|
No. in
|
Exhibit No.
|
|
Description
|
|
Document
|
|
Document
|
|
|
10
|
.16
|
|
Stock Purchase Agreement, dated as of October 19, 2007, by
and among Ladenburg Thalmann Financial Services Inc., the
Investacorp Companies, the VIA Companies, Bruce A. Zwigard and
the Bruce A. Zwigard Grantor Retained Annuity Trust dated
June 20, 2007
|
|
E
|
|
10.1
|
|
10
|
.17
|
|
Non-Plan Option Agreement, dated as of October 19, 2007, by
and between Ladenburg Thalmann Financial Services Inc. and Bruce
A. Zwigard
|
|
E
|
|
10.2
|
|
10
|
.18
|
|
Warrant, dated as of October 19, 2007, issued to Frost
Gamma Investments Trust pursuant to Credit Agreement
|
|
E
|
|
10.3
|
|
10
|
.19
|
|
Employment Letter dated as of February 8, 2008 between
Ladenburg Thalmann Financial Services Inc. and Brett Kaufman*
|
|
S
|
|
10.1
|
|
10
|
.20
|
|
Agreement and Plan of Merger dated as of July 9, 2008 by
and among Ladenburg Thalmann Financial Services Inc., Triple
Acquisition Inc., Triad Advisors, Inc. and the shareholders of
Triad Advisors, Inc.
|
|
T
|
|
2.1
|
|
21
|
|
|
List of Subsidiaries
|
|
**
|
|
|
|
23
|
.1
|
|
Consent of Eisner LLP
|
|
**
|
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer, Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
**
|
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer, Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
**
|
|
|
|
32
|
.1
|
|
Certification of Chief Executive Officer, Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
**
|
|
|
|
32
|
.2
|
|
Certification of Chief Financial Officer, Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
**
|
|
|
|
|
|
*
|
|
Management Compensation Contract
|
|
**
|
|
Filed herewith
|
|
|
|
A. |
|
Registration statement on
Form SB-2
(File
No. 333-31001). |
|
B. |
|
Annual report on
Form 10-K
for the year ended August 24, 1999. |
|
C. |
|
Quarterly report on
Form 10-Q
for the quarter ended June 30, 2006. |
|
D. |
|
Current report on
Form 8-K,
dated September 20, 2007 and filed with the SEC on
September 21, 2007. |
|
E. |
|
Current report on
Form 8-K,
dated October 19, 2007 and filed with the SEC on
October 22, 2007. |
|
F. |
|
Registration statement on
Form S-8
(File
No. 333-139254). |
|
|
|
G. |
|
Quarterly report on
Form 10-Q
for the quarter ended June 30, 2001. |
|
|
|
H. |
|
Registration statement on
Form S-3
(File
No. 333-81964). |
|
I. |
|
Definitive proxy statement filed with the SEC on
October 3, 2002 relating to the annual meeting of
shareholders held on November 6, 2002. |
|
J. |
|
Annual report on
Form 10-K
for the year ended December 31, 2002. |
|
K. |
|
Quarterly report on
Form 10-Q
for the quarter ended September 30, 2003. |
|
L. |
|
Current report on
Form 8-K,
dated March 30, 2007 and filed with the SEC on
April 2, 2007. |
|
M. |
|
Current report on
Form 8-K,
dated July 10, 2006 and filed with the SEC on
August 3, 2006. |
|
N. |
|
Current report on
Form 8-K,
dated September 11, 2006 and filed with the SEC on
September 12, 2006. |
|
O. |
|
Current report on
Form 8-K,
dated September 21, 2006 and filed with the SEC on
September 27, 2006. |
|
P. |
|
Current report on
Form 8-K,
dated December 20, 2007 and filed with the SEC on
December 20, 2007. |
|
Q. |
|
Current report on
Form 8-K,
dated September 6, 2006 and filed with the SEC on
September 7, 2006. |
|
R. |
|
Current report on
Form 8-K/A
dated September 6, 2006 and filed with the SEC on
October 24, 2006. |
|
S. |
|
Current report on
Form 8-K,
dated March 27, 2008 and filed with the SEC on
March 28, 2008. |
|
T. |
|
Current report on
Form 8-K,
dated July 9, 2008 and filed with the SEC on July 10,
2008. |
|
U. |
|
Current report on
Form 8-K,
dated August 13, 2008 and filed with the SEC on
August 14, 2008. |
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LADENBURG THALMANN FINANCIAL SERVICES INC.
(Registrant)
Dated: March 16, 2009
Name: Brett H. Kaufman
|
|
|
|
Title:
|
Vice President and Chief Financial Officer
|
POWER OF
ATTORNEY
The undersigned directors and officers of Ladenburg Thalmann
Financial Services Inc. hereby constitute and appoint Brett H.
Kaufman, Richard J. Lampen and Mark Zeitchick, and each of them,
with full power to act without the other and with full power of
substitution and resubstitution, our true and lawful
attorneys-in-fact with full power to execute in our name and
behalf in the capacities indicated below, this annual report on
Form 10-K
and any and all amendments thereto and to file the same, with
all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, and
hereby ratify and confirm all that such attorneys-in-fact, or
any of them, or their substitutes shall lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
March 16, 2009.
|
|
|
|
|
Signatures
|
|
Title
|
|
|
|
|
/s/ Richard
J. Lampen
Richard
J. Lampen
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
/s/ Brett
H. Kaufman
Brett
H. Kaufman
|
|
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
|
|
|
|
/s/ Henry
C. Beinstein
Henry
C. Beinstein
|
|
Director
|
|
|
|
/s/ Robert
J. Eide
Robert
J. Eide
|
|
Director
|
|
|
|
/s/ Phillip
Frost, M.D.
Phillip
Frost, M.D.
|
|
Director
|
|
|
|
/s/ Brian
S. Genson
Brian
S. Genson
|
|
Director
|
|
|
|
/s/ Saul
Gilinski
Saul
Gilinski
|
|
Director
|
|
|
|
/s/ Dr. Richard
M. Krasno
Dr. Richard
M. Krasno
|
|
Director
|
|
|
|
/s/ Howard
M. Lorber
Howard
M. Lorber
|
|
Director
|
|
|
|
/s/ Jeffrey
S. Podell
Jeffrey
S. Podell
|
|
Director
|
|
|
|
/s/ Richard
J. Rosenstock
Richard
J. Rosenstock
|
|
Director
|
|
|
|
/s/ Mark
Zeitchick
Mark
Zeitchick
|
|
Director
|
44
LADENBURG
THALMANN FINANCIAL SERVICES INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2008
ITEMS 8 and 15(a) (1) AND (2)
INDEX TO
FINANCIAL STATEMENTS
Financial Statements of the Registrant and its subsidiaries
required to be included in Items 8 and 15(a) (1) and
(2) are listed below:
FINANCIAL
STATEMENTS:
|
|
|
|
|
|
|
Page
|
|
Ladenburg Thalmann Financial Services Inc. Consolidated
Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
|
|
|
|
|
F-4
|
|
|
|
|
|
|
|
|
|
F-5
|
|
|
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
|
|
|
F-8
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Ladenburg Thalmann Financial Services Inc.
We have audited the accompanying consolidated statements of
financial condition of Ladenburg Thalmann Financial Services
Inc. and its subsidiaries (the Company) as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, changes in shareholders equity
and cash flows for each of the three years in the period ended
December 31, 2008. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Ladenburg Thalmann Financial Services Inc.
and its subsidiaries as of December 31, 2008 and 2007, and
the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 13, 2009 expressed
an unqualified opinion thereon.
/s/ Eisner LLP
New York, New York
March 13, 2009
F-2
LADENBURG
THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
6,621
|
|
|
$
|
8,595
|
|
Securities owned:
|
|
|
|
|
|
|
|
|
Marketable, at fair value
|
|
|
4,828
|
|
|
|
3,139
|
|
NYSE Euronext restricted common stock, at historical cost
|
|
|
|
|
|
|
1,158
|
|
Receivables from clearing brokers
|
|
|
14,558
|
|
|
|
35,881
|
|
Receivables from other broker-dealers
|
|
|
|
|
|
|
15,511
|
|
Other receivables, net
|
|
|
3,960
|
|
|
|
1,528
|
|
Exchange memberships owned, at historical cost
|
|
|
|
|
|
|
120
|
|
Investment in fund manager
|
|
|
318
|
|
|
|
386
|
|
Furniture, equipment and leasehold improvements, net
|
|
|
3,714
|
|
|
|
791
|
|
Restricted assets
|
|
|
701
|
|
|
|
545
|
|
Intangible assets, net
|
|
|
31,625
|
|
|
|
19,927
|
|
Goodwill
|
|
|
29,739
|
|
|
|
23,546
|
|
Unamortized debt issue cost
|
|
|
2,400
|
|
|
|
|
|
Other assets
|
|
|
3,204
|
|
|
|
3,005
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
101,668
|
|
|
$
|
114,132
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Securities sold, but not yet purchased, at market value
|
|
$
|
91
|
|
|
$
|
946
|
|
Accrued compensation
|
|
|
3,661
|
|
|
|
6,693
|
|
Commissions and fees payable
|
|
|
5,005
|
|
|
|
4,641
|
|
Accounts payable and accrued liabilities
|
|
|
5,851
|
|
|
|
5,644
|
|
Deferred rent
|
|
|
3,863
|
|
|
|
1,566
|
|
Deferred income taxes
|
|
|
780
|
|
|
|
|
|
Accrued interest
|
|
|
193
|
|
|
|
671
|
|
Notes payable
|
|
|
30,934
|
|
|
|
39,868
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
50,378
|
|
|
|
60,029
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 3 and 12)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value; 2,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value; 400,000,000 shares
authorized; shares issued and outstanding, 171,715,514 in 2008
and 161,698,071 in 2007
|
|
|
17
|
|
|
|
16
|
|
Additional paid-in capital
|
|
|
166,172
|
|
|
|
148,723
|
|
Accumulated deficit
|
|
|
(114,899
|
)
|
|
|
(94,636
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
51,290
|
|
|
|
54,103
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
101,668
|
|
|
$
|
114,132
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-3
LADENBURG
THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
14,714
|
|
|
$
|
55,401
|
|
|
$
|
18,531
|
|
Commissions and fees
|
|
|
97,615
|
|
|
|
31,958
|
|
|
|
15,780
|
|
Asset management
|
|
|
2,721
|
|
|
|
3,028
|
|
|
|
2,381
|
|
Principal transactions
|
|
|
(2,736
|
)
|
|
|
251
|
|
|
|
326
|
|
Interest and dividends
|
|
|
3,974
|
|
|
|
2,970
|
|
|
|
2,790
|
|
Gain on NYSE merger transaction
|
|
|
|
|
|
|
|
|
|
|
4,859
|
|
Realized and unrealized loss on NYSE Euronext restricted common
stock
|
|
|
|
|
|
|
|
|
|
|
(1,001
|
)
|
Gain on sale of CBOE membership
|
|
|
|
|
|
|
|
|
|
|
1,125
|
|
Other income
|
|
|
4,682
|
|
|
|
2,218
|
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
120,970
|
|
|
|
95,826
|
|
|
|
46,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
42,378
|
|
|
|
48,918
|
|
|
|
26,735
|
|
Non-cash compensation
|
|
|
6,265
|
|
|
|
6,694
|
|
|
|
2,885
|
|
Commissions and fees
|
|
|
61,006
|
|
|
|
9,012
|
|
|
|
|
|
Brokerage, communication and clearance fees
|
|
|
5,987
|
|
|
|
3,976
|
|
|
|
2,923
|
|
Rent and occupancy, net of sublease revenue
|
|
|
3,222
|
|
|
|
1,307
|
|
|
|
2,183
|
|
Professional services
|
|
|
5,976
|
|
|
|
3,944
|
|
|
|
2,558
|
|
Interest
|
|
|
4,534
|
|
|
|
2,304
|
|
|
|
499
|
|
Depreciation and amortization
|
|
|
3,292
|
|
|
|
1,491
|
|
|
|
754
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
1,833
|
|
|
|
|
|
Other
|
|
|
7,554
|
|
|
|
6,443
|
|
|
|
3,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
140,214
|
|
|
|
85,922
|
|
|
|
42,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(19,244
|
)
|
|
|
9,904
|
|
|
|
4,848
|
|
Income tax expense
|
|
|
1,019
|
|
|
|
513
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(20,263
|
)
|
|
$
|
9,391
|
|
|
$
|
4,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share (basic and diluted)
|
|
$
|
(0.12
|
)
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computation of per share
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
165,812,495
|
|
|
|
157,355,540
|
|
|
|
148,693,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
165,812,495
|
|
|
|
168,484,469
|
|
|
|
153,087,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
LADENBURG
THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS EQUITY
(Dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Stock-based
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance, December 31, 2005
|
|
|
141,590,529
|
|
|
$
|
14
|
|
|
$
|
122,532
|
|
|
$
|
(893
|
)
|
|
$
|
(108,686
|
)
|
|
$
|
12,967
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
248,298
|
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
267
|
|
Exercise of stock options, net of 451,585 shares tendered
in payment of exercise price
|
|
|
1,469,607
|
|
|
|
|
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
|
489
|
|
Stock options granted to Advisory Board
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
Elimination of unearned employee stock-based compensation to
additional paid-in capital upon adoption of
SFAS No. 123R
|
|
|
|
|
|
|
|
|
|
|
(893
|
)
|
|
|
893
|
|
|
|
|
|
|
|
|
|
Amortization of unearned employee stock-based compensation
issued in 2005
|
|
|
|
|
|
|
|
|
|
|
803
|
|
|
|
|
|
|
|
|
|
|
|
803
|
|
Stock-based compensation to employees in 2006
|
|
|
|
|
|
|
|
|
|
|
1,770
|
|
|
|
|
|
|
|
|
|
|
|
1,770
|
|
Issuance of common stock to affiliates pursuant to private
equity offering, net of expenses of $103
|
|
|
8,397,891
|
|
|
|
1
|
|
|
|
3,675
|
|
|
|
|
|
|
|
|
|
|
|
3,676
|
|
Warrants issued for acquisition of customer accounts
|
|
|
|
|
|
|
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
698
|
|
Warrants issued for interest in fund manager
|
|
|
|
|
|
|
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
399
|
|
Warrants and common stock issued for acquisition of Capitalink
|
|
|
4,000,000
|
|
|
|
|
|
|
|
2,122
|
|
|
|
|
|
|
|
|
|
|
|
2,122
|
|
Issuance of common stock to employees pursuant to stock purchase
agreements
|
|
|
266,480
|
|
|
|
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
172
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,659
|
|
|
|
4,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
155,972,805
|
|
|
|
15
|
|
|
|
132,346
|
|
|
|
|
|
|
|
(104,027
|
)
|
|
|
28,334
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
183,308
|
|
|
|
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
407
|
|
Exercise of stock options, net of 400,702 shares tendered
in payment of exercise price and 355,355 options used in
cashless exercise
|
|
|
3,618,420
|
|
|
|
1
|
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
|
978
|
|
Shares acquired from an employee in satisfaction of withholding
taxes on exercise of options
|
|
|
(521,711
|
)
|
|
|
|
|
|
|
(1,122
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,122
|
)
|
Stock options granted to members of former Advisory Board and
consultants
|
|
|
|
|
|
|
|
|
|
|
437
|
|
|
|
|
|
|
|
|
|
|
|
437
|
|
Stock-based compensation to employees
|
|
|
|
|
|
|
|
|
|
|
6,257
|
|
|
|
|
|
|
|
|
|
|
|
6,257
|
|
Stock retired under stock repurchase plan
|
|
|
(332,529
|
)
|
|
|
|
|
|
|
(612
|
)
|
|
|
|
|
|
|
|
|
|
|
(612
|
)
|
Issuance of shares of common stock in exchange for promissory
notes payable to former parent
|
|
|
2,777,778
|
|
|
|
|
|
|
|
6,833
|
|
|
|
|
|
|
|
|
|
|
|
6,833
|
|
Warrant issued in connection with credit agreement
|
|
|
|
|
|
|
|
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
3,200
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,391
|
|
|
|
9,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
161,698,071
|
|
|
|
16
|
|
|
|
148,723
|
|
|
|
|
|
|
|
(94,636
|
)
|
|
|
54,103
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
196,305
|
|
|
|
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
285
|
|
Exercise of stock options, net of 128,657 shares tendered
in payment of exercise price and 255,183 options used in
cashless exercise
|
|
|
2,018,029
|
|
|
|
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
527
|
|
Stock options granted to members of former Advisory Board and
consultants
|
|
|
|
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
267
|
|
Stock-based compensation to employees
|
|
|
143,617
|
|
|
|
|
|
|
|
5,998
|
|
|
|
|
|
|
|
|
|
|
|
5,998
|
|
Stock retired under stock repurchase plan
|
|
|
(583,895
|
)
|
|
|
|
|
|
|
(1,060
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,060
|
)
|
Common stock issued in Punk Ziegel acquisition
|
|
|
250,000
|
|
|
|
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
435
|
|
Common stock issued in Triad acquisition
|
|
|
7,993,387
|
|
|
|
1
|
|
|
|
10,426
|
|
|
|
|
|
|
|
|
|
|
|
10,427
|
|
Warrants issued for acquisition of customer accounts
|
|
|
|
|
|
|
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
571
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,263
|
)
|
|
|
(20,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
171,715,514
|
|
|
$
|
17
|
|
|
$
|
166,172
|
|
|
$
|
|
|
|
$
|
(114,899
|
)
|
|
$
|
51,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-5
LADENBURG
THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(20,263
|
)
|
|
$
|
9,391
|
|
|
$
|
4,659
|
|
Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
470
|
|
|
|
298
|
|
|
|
591
|
|
Write-off of furniture, fixtures and leasehold improvements, net
|
|
|
|
|
|
|
115
|
|
|
|
41
|
|
Adjustment to deferred rent
|
|
|
(98
|
)
|
|
|
14
|
|
|
|
(149
|
)
|
Amortization of debt discount
|
|
|
845
|
|
|
|
304
|
|
|
|
|
|
Amortization of debt issue cost
|
|
|
669
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
2,753
|
|
|
|
1,104
|
|
|
|
144
|
|
Amortization of investment in fund manager
|
|
|
68
|
|
|
|
89
|
|
|
|
19
|
|
Deferred income taxes
|
|
|
780
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
192
|
|
|
|
671
|
|
|
|
448
|
|
Forgiveness of promissory note payable
|
|
|
|
|
|
|
|
|
|
|
(666
|
)
|
Non-cash compensation expense
|
|
|
6,265
|
|
|
|
6,694
|
|
|
|
2,885
|
|
Gain on NYSE merger transaction in excess of proceeds of sale of
$3,128
|
|
|
|
|
|
|
|
|
|
|
(1,732
|
)
|
Realized and unrealized loss on NYSE Euronext restricted common
stock
|
|
|
|
|
|
|
|
|
|
|
1,001
|
|
Gain on sale of CBOE membership
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
1,833
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
(Increase) decrease in operating assets, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities owned
|
|
|
(31
|
)
|
|
|
(2,386
|
)
|
|
|
1,735
|
|
Receivables from clearing brokers
|
|
|
24,562
|
|
|
|
(9,749
|
)
|
|
|
(3,904
|
)
|
Receivables from other broker-dealers
|
|
|
15,511
|
|
|
|
(9,559
|
)
|
|
|
(4,249
|
)
|
Other receivables, net
|
|
|
(1,522
|
)
|
|
|
(1,358
|
)
|
|
|
(100
|
)
|
Other assets
|
|
|
717
|
|
|
|
1,352
|
|
|
|
(521
|
)
|
Increase (decrease) in operating liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, but not yet purchased
|
|
|
(865
|
)
|
|
|
(1,096
|
)
|
|
|
(6,820
|
)
|
Accrued compensation
|
|
|
(3,876
|
)
|
|
|
2,929
|
|
|
|
1,276
|
|
Commissions and fees payable
|
|
|
(843
|
)
|
|
|
646
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(1,569
|
)
|
|
|
(4,152
|
)
|
|
|
(2,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
23,765
|
|
|
|
(2,860
|
)
|
|
|
(8,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of relationships and customer accounts
|
|
|
|
|
|
|
(92
|
)
|
|
|
(1,026
|
)
|
Adjustment to intangible assets
|
|
|
212
|
|
|
|
|
|
|
|
|
|
Payment for Triad acquisition, net of cash received
|
|
|
(5,843
|
)
|
|
|
|
|
|
|
|
|
Payment for Punk Ziegel acquisition, net of cash received
|
|
|
(2,461
|
)
|
|
|
|
|
|
|
|
|
Payment for Investacorp acquisition, net of cash received
|
|
|
(55
|
)
|
|
|
(25,044
|
)
|
|
|
|
|
Purchases of furniture, equipment and leasehold improvements
|
|
|
(546
|
)
|
|
|
(395
|
)
|
|
|
(369
|
)
|
Proceeds from sales of exchange memberships
|
|
|
120
|
|
|
|
|
|
|
|
1,920
|
|
Decrease (increase) in restricted assets
|
|
|
318
|
|
|
|
1,135
|
|
|
|
(85
|
)
|
Other
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(8,259
|
)
|
|
|
(24,393
|
)
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity offerings
|
|
|
|
|
|
|
|
|
|
|
3,675
|
|
Issuance of common stock other than private equity offerings
|
|
|
812
|
|
|
|
1,385
|
|
|
|
929
|
|
Shares tendered for withholding taxes on exercise of stock
options
|
|
|
|
|
|
|
(1,122
|
)
|
|
|
|
|
Repurchases of common stock
|
|
|
(1,060
|
)
|
|
|
(612
|
)
|
|
|
|
|
Issuance of subordinated notes payable
|
|
|
|
|
|
|
72,000
|
|
|
|
20,000
|
|
Repayment of subordinated notes payable
|
|
|
|
|
|
|
(72,000
|
)
|
|
|
(20,000
|
)
|
Issuance of other notes payable
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Principal payments on other notes payable
|
|
|
(17,232
|
)
|
|
|
(786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(17,480
|
)
|
|
|
28,865
|
|
|
|
4,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,974
|
)
|
|
|
1,612
|
|
|
|
(3,953
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
8,595
|
|
|
|
6,983
|
|
|
|
10,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
6,621
|
|
|
$
|
8,595
|
|
|
$
|
6,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-6
LADENBURG
THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS (Continued)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,440
|
|
|
$
|
2,766
|
|
|
$
|
139
|
|
Taxes paid
|
|
|
390
|
|
|
|
193
|
|
|
|
344
|
|
Non-cash investing and financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued for acquisition of customer accounts
|
|
$
|
571
|
|
|
$
|
|
|
|
$
|
698
|
|
Warrant issued for interest in fund manager
|
|
|
|
|
|
|
|
|
|
|
399
|
|
Warrant and common stock issued for Capitalink acquisition
|
|
|
|
|
|
|
|
|
|
|
2,122
|
|
Lease commitment capitalized as part of Capitalink acquisition
|
|
|
|
|
|
|
463
|
|
|
|
|
|
Issuance of shares of common stock in exchange for $5,000 of
promissory notes payable to former parent
|
|
|
|
|
|
|
6,833
|
|
|
|
|
|
Warrant issued in connection with credit agreement
|
|
|
|
|
|
|
3,200
|
|
|
|
|
|
Leasehold improvements financed by landlord in connection with
relocation of premises and included in deferred rent
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
Acquisition of Investacorp and affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
|
|
|
|
$
|
50,849
|
|
|
|
|
|
Liabilities assumed ($6,676) and note payable issued to former
principal shareholder ($13,550)
|
|
|
|
|
|
|
(20,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in acquisition
|
|
|
|
|
|
|
30,623
|
|
|
|
|
|
Cash acquired in acquisition
|
|
|
|
|
|
|
(5,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid in acquisition
|
|
|
|
|
|
$
|
25,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Punk Ziegel:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
$
|
4,174
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
|
(1,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
3,135
|
|
|
|
|
|
|
|
|
|
Stock issued in acquisition
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in acquisition
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
Cash acquired in acquisition
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid in acquisition
|
|
$
|
2,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Triad Advisors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
$
|
23,939
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
|
(2,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
21,767
|
|
|
|
|
|
|
|
|
|
Note issued in acquisition
|
|
|
(4,384
|
)
|
|
|
|
|
|
|
|
|
Stock issued in acquisition
|
|
|
(10,427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in acquisition
|
|
|
6,956
|
|
|
|
|
|
|
|
|
|
Cash acquired in acquisition
|
|
|
(1,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid in acquisition
|
|
$
|
5,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-7
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands, except share and per share amounts)
|
|
1.
|
Description
of Business
|
Description
of Business
The consolidated financial statements include the accounts of
Ladenburg Thalmann Financial Services Inc. (LTS or
the Company), a holding company, and its
subsidiaries, all of which are wholly-owned. The principal
operating subsidiaries of LTS are Ladenburg Thalmann &
Co. Inc. (Ladenburg), Investacorp, Inc.
(collectively with related companies, Investacorp)
and Triad Advisors, Inc. (Triad).
Ladenburg is a full service registered broker-dealer that has
been a member of the New York Stock Exchange (NYSE)
since 1879. Broker-dealer activities include principal and
agency trading, investment banking and asset management.
Ladenburg provides its services principally for middle market
and emerging growth companies and high net worth individuals
through a coordinated effort among corporate finance, capital
markets, asset management, brokerage and trading professionals.
Investacorp and Triad, which were acquired on October 19,
2007 and August 13, 2008, respectively, are registered
broker-dealers and investment advisors that have been serving
the independent registered representative community since 1978
and 1998, respectively. Investacorps and Triads
independent registered representatives primarily serve retail
clients. They derive revenue from advisory fees and commissions,
primarily from the sale of mutual funds, variable annuity
products and other financial products and services.
Ladenburg, Investacorp and Triad clear their customers
transactions through correspondent clearing brokers on a
fully-disclosed basis. Each of Ladenburg, Investacorp and Triad
is subject to regulation by, among others, the Securities and
Exchange Commission (SEC), the Financial Industry
Regulatory Authority (FINRA) and the Municipal
Securities Rulemaking Board (MSRB). Ladenburg is
also subject to regulation by the Commodities Futures Trading
Commission (CFTC) and National Futures Association
(NFA). (See Note 6.)
All significant intercompany balances and transactions have been
eliminated.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of
Estimates
The preparation of these financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Cash
Equivalents
The Company considers all highly liquid financial instruments
with an original maturity of three months or less to be cash
equivalents.
Securities
Securities owned and securities sold, but not yet purchased,
which are traded on a national securities exchange or
over-the-counter are valued at the last reported sales prices of
the year. Futures contracts are also valued at their last
reported sales price of the year. Securities owned, which have
exercise or holding period restrictions, are valued at fair
value as determined by the Companys management. Securities
that contain resale restrictions are stated at a discount to the
value of readily marketable securities. Stock warrants are
carried at a discount to fair value as determined by using the
Black-Scholes option pricing model due to illiquidity.
Unrealized gains and losses resulting from changes in valuation
are reflected in principal transactions.
F-8
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
Investments in securities not held by the Companys
registered broker-dealer subsidiaries are accounted for in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. For such
investments the Company determines their appropriate
classification as held-to-maturity, available-for-sale, or
trading at the time of purchase, and re-evaluates such
classification as of each balance sheet date. At
December 31, 2008 and 2007, these investments, which
amounted to $2,443 and $142, respectively, were classified as
trading and carried at fair value with unrealized gains and
losses reflected in principal transactions.
Revenue
Recognition
Investment banking revenue consists of underwriting revenue,
strategic advisory revenue and private placement fees.
Underwriting revenues arise from securities offerings in which
the Company acts as an underwriter and include management fees,
selling concessions and underwriting fees, net of related
syndicate expenses. Underwriting revenues are recorded at the
time the underwriting is completed and the income is reasonably
determined. Management estimates the Companys share of the
transaction-related expenses incurred by the syndicate, and
recognizes revenues net of such expense. On final settlement,
typically 90 days from the trade date of the transaction,
these amounts are adjusted to reflect the actual
transaction-related expenses and the resulting underwriting fee.
Strategic advisory revenue primarily consists of success fees on
completed merger and acquisition transactions, as well as
retainer and periodic fees, earned in connection with advising
on both buyers and sellers transactions. Fees are
also earned for related advisory work and other services such as
providing fairness opinions and valuation analyses. Strategic
advisory revenues are recorded when the transactions or the
services (or, if applicable, separate components thereof) to be
performed are substantially complete, the fees are determinable
and collection is reasonably assured. Private placement fees are
recorded on the closing date of the transaction. Expenses
associated with strategic advisory and private placement
transactions, net of client reimbursements, are recorded as
non-compensation expense.
Commissions and fees revenue results from transactions in equity
securities, mutual funds, variable annuities, and other
financial products and services. Revenue from such transactions,
executed as agent or principal, and related expenses are
recorded on a trade-date basis.
Asset management revenue consists of base management fees and
incentive fees. The Company recognizes base management fees on a
monthly basis over the period in which the investment services
are performed. Base management fees earned by the Company are
generally based on the fair value of assets under management.
Base management fees are calculated at the investor level and,
depending on the program, use their monthly, average monthly or
quarter-ending capital balances adjusted for any contributions
or withdrawals. Since base management fees are based on assets
under management, significant changes in the fair value of these
assets will have an impact on the fees earned by the Company in
future periods. The Company also earns incentive fees that are
based upon the performance of investment funds and accounts.
Principal transactions revenue includes realized and unrealized
net gains and losses resulting from the Companys
investments in equity securities for the Companys account
and equity-linked warrants received from certain investment
banking assignments. Profit and loss arising from all securities
transactions entered into for the account and risk of the
Company are recorded on a trade-date basis.
Dividends are recorded on an ex-dividend date basis and interest
is recorded on an accrual basis.
Furniture,
Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are carried at
cost net of accumulated depreciation and amortization.
Depreciation is provided by the straight-line method over the
estimated useful lives of the related assets. Leasehold
improvements are amortized on a straight-line basis over the
lease term, or their estimated useful lives, whichever is
shorter.
F-9
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
Share-Based
Compensation
In accordance with SFAS No. 123 (Revised 2004),
Share-Based Payment (SFAS No. 123R), the
Company measures the cost of employee, officer and director
services received in exchange for an award of equity
instruments, including stock options, based on the grant-date
fair value of the award. The cost is recognized as compensation
expense over the service period, which would normally be the
vesting period of the equity instruments.
Intangible
Assets
Intangible assets are amortized over their estimated useful
lives, generally on a straight-line basis. Intangible assets
subject to amortization are tested for recoverability whenever
events or changes in circumstances indicate that the carrying
amount may be not recoverable. The Company assesses the
recoverability of its intangible assets by determining whether
the unamortized balance can be recovered over the assets
remaining life through undiscounted forecasted cash flows. If
undiscounted forecasted cash flows indicate that the unamortized
amounts will not be recovered, an adjustment will be made to
reduce such amounts to an amount consistent with forecasted
future cash flows discounted at a rate commensurate with the
risk associated with achieving future discounted cash flows.
Future cash flows are based on trends of historical performance
and the Companys estimate of future performance, giving
consideration to existing and anticipated competitive and
economic conditions.
Goodwill
Goodwill, which was recorded in connection with the acquisition
of Investacorp, Triad and Punk, Ziegel & Company, L.P.
(Punk Ziegel) (see Note 3), is not subject to
amortization and is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that
the asset may be impaired. The impairment test consists of a
comparison of the fair value of the reporting unit with its
carrying amount. Fair value is typically based upon future cash
flows discounted at a rate commensurate with the risk involved
or market based comparables. If the carrying amount of the
reporting unit exceeds its fair value then an analysis will be
performed to compare the implied fair value of goodwill with its
carrying amount of goodwill. An impairment loss will be
recognized in an amount equal to the excess of the carrying
amount over the implied fair value. After an impairment loss is
recognized, the adjusted carrying amount of goodwill is its new
accounting basis.
Recently
Issued Accounting Pronouncements
The Company adopted SFAS No. 157, Fair Value
Measurements (SFAS No. 157), in the
first quarter of 2008. SFAS No. 157 defines fair
value, establishes a framework for measuring fair value and
requires enhanced disclosures about fair value measurements. As
defined in SFAS No. 157, fair value is the price that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. In determining fair value, the Company
often utilizes certain assumptions that market participants
would use in pricing the asset or liability, including
assumptions about risk
and/or the
risks inherent in the inputs to the valuation technique. These
inputs can be readily observable, market corroborated, or
generally unobservable firm inputs. The fair value hierarchy
ranks the quality and reliability of the information used to
determine fair values. Financial assets and liabilities carried
at fair value are classified and disclosed in one of the
following three categories:
|
|
|
|
|
Level 1 inputs are quoted prices (unadjusted)
in active markets for identical assets or liabilities the
Company has the ability to access.
|
F-10
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
|
|
|
|
|
Level 2 inputs are inputs (other than quoted
prices included within level 1) that are observable
for the asset or liability, either directly or indirectly.
|
|
|
|
Level 3 unobservable inputs for the asset or
liability and rely on managements own assumptions about
the assumptions that market participants would use in pricing
the asset or liability. (The unobservable inputs should be
developed based on the best information available in the
circumstances and may include the Companys own data.)
|
The adoption of SFAS No. 157 did not have a material
effect on the Companys consolidated financial statements.
SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS No. 159), which became effective
January 1, 2008, permits entities to choose to measure many
financial instruments and certain other items at fair value that
are not currently required to be measured at fair value, with
changes in fair value recognized in earnings as they occur.
SFAS No. 159 permits the fair value option election on
an
instrument-by-instrument
basis at initial recognition of an asset or liability or upon an
event that gives rise to a new basis of accounting for that
instrument. The Company did not elect to apply the fair value
option to any assets or liabilities that are not currently
required to be measured at fair value.
In April 2008, the FASB issued FASB Staff Position
(FSP)
FAS 142-3,
Determination of the Useful Life of Intangible
Assets (FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and other Intangible
Assets. FSP
FAS 142-3
is intended to improve the consistency between the useful life
of a recognized intangible asset under SFAS No. 142
and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141 (R) and other
U.S. generally accepted accounting principles. FSP
FAS 142-3
is effective for fiscal years beginning after
December 15,2008. Earlier application is not permitted. The
Company does not believe the adoption of FSP
FAS 142-3
will have a material effect on its consolidated financial
statements.
Triad
On August 13, 2008, pursuant to an Agreement and Plan of
Merger, dated as of July 9, 2008, by and among the Company,
Triple Acquisition Inc. (Triple), a newly-formed
wholly-owned subsidiary of the Company and the then shareholders
of Triad, Triple merged with and into Triad, with Triad
remaining as the surviving corporation and a wholly-owned
subsidiary of the Company. The acquisition was made to increase
the Companys presence in the independent broker-dealer
business. In connection with the merger, all outstanding shares
of Triads common stock were converted into an aggregate of
$6,826 in cash (net of a post-closing adjustment of $674),
7,993,387 shares of the Companys common stock,
subject to certain transfer restrictions, valued at $10,427 and
a $5,000 promissory note valued at $4,384. The Companys
common stock was valued at $1.60 per share based on the average
closing market price for a reasonable period before and after
July 10, 2008, the date the acquisition was agreed to and
announced, and discounted for the transfer restrictions. The
note, which was valued based on an imputed interest rate of 11%,
is collateralized by a pledge of Triads common stock held
by the Company. The Company incurred $130 of merger-related
costs. In the event that Triad meets certain cumulative profit
targets during the three-year period following completion of the
merger, the Company also will pay to Triads former
shareholders up to $7,500 in cash and up to
4,134,511 shares of the Companys common stock. Any
such payments will be accounted for as additional purchase price
and allocated to goodwill.
The total consideration paid by the Company in the merger,
including related costs was allocated to the identifiable assets
acquired and liabilities assumed based on their estimated fair
values with the amount
F-11
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
exceeding the fair values being recorded as goodwill. The
Company obtained third party valuations in determining fair
value for acquired intangible assets.
The allocation of the purchase price is as follows:
|
|
|
|
|
Cash
|
|
$
|
1,113
|
|
Receivables from clearing broker
|
|
|
2,074
|
|
Other receivables
|
|
|
397
|
|
Intangible assets(a)
|
|
|
13,022
|
|
Goodwill(b)
|
|
|
5,837
|
|
Securities owned
|
|
|
500
|
|
Fixed assets
|
|
|
296
|
|
Other assets
|
|
|
700
|
|
|
|
|
|
|
Total assets acquired
|
|
|
23,939
|
|
|
|
|
|
|
Commissions and fees payable
|
|
|
1,207
|
|
Accrued expenses and other liabilities
|
|
|
853
|
|
Accrued compensation
|
|
|
112
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
2,172
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
21,767
|
|
|
|
|
|
|
|
|
|
(a) |
|
Intangible assets relate principally to relationships with
registered representatives ($9,786), vendor relationships
($1,731) and non-compete covenants ($1,364), have a weighted
average useful life of 16 years and are expected to be
deductible for tax purposes over 15 years (see Note 8.) |
|
(b) |
|
Goodwill is expected to be deductible for tax purposes over a
15-year
period. |
Punk
Ziegel
On May 2, 2008, Punk Ziegel, a specialty investment bank
based in New York City, was merged into Ladenburg. The Company
paid the sellers $2,700 in cash (including acquisition costs)
plus 250,000 shares of the Companys common stock
valued at $435.
Investacorp
On October 19, 2007, the Company acquired all of the
outstanding shares of Investacorp, for approximately $30,000 in
cash and a promissory note valued at $13,550. In connection with
financing the acquisition, LTS entered into a $30,000 revolving
credit agreement with Frost Gamma Investment Trust (Frost
Gamma), an entity affiliated with LTS chairman of
the board and principal shareholder (see Note 11). The
acquisition was made to achieve a presence in the independent
broker-dealer business.
The purchase price of $44,173, including acquisition costs, was
allocated to identifiable assets acquired and liabilities
assumed based on their estimated fair values with the amount
exceeding the fair values being recorded as goodwill. The
Company obtained third party valuations in determining fair
value for the acquired intangible assets.
F-12
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
The allocation of the purchase price is as follows:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,579
|
|
Securities owned
|
|
|
478
|
|
Receivables from clearing brokers
|
|
|
2,984
|
|
Intangible assets(a)
|
|
|
17,441
|
|
Goodwill(b)
|
|
|
23,546
|
|
Other assets
|
|
|
821
|
|
|
|
|
|
|
Total assets acquired
|
|
|
50,849
|
|
|
|
|
|
|
Commissions and fees payable
|
|
|
3,995
|
|
Accounts payable and accrued liabilities
|
|
|
2,681
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
6,676
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
44,173
|
|
|
|
|
|
|
|
|
|
(a) |
|
Intangible assets relate principally to relationships with
registered representatives ($14,921), have a weighted average
useful life of 18 years and are expected to be deductible
for tax purposes over 15 years (see Note 8). |
|
(b) |
|
Goodwill is expected to be deductible for tax purposes over a
15 year period. |
In connection with his continued employment with Investacorp,
the Company granted the former principal shareholder stock
options to purchase a total of 3,000,000 shares of the
Companys common stock at $1.91 per share, the closing
price of the Companys common stock on the acquisition
date. The options, which were valued at a total of $5,130, using
the Black-Scholes option pricing model, vest over a three-year
period (subject to certain exceptions). Additionally, the
Company issued to certain other Investacorp employees options to
purchase 1,150,000 shares of common stock under its 1999
Performance Equity Plan, as amended (Option Plan),
at $1.91 per share, which were valued at a total of $1,967, and
vest in four equal annual installments.
BroadWall
On September 11, 2006, Ladenburg acquired substantially all
of the securities brokerage accounts, registered representatives
and employees of BroadWall Capital LLC (BroadWall).
In connection with this acquisition, the Company issued to
BroadWall ten-year warrants to purchase 1,500,000 shares of
the Companys common stock at an exercise price of $0.94
per share. At December 31, 2008, the warrants are
exercisable as to 825,000 shares and will become
exercisable as to 337,500 shares on each of
September 11, 2009 and 2010, contingent upon the continued
employment of two former employees of BroadWall, both of whom
have entered into two-year employment agreements with Ladenburg.
Such individuals had a 40% ownership interest in BroadWall.
Accordingly, the Company has valued 825,000 of the warrants that
vest over the two-year term of the employment agreements at $698
representing consideration for the acquisition. The value of the
warrants, together with legal costs related to the acquisition,
has been assigned to customer accounts (included in intangible
assets, net), which is being amortized to expense over an
estimated life of 10 years. The remaining warrants, which
were valued at $571, representing contingent consideration, were
recorded as additional purchase price and increased the carrying
value of the acquired customer accounts when Ladenburg renewed
the employees employment agreements in 2008.
F-13
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
Capitalink
On October 18, 2006, the Company, for an aggregate
consideration amounting to $7,392, acquired Telluride Holdings,
Inc. (Telluride) through a merger into a
newly-formed subsidiary of the Company. Telluride owned 100% of
Capitalink L.C. (Capitalink), a registered
broker-dealer providing investment banking services. The
consideration consisted of $1,000 in cash, 4,000,000 shares
of the Companys common stock valued at $3,840 and ten-year
warrants to purchase 2,900,000 shares of the Companys
common stock at an exercise price of $0.96 per share valued at
$2,552. Warrants to purchase 966,666 shares of common stock
are immediately exercisable and the remaining warrants will
become immediately exercisable upon their release from escrow as
described below. In connection with the merger, Ladenburg
entered into three-year employment agreements with each of
Tellurides three shareholders.
In connection with the transaction, 2,666,667 of the shares of
common stock, warrants to purchase 1,933,333 shares of
common stock and $667 in cash were placed in escrow contingent
upon continued employment of the selling shareholders, one-half
of which was released to the shareholders on June 3, 2007
and the balance was released on January 18, 2008.
Accordingly, the fair value of the consideration placed in
escrow of $4,937 is being accounted for as compensation over the
15 month escrow period. Compensation expense of $166,
$3,948 and $823 was recognized in 2008, 2007 and 2006,
respectively. The remaining consideration of $2,455 has been
accounted for as purchase price, of which $173 has been
allocated to trade name with an estimated 10 year life and
$2,282 has been allocated to relationships with an estimated
4 year life. The transaction resulted in an increase of
$2,122 to additional paid-in capital resulting from the issuance
of 4,000,000 shares of common stock and 966,666 vested
warrants. The shares of common stock placed in escrow have been
considered outstanding as the former Telluride shareholders are
entitled to voting rights.
In February 2007, the former Capitalink office was vacated and
the employees moved into the Companys Miami office, as
planned. The present value of the lease commitment and
additional acquisition related expenses amounting to $538 has
been accounted for as purchase price, of which $38 has been
allocated to trade name and $500 has been allocated to
relationships.
The consolidated financial statements include the results of
operations of the acquired entities from their dates of
acquisition. The following unaudited pro forma information
represents the Companys consolidated results of operations
as if the acquisitions of Investacorp and Triad had occurred at
the beginning of 2007. Pro forma data does not include the Punk
Ziegel acquisition based on materiality. The pro forma net loss
reflects amortization of the amounts ascribed to intangibles
acquired in the acquisitions, amortization of employee
stock-based compensation and interest expense on debt used to
finance the acquisitions.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Total revenue
|
|
$
|
163,334
|
|
|
$
|
209,846
|
|
Net loss
|
|
$
|
(18,709
|
)
|
|
$
|
(71
|
)(1)
|
Basic and diluted loss per share
|
|
$
|
(0.11
|
)
|
|
$
|
(0.00
|
)
|
Weighted average common shares outstanding basic and
diluted
|
|
|
170,726,463
|
|
|
|
165,348,927
|
|
|
|
|
(1) |
|
Includes a non-recurring charge of $9,200 for special bonuses
paid to Investacorp employees prior to the closing of the
acquisition. |
The unaudited proforma financial information is not intended to
represent or be indicative of the Companys consolidated
results of operations that would have been reported had the
acquisitions been completed as of the beginning of the periods
presented, nor should it be taken as indicative of the
Companys future consolidated results of operations.
F-14
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
|
|
4.
|
Securities
Owned and Securities Sold, But Not Yet Purchased
|
The components of marketable securities owned and securities
sold, but not yet purchased as of December 31, 2008 and
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
Securities
|
|
|
Sold, But Not
|
|
|
|
Owned
|
|
|
Yet Purchased
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
1,100
|
|
|
$
|
|
|
Common stock and warrants
|
|
|
3,231
|
|
|
|
91
|
|
Restricted common stock and warrants
|
|
|
497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,828
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
Common stock and warrants
|
|
$
|
3,139
|
|
|
$
|
946
|
|
NYSE Euronext restricted common stock
|
|
|
1,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,297
|
|
|
$
|
946
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 and 2007, approximately $3,535 and
$3,112, respectively, of securities owned are deposited with the
Companys subsidiaries clearing brokers. Pursuant to
the clearing agreements with such clearing brokers, the
securities may be sold or hypothecated by the clearing brokers.
Securities sold, but not yet purchased, at fair value represents
obligations of the Companys subsidiaries to purchase the
specified financial instrument at the then current market price.
Accordingly, these transactions result in off-balance-sheet risk
as the Companys subsidiaries ultimate obligation to
repurchase such securities may exceed the amount recognized in
the consolidated statements of financial condition.
Fair
Value Measurements
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities owned, at fair value
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Certificates of deposit
|
|
$
|
|
|
|
$
|
1,100
|
|
|
$
|
|
|
|
$
|
1,100
|
|
Common stock and warrants
|
|
|
3,231
|
|
|
|
497
|
|
|
|
|
|
|
|
3,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,231
|
|
|
$
|
1,597
|
|
|
$
|
|
|
|
$
|
4,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, but not yet purchased, at fair value
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common stock and warrants
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities owned, at fair value
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common stock and warrants
|
|
$
|
3,071
|
|
|
$
|
1,226
|
|
|
$
|
|
|
|
$
|
4,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,071
|
|
|
$
|
1,226
|
|
|
$
|
|
|
|
$
|
4,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, but not yet purchased, at fair value
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common stock and warrants
|
|
$
|
946
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
946
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Sales of
Exchange Memberships
|
NYSE
As of December 31, 2005, Ladenburg owned one membership on
the NYSE, which had been accounted for at a cost of $868 in
accordance with industry practice. In March 2006, the NYSE
became a wholly-owned subsidiary of NYSE Group, Inc. (NYSE
Group), a newly-created, for-profit and publicly-traded
holding company through a merger (NYSE Merger). As a
result, Ladenburgs NYSE membership was converted into $371
in cash and 80,177 shares of NYSE Group common stock, which
were subject to a three-year transfer restriction. The
restriction was scheduled to expire in three equal installments
on each of March 7, 2007, 2008 and 2009, unless removed
earlier by the NYSE Group in its sole discretion. Ladenburg
accounted for its investment in the NYSE Group restricted common
stock at the estimated fair value with changes in fair value
reflected in operations. The shares were valued at a discount
from the published market value as a result of the transfer
restrictions.
In May 2006, Ladenburg sold in a secondary underwriting
51,900 shares of its restricted NYSE Group common stock for
an aggregate amount of $3,128, or average net proceeds of $60.27
per share, which was $440 less than the carrying value of such
shares. After the sale, Ladenburgs investment in NYSE
Group common stock consisted of 1,552 shares restricted
through March 7, 2008 and 26,725 shares restricted
through March 7, 2009.
On June 20, 2006, Ladenburg transferred its 28,277
remaining restricted shares to LTS at the estimated fair value
of $1,228 at such date. LTS, in accordance with
SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities, accounts for such
restricted investments at cost based on the value on the date of
transfer adjusted for any other than temporary impairment.
Restricted investments whose restriction lapses within one year
from the balance sheet date will be valued at quoted market
price.
Fiscal 2006 revenues include a gain on the NYSE Merger of
$4,859, representing the difference between the estimated fair
value of consideration received in the merger of $5,727 and
Ladenburgs carrying value of its membership of $868, and
losses of $1,001, consisting of a loss of $440 on the sale of
51,900 shares and a loss of $561 representing the decline
in the fair value of the 28,277 remaining NYSE Group restricted
common shares on June 20, 2006 as compared to March 7,
2006.
On March 7, 2007, 1,552 of the 28,277 shares began the
last year of the restriction and in June 2007, the transfer
restrictions on the 1,552 shares were removed by the NYSE
Group. Accordingly, at December 31, 2007 such shares were
classified as trading securities and valued at quoted market
price rather than cost, resulting in an unrealized gain of $66
for the twelve months ended December 31, 2007, which is
included in principal transactions.
In April 2007, in connection with its acquisition of Euronext
N.V., NYSE Group was merged into a subsidiary of NYSE Euronext,
a newly-formed corporation, and each NYSE Group share was
converted into one NYSE Euronext share. The newly-issued NYSE
Euronext shares were subject to the same transfer restrictions
which applied to the NYSE Group shares prior to the merger. As
NYSE Group was considered the acquiring entity for accounting
purposes, the Company continued to carry its investment in the
restricted NYSE Euronext shares at cost at December 31,
2007. As of such date, the estimated fair value of the 26,725
restricted NYSE Euronext shares was $2,010.
F-16
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
Effective October 1, 2008, NYSE Euronext removed the
transfer restriction on the last tranche of 26,725 NYSE Euronext
restricted shares held by the Company which was originally
scheduled to lapse on March 9, 2009. At December 31,
2008, such shares were classified as trading securities and
valued at quoted market price of $732 rather than cost,
resulting in an unrealized loss of $426 in 2008 which is
included in principal transactions. In addition, the Company
sold 1,552 of the shares in September 2008.
AMEX and
BSE
On October 1, 2008, the Company received 8,138 NYSE
Euronext shares in exchange for its American Stock Exchange
(AMEX) membership due to NYSE Euronexts
acquisition of AMEX. The Company may receive additional amounts
from the sale of its AMEX membership if NYSE Euronext sells the
former AMEX headquarters building. The Company recognized a gain
of $214 from the sale of its AMEX membership. In August 2008,
Ladenburg sold its membership on the Boston Stock Exchange
(BSE) and recognized a gain of $305. Such gains are
included in principal transactions.
CBOE
On October 24, 2006, Ladenburg sold its membership on the
Chicago Board of Options Exchange (CBOE). The
membership cost $425 and was sold for $1,550, resulting in a
gain of $1,125.
|
|
6.
|
Net
Capital Requirements
|
As a registered broker-dealer, Ladenburg is subject to the
SECs Uniform Net Capital
Rule 15c3-1
and the CFTCs Regulation 1.17, which require the
maintenance of minimum net capital. Ladenburg has elected to
compute its net capital under the alternative method allowed by
these rules. At December 31, 2008, Ladenburg had net
capital, as defined, of $5,226, which exceeded its minimum
capital requirement, as defined, of $500, by $4,726.
Investacorp and Triad are also subject to the SECs Uniform
Net Capital
Rule 15c3-1,
which requires the maintenance of minimum net capital and
requires that the ratio of aggregate indebtedness to net
capital, both as defined, shall not exceed 15 to 1. At
December 31, 2008, Investacorp had net capital of $1,709,
which was $1,417 in excess of its required net capital of $292.
Investacorps net capital ratio was 2.57 to 1. At
December 31, 2008, Triad had net capital of $775, which was
$525 in excess of its required net capital of $250. Triads
net capital ratio was 2.92 to 1.
Ladenburg, Investacorp and Triad claim exemptions from the
provisions of the SECs
Rule 15c3-3
pursuant to paragraph (k)(2)(ii) as they clear their customer
transactions through correspondent brokers on a fully disclosed
basis.
F-17
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
|
|
7.
|
Furniture,
Equipment and Leasehold Improvements
|
Components of furniture, equipment and leasehold improvements,
net included in the consolidated statements of financial
condition were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
2,932
|
|
|
$
|
567
|
|
Computer equipment
|
|
|
1,640
|
|
|
|
1,573
|
|
Furniture and fixtures
|
|
|
923
|
|
|
|
821
|
|
Other
|
|
|
1,469
|
|
|
|
1,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,964
|
|
|
|
4,342
|
|
Less: accumulated depreciation and amortization
|
|
|
(3,250
|
)
|
|
|
(3,551
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,714
|
|
|
$
|
791
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007, intangible assets subject to
amortization consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Estimated
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Useful
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Life (years)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Technology
|
|
1
|
|
$
|
426
|
|
|
$
|
338
|
|
|
$
|
285
|
|
|
$
|
59
|
|
Relationships with registered representatives
|
|
20
|
|
|
24,707
|
|
|
|
1,085
|
|
|
|
14,921
|
|
|
|
155
|
|
Vendor relationships
|
|
7
|
|
|
3,613
|
|
|
|
418
|
|
|
|
1,881
|
|
|
|
56
|
|
Covenants not to compete
|
|
5
|
|
|
1,717
|
|
|
|
188
|
|
|
|
354
|
|
|
|
15
|
|
Customer accounts
|
|
10
|
|
|
1,311
|
|
|
|
192
|
|
|
|
740
|
|
|
|
96
|
|
Relationships with investment banking clients
|
|
4
|
|
|
2,586
|
|
|
|
1,474
|
|
|
|
2,783
|
|
|
|
841
|
|
Leases
|
|
6
|
|
|
1,004
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
Other
|
|
6
|
|
|
67
|
|
|
|
7
|
|
|
|
211
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
35,431
|
|
|
$
|
3,806
|
|
|
$
|
21,175
|
|
|
$
|
1,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense amounted to $2,754, $1,103 and
$144 for the years ended December 31, 2008, 2007 and 2006,
respectively. The weighted-average amortization period for total
amortizable intangibles at December 31, 2008 is
15.65 years. Estimated amortization expense for each of the
five succeeding years and thereafter is as follows:
|
|
|
|
|
2009
|
|
$
|
3,117
|
|
2010
|
|
$
|
2,899
|
|
2011
|
|
$
|
2,408
|
|
2012
|
|
$
|
2,393
|
|
2013
|
|
$
|
2,235
|
|
2014 2027
|
|
$
|
18,573
|
|
F-18
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
Changes in the carrying amount of goodwill by segment for the
years ended December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent brokerage
|
|
|
|
|
|
|
|
|
|
Ladenburg
|
|
|
and advisory services
|
|
|
Corporate
|
|
|
Total
|
|
|
Balance as of January 1, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Acquisition of Investacorp
|
|
|
|
|
|
|
23,546
|
|
|
|
|
|
|
|
23,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
|
|
|
|
23,546
|
|
|
|
|
|
|
|
23,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Investacorp
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
Acquisition of Punk Ziegel
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
301
|
|
Acquisition of Triad
|
|
|
|
|
|
|
5,837
|
|
|
|
|
|
|
|
5,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
301
|
|
|
$
|
29,438
|
|
|
$
|
|
|
|
$
|
29,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The annual impairment test performed at December 31, 2008
did not indicate that the carrying value of goodwill had been
impaired. However, changes in circumstances or business
conditions could result in an impairment of goodwill. As
required, the Company will continue to perform impairment
testing on an annual basis or when an event occurs or
circumstances change that would more likely than not reduce the
fair value of the Companys reporting units below the
carrying amount of their net assets.
The Company files a consolidated federal income tax return and
certain combined state and local income tax returns with its
subsidiaries. The Company is on a tax year ending
September 30th.
Income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
Local
|
|
|
Total
|
|
|
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
|
$
|
239
|
|
|
$
|
239
|
|
|
|
|
|
Deferred
|
|
|
726
|
|
|
|
54
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
726
|
|
|
$
|
293
|
|
|
$
|
1,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
356
|
|
|
$
|
157
|
|
|
$
|
513
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
356
|
|
|
$
|
157
|
|
|
$
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
100
|
|
|
$
|
89
|
|
|
$
|
189
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100
|
|
|
$
|
89
|
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
The provision for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory
federal income tax rate (34%) to pre-tax (loss) income as a
result of the following differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
(Loss) income before income taxes
|
|
$
|
(19,244
|
)
|
|
$
|
9,904
|
|
|
$
|
4,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit) provision under statutory U.S. tax rates
|
|
|
(6,543
|
)
|
|
|
3,367
|
|
|
|
1,648
|
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nondeductibility of loss on conversion of debt
|
|
|
|
|
|
|
844
|
|
|
|
|
|
Utilization of net operating loss carryforward
|
|
|
|
|
|
|
(4,366
|
)
|
|
|
(1,346
|
)
|
Increase in valuation reserve
|
|
|
6,652
|
|
|
|
|
|
|
|
|
|
Other nondeductible items
|
|
|
369
|
|
|
|
564
|
|
|
|
|
|
State taxes
|
|
|
193
|
|
|
|
104
|
|
|
|
89
|
|
Other, net
|
|
|
348
|
|
|
|
|
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
1,019
|
|
|
$
|
513
|
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company accounts for taxes in accordance with
SFAS No. 109, Accounting for Income Taxes,
which requires the recognition of tax benefits or expense on the
temporary differences between the tax basis and book basis of
its assets and liabilities. Deferred tax assets and liabilities
are measured using the enacted tax rates expected to apply to
taxable income in the years in which those differences are
expected to be recovered or settled.
Deferred tax amounts are comprised of the following at December
31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
24,637
|
|
|
$
|
21,089
|
*
|
AMT credit carryforward
|
|
|
250
|
|
|
|
356
|
|
Accrued expenses
|
|
|
1,461
|
|
|
|
1,514
|
|
Compensation and benefits
|
|
|
5,238
|
|
|
|
3,398
|
|
Depreciation and amortization
|
|
|
348
|
|
|
|
194
|
|
Other
|
|
|
146
|
|
|
|
178
|
|
Unrealized gain (loss)
|
|
|
252
|
|
|
|
(455
|
)
|
Goodwill
|
|
|
(780
|
)
|
|
|
(143
|
)
|
Intangibles
|
|
|
202
|
|
|
|
(249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
31,754
|
|
|
|
25,882
|
*
|
Valuation allowance
|
|
|
(32,534
|
)
|
|
|
(25,882
|
)*
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
(780
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Restated from amounts previously reported.
|
F-20
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
After consideration of all the evidence, both positive and
negative, management has determined that a valuation allowance
at December 31, 2008 and 2007 was necessary to offset fully
the deferred tax assets based on the likelihood of future
realization.
At December 31, 2008, the Company has an aggregate net
operating loss carryforward of approximately $53,500, for
federal income tax purposes expiring in various years from 2015
through 2026. As of December 31, 2008, no unrecognized tax
benefits are included in the consolidated financial statements.
The Companys tax years 2005 through 2008 remain open to
examination by most taxing authorities.
The Company has elected to classify interest and penalties that
would accrue according to the provisions of relevant tax law as
interest and other expense, respectively.
Notes payable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Note payable to former Investacorp shareholder, net of $565 and
$1,277 of unamortized discount at December 31, 2008 and
2007, respectively
|
|
$
|
8,820
|
|
|
$
|
12,937
|
|
Note payable to affiliate of principal shareholder of LTS, net
of $3,069 of unamortized discount at December 31, 2007
|
|
|
18,000
|
|
|
|
26,931
|
|
Note payable to former Triad shareholders, net of $484 of
unamortized discount
|
|
|
4,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,934
|
|
|
$
|
39,868
|
|
|
|
|
|
|
|
|
|
|
The Company estimates that the fair value of fixed interest
notes payable to the former principal shareholder of
Investacorp, former Triad shareholders and to Frost Gamma
approximates $28,052 at December 31, 2008 and carrying
values at December 31, 2007 based on anticipated current
rates at which similar amounts of debt could currently be
borrowed.
Investacorp
Note
On October 19, 2007, as part of the purchase price for the
Investacorp acquisition, the Company issued a three-year,
non-negotiable promissory note in the aggregate principal amount
of $15,000 to Investacorps then principal shareholder. The
note bears interest at 4.11% per annum and is payable in 36
equal monthly installments. The note was recorded at $13,550
based on an imputed interest rate of 11%. The Company has
pledged the stock of Investacorp as security for the payment of
the note. The note contains customary events of default, which,
if uncured, entitle the holder to accelerate the due date of the
unpaid principal amount of, and all accrued and unpaid interest
on, the note.
Frost
Gamma Credit Agreement
On October 19, 2007, in connection with the Investacorp
acquisition, the Company entered into a $30,000 revolving credit
agreement with Frost Gamma, and borrowed $30,000. Borrowings
under the credit agreement have a five-year term and bear
interest at a rate of 11% per annum, payable quarterly. Frost
Gamma received a one-time funding fee of $150. The note issued
under the credit agreement contains customary events of default,
which, if uncured, entitle the holder to accelerate the due date
of the unpaid principal amount of, and all
F-21
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
accrued and unpaid interest on, such note. Under the credit
agreement, Frost Gamma was granted a warrant to purchase
2,000,000 shares of LTS common stock. The warrant is
exercisable at any time during a ten-year period and the
exercise price is $1.91 per share, the closing price of the
Companys common stock on the acquisition date. The warrant
was valued at $3,200 based on the Black-Scholes option pricing
model, and effective January 1, 2008, the unamortized
portion has been reclassified from debt discount to debt issue
cost, which is being amortized by the straight-line method over
the five-year term of the revolving credit agreement.
In February 2008 and September 2008, the Company repaid $8,000
and $4,000, respectively, of the $30,000 of outstanding
borrowings under the Frost Gamma credit agreement. The Company
may repay outstanding amounts at any time prior to the maturity
date of October 19, 2012, without penalty, and may
re-borrow up to the full amount of the agreement.
Triad
Note
On August 13, 2008, as part of the consideration for the
Triad acquisition, the Company issued a three-year,
non-negotiable promissory note in the aggregate principal amount
of $5,000 to Triads then shareholders. The note bears
interest at 2.51% per annum and is payable in 12 equal quarterly
installments. The note was recorded at $4,384, based on an
imputed interest rate of 11%.
Notes
Payable to Former Parent
In 2002, the Company borrowed a total of $5,000 from New Valley
Corporation (New Valley), the Companys former
parent. The notes, which bore interest at 1% above the prime
rate, were due on March 31, 2007, as subsequently extended.
In February 2007, the Company entered into a debt exchange
agreement with New Valley, where New Valley agreed to exchange
the principal amount of the notes for shares of LTS common stock
at an exchange price of $1.80 per share, representing the
average closing price of LTS common stock for the 30
trading days ending on the date of the agreement.
On June 29, 2007, after the Companys shareholders
approved the debt exchange, the Company exchanged
2,777,778 shares of its common stock for the principal
amount of the notes and paid $1,732 to New Valley for accrued
interest on the loans. The exchange resulted in a loss on
extinguishment of debt of $1,833 representing the excess of the
quoted market value of the 2,777,778 shares of common stock
at the date of the exchange agreement ($2.46 per share) over the
carrying amount of the notes.
Other
Notes Payable
In December 2002, an affiliate of Ladenburgs clearing
broker loaned the Company an aggregate of $3,500. The clearing
loans and related accrued interest were forgivable over a
four-year period, provided Ladenburg continued to clear its
transactions through this primary clearing broker. As scheduled,
the remaining $666 of principal and $146 of accrued interest
were forgiven in November 2006. Upon the forgiveness of the
clearing loans, the forgiven amount was accounted for as other
revenues.
Temporary
Subordinated Loans
In August 2006, Ladenburg received a $3,500 temporary
subordinated loan from the Company to provide additional
regulatory capital required for an underwriting participation.
The loan was repaid in September 2006 with interest at the rate
of 9% per annum, which amounted to $22.
In December 2006, Ladenburg received a temporary subordinated
loan in the amount of $2,000 from the Company, $12,000 from
Dr. Frost and $8,000 from its clearing firm to provide
additional regulatory capital required for an underwriting
participation. The temporary subordinated loan from LTS and
Dr. Frost was subordinated by its terms to the loan from
the clearing broker. The loan was repaid during the same month,
F-22
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
with interest at the rate of LIBOR plus 2% per annum, which
amounted to $49. In addition, Dr. Frost was paid a
commitment fee of $50.
In October 2007, Ladenburg received a temporary subordinated
loan in the amount of $72,000 from an affiliate of
Dr. Frost to provide additional regulatory capital required
for additional underwriting participations. The loan was repaid
during the following month, with interest at the rate of LIBOR
plus 2% per annum, which amounted to $354. In addition, the
Company paid the lender a commitment fee of $420.
The Company estimates that, at December 31, 2008 and 2007,
the fair value of fixed interest notes payable to the former
principal shareholder of Investacorp, former Triad shareholders
and to Frost Gamma approximates their carrying values based on
anticipated current rates at which similar amounts of debt could
currently be borrowed.
|
|
12.
|
Commitments
and Contingencies
|
Operating
Leases
The Company and certain of its subsidiaries are obligated under
several non-cancelable lease agreements for office space,
expiring in various years through June 2015. Certain leases have
provisions for escalation based on specified increases in costs
incurred by the landlord. The Company is a sublessor to third
parties for a portion of its office space as described below.
The subleases expire at various dates through June 2015. Minimum
lease payments (net of lease abatement and exclusive of
escalation charges) and sublease rentals are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
|
Lease
|
|
|
Sublease
|
|
|
|
|
December 31,
|
|
Commitments
|
|
|
Rentals
|
|
|
Net
|
|
|
2009
|
|
$
|
6,820
|
|
|
$
|
4,799
|
|
|
$
|
2,021
|
|
2010
|
|
|
6,634
|
|
|
|
4,124
|
|
|
|
2,510
|
|
2011
|
|
|
6,526
|
|
|
|
3,358
|
|
|
|
3,168
|
|
2012
|
|
|
5,817
|
|
|
|
3,340
|
|
|
|
2,477
|
|
2013
|
|
|
5,778
|
|
|
|
3,340
|
|
|
|
2,438
|
|
Thereafter
|
|
|
7,603
|
|
|
|
4,614
|
|
|
|
2,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,178
|
|
|
$
|
23,575
|
|
|
$
|
15,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities requires that a cost
associated with an exit or disposal activity be recorded at its
fair value when a liability has been incurred. For operating
leases, a liability for continued costs under the lease for its
remaining term without economic benefit to the entity is
recognized and measured at its fair value when the entity stops
using the right conveyed by the lease (the cease-use
date). The fair value of the liability at the
cease-use date is determined based on the remaining
lease rentals, reduced by estimated sublease rentals that could
be reasonably obtained for the property. In November 2007, the
Company entered into an agreement with the landlord to amend the
lease for its former New York City office to surrender a third
floor which had been subleased by the Company. In consideration,
the landlord gave up an option to require the Company to occupy
additional space and agreed to an annual rent abatement of
approximately $79 through June 2015, the expiration of the lease
term, with respect to the remaining leased floors. As a result
in 2007, the liability with respect to the lease obligation,
which amounted to $589 at December 31, 2006, was reduced by
$439 with a corresponding reduction of occupancy expense. As of
December 31, 2008, after reduction for rent paid under the
lease ($3,449), net of sublease income ($3,509) received during
the year, a liability for $75 was included in accounts payable
and accrued liabilities.
F-23
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
Deferred rent of approximately $3,863 and $1,566 at
December 31, 2008 and 2007, respectively, represents lease
incentives related to the value of landlord financed
improvements together with the difference between rent payable
calculated over the life of the leases on a straight-line basis
(net of lease incentives), and rent payable on a cash basis.
Litigation
and Regulatory Matters
In May 2003, a suit was filed in the U.S. District Court
for the Southern District of New York by Sedona Corporation
against Ladenburg, former employees of Ladenburg and a number of
other firms and individuals. The plaintiff alleged, among other
things, that certain defendants (not Ladenburg) purchased
convertible securities from plaintiff and then allegedly
manipulated the market to obtain an increased number of shares
from the conversion of those securities. Ladenburg acted as
placement agent and not as principal in those transactions.
Plaintiff has alleged that Ladenburg and the other defendants
violated federal securities laws and various state laws. The
plaintiff seeks compensatory damages from the defendants of at
least $660,000 and punitive damages of $2,000,000. In August
2005, Ladenburgs motion to dismiss was granted in part and
denied in part; in July 2006, Ladenburgs motion to
reconsider portions of that decision was denied. A motion to
dismiss certain of the claims as re-pleaded by plaintiff is
currently pending. The Company believes the plaintiffs
claims are without merit and intends to vigorously defend
against them.
In July 2004, a suit was filed in the U.S. District Court
for the Eastern District of Arkansas by Pet Quarters, Inc.
against Ladenburg, a former employee of Ladenburg and a number
of other firms and individuals. The plaintiff alleged, among
other things, that certain defendants (not Ladenburg) purchased
convertible securities from the plaintiff and then allegedly
manipulated the market to obtain an increased number of shares
from the conversion of those securities. Ladenburg acted as
placement agent and not as principal in those transactions.
Plaintiff has alleged that Ladenburg and the other defendants
violated federal securities laws and various state laws. The
plaintiff seeks compensatory damages from the defendants of at
least $400,000. In April 2006, Ladenburgs motion to
dismiss was granted in part and denied in part. On April 9,
2007, the Court issued an order staying the action pending the
final outcome of an arbitration involving parties other than
Ladenburg. The Company believes that the plaintiffs claims
are without merit and intends to vigorously defend against them.
In December 2005, a suit was filed in New York State Supreme
Court, New York County, by Digital Broadcast Corp. against
Ladenburg and a Ladenburg employee. The plaintiff alleged, among
other things, that in connection with plaintiffs retention
of Ladenburg to assist it in its efforts to obtain financing
through a private placement of its securities, Ladenburg
committed fraud and breach of fiduciary duty and breach of
contract. The plaintiff seeks compensatory damages in excess of
$100,000. In December 2008, the Court issued a decision granting
Ladenburgs motion for summary judgment dismissing the
complaint; the plaintiff has filed a notice of appeal. The
Company believes that the plaintiffs claims are without
merit and intends to vigorously defend against them.
In July 2008, a suit was filed in the Circuit Court for the
17th Judicial Circuit, Broward County, Florida, by
BankAtlantic and BankAtlantic Bancorp, Inc. against Ladenburg
and a former Ladenburg research analyst. The plaintiffs alleged,
among other things, that research reports issued by defendants
were false and defamatory, and that defendants are liable for
defamation per se and negligence; the amount of the alleged
damages is unspecified. The defendants motion to dismiss
the case was denied in September 2008. The Company believes that
the allegations are without merit and intends to vigorously
defend against them.
In the ordinary course of business, the Companys
subsidiaries are defendants in litigation and arbitration
proceedings and may be subject to unasserted claims or
arbitrations primarily in connection with their activities as
securities broker-dealers or as a result of services provided in
connection with securities offerings. Such litigation and claims
may involve substantial or indeterminate amounts and are in
varying stages of legal
F-24
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
proceedings. Where the Company believes that it is probable that
a liability has been incurred and the amount of loss can be
reasonably estimated, the Company has included an estimation of
such amount in accounts payable and accrued liabilities.
Upon final resolution, amounts payable may differ materially
from amounts accrued. The Company has accrued liabilities in the
amount of approximately $460 at December 31, 2008 and $768
at December 31, 2007 in respect to these matters. With
respect to other pending matters, the Company is unable to
estimate a range of possible loss; however, in the opinion of
management, after consultation with counsel, the ultimate
resolution of these matters should not have a material adverse
effect on the Companys consolidated financial position,
results of operations or liquidity.
Deferred
Underwriting Compensation
Ladenburg is entitled to receive deferred investment banking and
underwriting fees from certain clients whose initial public
offerings Ladenburg managed or participated in. These clients
are Specified Purpose Acquisition Companies (SPACs) and the
payment of deferred fees is contingent upon the SPACs completing
business combinations. Such fees and their related expenses are
not reflected in the Companys results of operations until
the underlying business combinations have been completed and the
fees have been irrevocably earned. Generally, these fees may be
received within 24 months from the respective date of the
offering, or not received at all if no business combination
transactions are consummated during such time period. During
2008 and 2007, Ladenburg received deferred fees of $5,300 and
$9,700, respectively, (included in investment banking revenues)
and incurred commissions and related expenses of $2,100 and
$3,500, respectively.
|
|
13.
|
Off-Balance-Sheet
Risk and Concentrations of Credit Risk
|
The Companys three principal broker-dealer subsidiaries,
Ladenburg, Investacorp and Triad, do not carry accounts for
customers or perform custodial functions related to
customers securities. They introduce all of their customer
transactions, which are not reflected in these financial
statements, to their clearing brokers, which maintain the
customers accounts and clear such transactions.
Additionally, the clearing brokers provide the clearing and
depository operations for proprietary securities transactions.
These activities may expose the Company to off-balance-sheet
risk in the event that customers do not fulfill their
obligations with the clearing brokers, as each of Ladenburg,
Investacorp and Triad has agreed to indemnify their clearing
brokers for any resulting losses. Each of Ladenburg, Investacorp
and Triad continually assesses risk associated with each
customer who is on margin credit and records an estimated loss
when management believes collection from the customer is
unlikely.
The clearing operations for the Ladenburg, Investacorp and Triad
securities transactions are primarily provided by one clearing
broker, a large financial institution. At December 31, 2008
and 2007, substantially all of the securities owned and the
amounts due from clearing brokers reflected in the consolidated
statements of financial condition are positions held at and
amounts due from this one clearing broker. The Company is
subject to credit risk should this clearing broker be unable to
fulfill its obligations.
In the normal course of its business, Ladenburg, Investacorp and
Triad may enter into transactions in financial instruments with
off-balance sheet risk. These financial instruments consist of
financial futures contracts, written equity index option
contracts and securities sold, but not yet purchased. As of
December 31, 2008 and 2007, Ladenburg, Investacorp and
Triad were not contractually obligated for any equity index or
financial futures contracts; however, Ladenburg and Triad sold
securities that they do not own and will therefore be obligated
to purchase such securities at a future date. These obligations
have been recorded in the statements of financial condition at
market values of the related securities and Ladenburg and Triad
will incur a loss if the market value of the securities
increases subsequent to December 31, 2008.
F-25
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
The Company and its subsidiaries maintain cash in bank deposit
accounts, which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on
cash.
Repurchase
Program
In March 2007, the Companys board of directors authorized
the repurchase of up to 2,500,000 shares of the
Companys common stock from time to time on the open market
or in privately negotiated transactions depending on market
conditions. The repurchase program is be funded using
approximately 15% of the Companys EBITDA, as adjusted. As
of December 31, 2008, 916,424 shares had been
repurchased for $1,673 under the program.
Warrants
As of December 31, 2008, outstanding warrants to acquire
the Companys common stock were as follows:
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Number of
|
|
Expiration Date
|
|
Price
|
|
|
Shares
|
|
|
2013
|
|
$
|
.95
|
|
|
|
500,000
|
|
2016
|
|
|
.94
|
|
|
|
1,500,000
|
|
2016
|
|
|
.96
|
|
|
|
2,900,000
|
|
2017
|
|
|
1.91
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,900,000
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share is computed using the
weighted-average number of common shares outstanding. The
dilutive effect of common shares potentially issuable under
outstanding options and warrants is included in diluted earnings
per share. The computations of basic and diluted per share data
for December 31, 2008, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net (loss) income
|
|
$
|
(20,263
|
)
|
|
$
|
9,391
|
|
|
$
|
4,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
165,812,495
|
|
|
|
157,355,540
|
|
|
|
148,693,521
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock options
|
|
|
|
|
|
|
8,343,776
|
|
|
|
3,826,008
|
|
Warrants to purchase common stock
|
|
|
|
|
|
|
1,354,148
|
|
|
|
127,754
|
|
Common stock held in escrow
|
|
|
|
|
|
|
1,431,005
|
|
|
|
440,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
|
|
|
|
11,128,929
|
|
|
|
4,394,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and dilutive
potential common shares
|
|
|
165,812,495
|
|
|
|
168,484,469
|
|
|
|
153,087,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
During 2008, 2007 and 2006, options and warrants to purchase
28,862,415, 10,569,166, and 4,976,583 common shares,
respectively, were not included in the computation of diluted
(loss) income per share as the effect would have been
anti-dilutive.
|
|
16.
|
Stock
Compensation Plans
|
Employee
Stock Purchase Plan
Under the Companys Qualified Employee Stock Purchase Plan,
a total of 10,000,000 shares of common stock are available
for issuance. As currently administered by the Companys
compensation committee, all full-time employees may use a
portion of their salary to acquire shares of LTS common stock
under the Purchase Plan at a 5% discount from the market price
of LTSs common stock at the end of each option period.
Option periods have been set at three month periods and commence
on January 1, April 1, July 1, and October 1 of
each year and end on March 31, June 30, September 30
and December 31 of each year. The plan is intended to qualify as
an employee stock purchase plan under
Section 423 of the Internal Revenue Code. During 2008,
196,305 shares of LTS common stock were issued to employees
under this plan, at prices ranging from $0.684 to $1.78; during
2007, 183,308 shares were issued at prices ranging from
$1.86 to $2.54 per share; and during 2006, 248,298 shares
were issued at prices ranging from $0.95 to $1.37, resulting in
a capital contribution of $285, $407 and $267 for 2008, 2007 and
2006, respectively.
Amended
and Restated 1999 Performance Equity Plan
In 1999, the Company adopted the Option Plan which provides for
the grant of stock options and stock purchase rights to
designated employees, officers and directors and certain other
persons performing services for the Company and its
subsidiaries, as designated by the board of directors. On
November 1, 2006, the Companys shareholders approved
an amendment to the Option Plan to increase the number of shares
of common stock available for issuance under the plan from
10,000,000 to 25,000,000 and to increase the annual limit on
grants to any individual from 1,000,000 shares to
1,500,000 shares. Awards include stock options, stock
appreciation rights, restricted stock, deferred stock, stock
reload options
and/or other
stock-based awards. Dividends, if any, are not paid on
unexercised stock options. The compensation committee of the
board of directors of LTS administers the Option Plan. Stock
options granted under the Option Plan may be incentive stock
options and non-qualified stock options. An incentive stock
option may be granted only through May 27, 2009 and may
only be exercised within ten years of the date of grant (or five
years in the case of an incentive stock option granted to an
optionee (10% Shareholder) who at the time of the
grant possesses more than 10% of the total combined voting power
of all classes of stock of LTS). The exercise price of both
incentive and non-qualified options may not be less than 100% of
the fair market value of LTSs common stock at the date of
grant, provided, that the exercise price of an incentive stock
option granted to a 10% Shareholder shall not be less than 110%
of the fair market value of LTS common stock at the date
of grant. Options granted under the Option Plan generally vest
in equal amounts on each of the anniversaries over three or four
years. As of December 31, 2008, there were options to
purchase 4,884,368 shares of common stock available for
issuance under the Option Plan.
F-27
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
A summary of the status of the Option Plan at December 31,
2008 and changes during the years ended December 31, 2008,
2007 and 2006 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
|
Options outstanding, December 31, 2005
|
|
|
8,637,770
|
|
|
$
|
0.97
|
|
|
|
7.98
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,775,000
|
|
|
|
0.95
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(721,192
|
)
|
|
|
0.68
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(648,267
|
)
|
|
|
0.86
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2006
|
|
|
11,043,311
|
|
|
|
0.99
|
|
|
|
7.92
|
|
|
|
4,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
4,735,000
|
|
|
|
2.23
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,874,477
|
)
|
|
|
0.70
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(820,418
|
)
|
|
|
1.55
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2007
|
|
|
13,083,416
|
|
|
|
1.44
|
|
|
|
8.01
|
|
|
|
10,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
4,068,500
|
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(901,867
|
)
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(537,634
|
)
|
|
|
1.87
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2008
|
|
|
15,712,415
|
|
|
$
|
1.56
|
|
|
|
7.69
|
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest
|
|
|
12,994,021
|
|
|
$
|
1.52
|
|
|
|
7.47
|
|
|
$
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2008
|
|
|
6,380,089
|
|
|
$
|
1.39
|
|
|
|
6.16
|
|
|
$
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Plan
Options
The Company has granted stock options to newly-hired employees
in conjunction with their employment agreements or in connection
with acquisitions, which are outside of the Option Plan. A
summary of the status
F-28
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
of these options granted outside the Option Plan at
December 31, 2008 and changes during the years ended
December 31, 2008, 2007 and 2006 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
|
Options outstanding, December 31, 2005
|
|
|
14,000,000
|
|
|
$
|
0.58
|
|
|
|
9.32
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,500,000
|
|
|
|
1.05
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,200,000
|
)
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,800,000
|
)
|
|
|
0.63
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2006
|
|
|
8,500,000
|
|
|
|
0.63
|
|
|
|
8.50
|
|
|
|
5,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,000,000
|
|
|
|
1.91
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,500,001
|
)
|
|
|
0.52
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,249,999
|
)
|
|
|
0.64
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2007
|
|
|
7,750,000
|
|
|
|
1.16
|
|
|
|
8.52
|
|
|
|
7,434
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,500,000
|
)
|
|
|
0.51
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2008
|
|
|
6,250,000
|
|
|
$
|
1.32
|
|
|
|
7.83
|
|
|
$
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest
|
|
|
5,842,489
|
|
|
$
|
1.35
|
|
|
|
7.87
|
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2008
|
|
|
1,825,021
|
|
|
$
|
1.52
|
|
|
|
8.31
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of employee options
granted during the years ended December 31, 2008, 2007 and
2006 was $1.17, $1.70 and $0.86, respectively. The fair value of
each option award was estimated on the date of grant using the
Black-Scholes option pricing model using the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
99.9
|
%
|
|
|
127.3
|
%
|
|
|
125.8
|
%
|
Risk-free interest rate
|
|
|
3.13
|
%
|
|
|
4.34
|
%
|
|
|
4.85
|
%
|
Expected life (in years)
|
|
|
6.2
|
|
|
|
6.2
|
|
|
|
6.0
|
|
During 2008, 2007 and 2006, the Company considered guidance
contained in SFAS No. 123R and SAB No. 107
when reviewing and developing assumptions for the 2008, 2007 and
2006 grants. The weighted average expected life for the 2008,
2007 and 2006 grants of 6.2, 6.2 and 6 years, respectively,
reflects the alternative simplified method permitted by
SAB No. 107, which defines the expected life as the
average of the contractual term of the options and the
weighted-average vesting period for all option tranches.
Expected volatility for the
F-29
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
2008, 2007 and 2006 option grants is based on historical
volatility over the same number of years as the expected life,
prior to the option grant date.
As of December 31, 2008, there was $11,476 of total
unrecognized compensation cost related to non-vested share-based
compensation arrangements. This cost is expected to be
recognized over the vesting periods of the options, which on a
weighted-average basis is approximately 2.20 years.
The total intrinsic value of options exercised during the years
ended December 31, 2008, 2007, and 2006 amounted to $3,492,
$5,828 and $1,277, respectively. Tax benefits related to option
exercise were not deemed to be realized as net operating loss
carryforwards are available to offset taxable income computed
without giving effect to the deductions related to option
exercises and the deferred tax assets related to those net
operating losses have been fully reserved.
Non-cash compensation expense relating to stock options was
calculated using the Black-Scholes option pricing model,
amortizing the value calculated over the vesting period and
applying a forfeiture percentage as estimated by the
Companys management, using historical information. The
Company has elected to recognize compensation cost for option
awards that have graded vesting schedules on a straight line
basis over the requisite service period for the entire award.
For the years ended December 31, 2008, 2007 and 2006,
non-cash compensation expense relating to stock option
agreements granted employees amounted to $5,856, $2,862 and
$762, respectively. Also, the non-cash compensation expense
related to warrants granted to employees in connection with the
Capitalink acquisition amounted to $142, $854 and $285 in 2008,
2007 and 2006, respectively. (See Note 3.)
On September 1, 2005, the Company granted to certain
advisors options to purchase an aggregate of
1,200,000 shares of the Companys common stock at an
exercise price of $0.51 per share under the Option Plan. The
options, which expire on August 31, 2015, vest 25% on each
of the first four anniversaries of the date of grant. The
Company recorded a charge of $221, $397 and $312 for the fair
value of the options for the years ended December 31, 2008,
2007 and 2006, respectively, based on the Black-Scholes option
pricing model. The Company will record additional expense
relating to these options during their vesting period with a
final adjustment based on the options fair value on the
vesting date.
Employee
Stock Purchase Agreements
In 2005, the Company entered into several employment agreements
with newly hired employees, under which the Company sold common
stock to the employees. Where the sales price was below the fair
market value of the stock on the effective date of the
agreements, the Company recorded unearned stock-based
compensation expense aggregating $1,587, representing the
difference between fair market value of the common stock and the
sales price. Such compensation was amortized over the initial
term of the employees employment agreements, which were
generally one to two years. During the years ended
December 31, 2007 and 2006, the Company recorded
amortization of non-cash compensation expense of $90 and $803,
respectively, relating to these sales of its common stock to new
employees at prices below fair market value. At
December 31, 2007, such compensation was fully amortized.
|
|
17.
|
Investment
in Fund Manager
|
On August 31, 2006, the Company issued to an individual
seven-year warrants (FVF Warrants) to purchase
1,500,000 shares of LTS common stock at an exercise price
of $0.95 per share. The FVF Warrants were issued in connection
with the Companys acquisition of a 10% interest in FVF
Partners, LLC (FVF), the general partner of the
Florida Value Fund LLP, a private equity fund formed by
this individual focused on mid-market companies in Florida. FVF,
in exchange for management services, is entitled to a percentage
of profits of the fund. The FVF Warrants are exercisable as to
500,000 shares immediately and were scheduled to become
F-30
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
exercisable as to 500,000 shares on each of August 31,
2007 and 2008. The Companys executive committee determined
that the Companys investment was not economically
beneficial to the Company. Accordingly, the warrants scheduled
to be exercisable in August 2007 and 2008 did not vest and the
Company has valued its investment in FVF at $399 based on the
value of the 500,000 vested warrants. Also, the Company earned
an additional 1.7% interest in FVF valued at $68 as compensation
for introducing investors to FVF. The investment in FVF is
accounted for under the equity method. The excess of the
carrying value of the investment over the Companys share
of the underlying book value of FVF is being amortized over an
estimated life of seven years.
As a result of the Investacorp acquisition on October 19,
2007, the Company had two operating segments. For periods prior
to October 19, 2007, the Company operated in only one
segment. The Ladenburg segment includes Ladenburgs retail
and institutional securities brokerage, investment banking,
asset management and investment activities. The independent
brokerage and advisory services segment includes the
broker-dealer and investment advisory services provided by
Investacorp and Triad to the independent registered
representative community from the dates of acquisition.
Segment information for the years ended December 31, 2008
and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent
|
|
|
|
|
|
|
|
|
|
|
|
|
brokerage and
|
|
|
|
|
|
|
|
2008
|
|
Ladenburg
|
|
|
advisory services(1)
|
|
|
Corporate
|
|
|
Total
|
|
|
Revenues
|
|
$
|
41,997
|
|
|
$
|
79,190
|
|
|
$
|
(217
|
)
|
|
$
|
120,970
|
|
Pre-tax (loss) income
|
|
|
(8,140
|
)
|
|
|
203
|
|
|
|
(11,307
|
)
|
|
|
(19,244
|
)
|
Identifiable assets
|
|
|
24,802
|
|
|
|
73,343
|
|
|
|
3,523
|
|
|
|
101,668
|
|
Depreciation and amortization
|
|
|
1,386
|
|
|
|
1,809
|
|
|
|
97
|
|
|
|
3,292
|
|
Interest
|
|
|
35
|
|
|
|
29
|
|
|
|
4,470
|
|
|
|
4,534
|
|
Capital expenditures
|
|
|
453
|
|
|
|
93
|
|
|
|
|
|
|
|
546
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
83,313
|
|
|
$
|
12,191
|
|
|
$
|
322
|
|
|
$
|
95,826
|
|
Pre-tax income (loss)
|
|
|
18,435
|
|
|
|
411
|
|
|
|
(8,942
|
)
|
|
|
9,904
|
|
Identifiable assets
|
|
|
61,309
|
|
|
|
50,644
|
|
|
|
2,179
|
|
|
|
114,132
|
|
Depreciation and amortization
|
|
|
1,109
|
|
|
|
285
|
|
|
|
97
|
|
|
|
1,491
|
|
Interest
|
|
|
839
|
|
|
|
1
|
|
|
|
1,464
|
|
|
|
2,304
|
|
Capital expenditures
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
395
|
|
|
|
|
(1) |
|
Includes Investacorp from October 19, 2007 and Triad from
August 13, 2008. |
|
|
19.
|
Related
Party Transactions
|
Commencing in 2006, the Company leased office space from an
entity affiliated with Dr. Frost, the Companys
Chairman of the Board, under a month-to-month lease. In 2007,
the Company entered into a lease with the affiliated entity
which expires in January 2012 and which provides for minimum
annual payments of $490. Rent expense under such leases amounted
to $464, $392 and $33 in 2008, 2007 and 2006, respectively.
In September 2006, the Company entered into an agreement with
Vector Group Ltd. (Vector), where Vector agreed to
make available to the Company the services of Vectors
Executive Vice President to serve as the President and Chief
Executive Officer of the Company and to provide certain other
financial and accounting services, including assistance with
complying with Section 404 of the Sarbanes-Oxley Act of
2002. Various
F-31
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
executive officers and directors of Vector and its subsidiary
New Valley serve as members of the board of directors of the
Company, and Vector and its subsidiaries own approximately 8.6%
of the Companys common stock. In consideration for such
services, the Company agreed to pay Vector an annual fee of $250
plus reimbursement of expenses and to indemnify Vector. The
agreement is terminable by either party upon 30 days
prior written notice. In December 2007, the Company and Vector
amended the agreement to increase the fees payable thereunder as
follows: (i) a special management fee payment of $150 for
2007 (resulting in a total payment of $400 for 2007),
(ii) an increase in the annual fee from $250 to $400,
effective January 1, 2008, and (iii) an increase in
the annual fee from $400 to $600, effective July 1, 2008
(payment of $500 for 2008).
Howard Lorber, vice-chairman of the Companys board of
directors, is a consultant to (and, prior to January 2005, was
the chairman of) Hallman & Lorber Associates, Inc., a
private consulting and actuarial firm, and related entities,
which receive commissions from insurance policies written for
the Company. These commissions amounted to approximately $51,
$61 and $23 in 2008, 2007 and 2006, respectively.
In May 2008, upon the completion of the Punk Ziegel merger, the
Company paid $250 to the then
brother-in-law
of Mark Zeitchick, an executive vice president and director of
the Company, as payment for introducing the Company to Punk
Ziegel.
See Note 11 for information regarding loan transactions
involving related parties.
|
|
20.
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
28,791
|
(b)
|
|
$
|
25,232
|
|
|
$
|
31,272
|
(b),(c),(d)
|
|
$
|
35,674
|
(c),(d)
|
Expenses
|
|
|
29,851
|
(a),(b)
|
|
|
30,376
|
(a)
|
|
|
36,273
|
(a),(b)
|
|
|
43,714
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(1,060
|
)
|
|
$
|
(5,144
|
)
|
|
$
|
(5,001
|
)
|
|
$
|
(8,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,033
|
)
|
|
$
|
(5,233
|
)
|
|
$
|
(5,691
|
)
|
|
$
|
(8,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares
|
|
|
161,501,065
|
|
|
|
162,709,005
|
|
|
|
167,303,935
|
|
|
|
171,655,110
|
|
|
|
|
(a) |
|
Includes $1,569, $1,498, $1,538 and $1,660 charge for non-cash
compensation in the first, second, third and fourth quarters
2008, respectively. |
(b) |
|
Includes $2,411 of revenue and $865 of expenses in the first
quarter 2008, and $2,878 of revenue and $1,196 of expense in the
third quarter 2008 resulting from deferred fees from SPAC
transactions. |
(c) |
|
Includes $5,339 in the third quarter, and $15,851 in the fourth
quarter of Triad revenues. |
(d) |
|
Includes $305 gain on sale of BSE membership the third quarter
2008 and $214 gain on the sale of AMEX in the fourth quarter
2008. |
F-32
LADENBURG
THALMANN FINANCIAL SERVICES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars
in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
15,920
|
|
|
$
|
18,527
|
|
|
$
|
10,452
|
|
|
$
|
50,927
|
(c),(d)
|
Expenses
|
|
|
14,979
|
(a)
|
|
|
18,416
|
(a),(b)
|
|
|
12,665
|
(a)
|
|
|
39,862
|
(a),(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
941
|
|
|
$
|
111
|
|
|
$
|
(2,213
|
)
|
|
$
|
11,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
874
|
|
|
$
|
17
|
|
|
$
|
(2,098
|
)
|
|
$
|
10,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share(e)
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
|
|
154,092,696
|
|
|
|
155,103,973
|
|
|
|
159,826,786
|
|
|
|
160,303,297
|
|
Diluted weighted average common shares
|
|
|
167,542,100
|
|
|
|
167,742,762
|
|
|
|
159,826,786
|
|
|
|
169,016,762
|
|
|
|
|
(a) |
|
Includes $1,318, $1,406, $1,715 and $2,255 charge for non-cash
compensation in the first, second, third and fourth quarters
2007, respectively. |
(b) |
|
Includes loss on extinguishment of debt of $1,833 in the second
quarter 2007. |
(c) |
|
Includes $12,191 of Investacorp revenues in the fourth quarter
2007. |
(d) |
|
Includes $9,700 of revenue and $3,500 of expenses resulting from
deferred fees from SPAC transactions in the fourth quarter 2007. |
(e) |
|
The sum of the quarterly basic income (loss) per share does not
equal the basic income (loss) per share for the year, because
per share data for each quarter and for the year are
independently computed. |
F-33