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Washington, D.C. 20549
Delaware | 6200 | 20-3717839 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Julie H. Jones, Esq. Keith F. Higgins, Esq. Ropes & Gray LLP One International Place Boston, MA 02110 Telephone(617) 951-7000 Fax(617) 951-7050 | William F. Gorin, Esq. Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, NY 10006 Telephone (212) 225-2000 Fax (212) 225-3999 |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. |
Per Share | Total | |||||||
Initial public offering price | $ | $ | ||||||
Underwriting discount | $ | $ | ||||||
Proceeds, before expenses, to LPL Investment Holdings Inc. | $ | $ | ||||||
Proceeds, before expenses, to the selling stockholders | $ | $ |
Goldman, Sachs & Co. | Morgan Stanley |
BofA Merrill Lynch | J.P. Morgan |
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EX-23.1 |
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• | Enabling Technology. We provide our technology and service to advisors through BranchNet, our proprietary, integrated technology platform that is server-based and web-accessed. Using the BranchNet workstation, our advisors effectively manage all critical aspects of their businesses while remaining highly efficient and responsive to their clients’ needs. | |
• | Comprehensive Clearing and Compliance Services. We custody and clear the majority of our advisors’ transactions, providing an enhanced advisor experience and expedited processing capabilities. Our self-clearing platform also enables us to serve a wider variety of advisors, including RIAs and dually-registered advisors (“hybrid RIAs”). We have made sizeable investments in our compliance offering to fully integrate these tools into our technology platform. Since 2000, our commitment of resources and focus on compliance have enabled us to maintain one of the best regulatory compliance records, based upon the number of regulatory events reported in FINRA’s BrokerCheck Reports, among the five largest U.S. broker-dealers, ranked by number of advisors. | |
• | Practice Management Programs and Training. Our practice management programs help our advisors enhance and grow their businesses. Because of our scale, we are able to dedicate a large and experienced group of professionals that work with our advisors to build and better manage their business and client relationships throughone-on-one consulting. In addition, we hold 140 conferences and group training events annually for the benefit of our advisors. | |
• | Independent Research. Our research team consists of over 25 professionals with an average of 12 years of industry experience, dedicated to providing unbiased, conflict-free advice. We provide our advisors with integrated access to comprehensive proprietary and third-party independent research on mutual funds, separate accounts, insurance and annuities, asset allocation strategies, financial markets and the economy, among other areas. |
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• | Diverse and Recurring Revenue. Our revenue stems from diverse and recurring sources, including commission and advisory fees, asset based fees, fees from product manufacturers, recordkeeping and cash sweep balances. Our recurring revenue is associated with asset balances and is not based on transaction volumes or other activity-based fees. Therefore, although the level of our revenue sources can be impacted by external market conditions such as the economic downturn experienced in 2008 and 2009, their recurring nature provides a level of predictability. This is demonstrated by our recurring revenues in 2009, 2008 and 2007, which were 57.3%, 58.5% and 57.1%, respectively, of our net revenues. |
• | Variable Expenses. Our expenses are predominantly variable. They consist primarily of payouts to advisors, which are determined as a percentage of advisor-generated revenue. This |
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percentage payout generally varies with advisor productivity, which is correlated to market performance. Our general and administrative expenses can be actively managed, as evidenced during the recent financial crisis. |
• | Low Capital Requirements. We do not manufacture products, make markets, provide underwriting or engage in mortgage lending. As a result, our cash flow is not encumbered by capital intensive activities. In addition, we can reinvest the substantial free cash flows that we generate in our business. |
• | Significant Scale and Market Leadership Position. We are the established leader in the independent advisor market, which is our core business focus. Our scale enables us to benefit from the following dynamics: |
• | We actively reinvest in our comprehensive technology platform and practice support, which further improves the productivity of our advisors. |
• | As one of the largest distributors of financial products in the United States, we are able to obtain attractive economics from product manufacturers. | |
• | Among the five largest U.S. broker-dealers by number of advisors, we offer the highest average payout ratios to our advisors. |
• | Unique Value Proposition for Independent Advisors. We believe we are the only company that offers a conflict-free, open architecture and scalable platform, which leads to greater economics for our advisors and allows them to build equity in their businesses. This generates a significant opportunity to attract and retain highly qualified advisors who are seeking independence. | |
• | Unique Value Proposition for Institutions. We provide solutions to financial institutions, such as regional banks, credit unions and insurers, who would otherwise find the technology, infrastructure and regulatory requirements associated with delivering financial advice to be cost-prohibitive. | |
• | Ability to Profitably Serve the Mass Affluent Market. We have designed and integrated all aspects of our platforms and services to profitably meet the needs of advisors who serve the mass affluent market. We believe there is an attractive opportunity in this market, in part because wirehouses have not historically focused on the mass affluent market. We believe our scale will sustain and strengthen our competitive advantage in the mass affluent market. | |
• | Ability to Serve a Broad Range of Advisor Models. As a result of our integrated technology platform and the resulting flexibility, we are able to attract and retain advisors from multiple channels, including wirehouses, regional broker-dealers and other independent broker-dealers. In addition, although we have grown through our focus on the mass affluent market, the breadth of our platform has facilitated growing penetration of the high net worth market. As of March 31, 2010 our advisors supported accounts with more than $1 million in assets that in the aggregate represented $42.2 billion in advisory and brokerage assets, or 15% of our total. |
• | Experienced and Committed Senior Management Team. We have an experienced and committed senior management team that provides stable and long-standing leadership for our business. The management team is aligned with stockholders and holds significant equity ownership in the company. |
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• | We depend on our ability to attract and retain experienced and productive advisors. We derive a large portion of our revenues from commissions and fees generated by our advisors. If we fail to attract new advisors or to retain and motivate our current advisors, our business may suffer. |
• | Our financial condition and results of operations may be adversely affected by market fluctuations and other economic factors. General economic and market factors can affect our commission and fee revenue. Significant downturns and volatility in equity and other financial markets have had and could continue to have an adverse effect on our financial condition and results of operations. |
• | Regulatory developments and our failure to comply with regulations could adversely affect our business by increasing our costs and exposure to litigation, affecting our reputation and making our business less profitable. Our business is subject to extensive U.S. regulation and supervision, including securities and investment advisory services. Our ability to conduct business depends on our compliance with these laws, rules and regulations, which is largely dependent on our establishment and maintenance of compliance systems and procedures. |
• | We operate in an intensely competitive industry, which could cause us to lose advisors and their assets, thereby reducing our revenues and net income. We are subject to competition in all aspects of our business, including competition for our advisors and clients. If we fail to continue to attract highly qualified advisors or advisors licensed with us leave us to pursue other opportunities, or if current or potential clients of our advisors decide to use one of our competitors, we could face a significant decline in market share, commission and fee revenues and net income. |
• | We rely on technology in our business, and technology and execution failures could subject us to losses, litigation and regulatory actions. Our business relies extensively on electronic data processing and communications systems. Failure of our systems, which could result from events beyond our control, or an inability to effectively upgrade those systems or implement new technology-driven products or services, could result in financial losses, liability to clients and damage to our reputation. |
• | Our indebtedness could adversely affect our financial health and may limit our ability to use debt to fund future capital needs. Our level of indebtedness could increase our vulnerability to general adverse economic and industry conditions, require us to dedicate a substantial portion of our cash flow from operation to payments on our indebtedness and may limit our flexibility in planning for changes in our business and the industry in which we operate. |
• | The Majority Holders will have the ability to control the outcome of matters submitted for stockholder approval and may have interests that differ from those of our other stockholders. Due to their ownership of a majority of our capital stock, the Majority Holders have significant influence over corporate transactions and are able to effectively control our decisions, regardless of whether or not other stockholders believe that the transaction is in their own best interests. |
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• | Growth in Investable Assets. According to Cerulli Associates, total assets under management in the United States are anticipated to grow at 7% per year over the next four years and retirement assets are expected to grow 8% from 2008 to 2014 (in part due to the retirement of the baby boomer generation and the resulting assets which are projected to flow out of retirement plans and into individual retirement accounts). In addition, individual retirement account rollovers are projected to almost double, growing from $3.6 trillion as of 2008 to $6.8 trillion by 2014. | |
• | Increasing Demand for Independent Financial Advice. Retail investors, particularly in the mass affluent market, are increasingly seeking financial advice from independent sources. | |
• | Advisor Migration to Independence. Independent channels are gaining market share from captive channels. We believe that we are not just a beneficiary of this secular shift, but an active catalyst in the movement to independence. | |
• | Macroeconomic Trends. As the macroeconomic environment continues to stabilize, we anticipate an appreciation in asset prices and a rise in interest rates from current, historically low levels. We expect that our business will benefit from growth in advisory and brokerage assets as well as increasing asset-based and cash sweep fees. |
• | Attracting New Advisors to our Platform. We have only 3.8% market share of the approximately 310,000 financial advisors in the United States, according to Cerulli Associates, which provides us with significant opportunity to attract new advisors. | |
• | Ramp-up of Newly-Attracted Advisors. We predominately attract experienced advisors who have established practices. In our experience, it takes an average of three years for new advisors to re-establish their practices and associated revenues. This seasoning process creates accelerated growth of revenue from our new advisors. | |
• | Increasing Productivity of Existing Advisor Base. The productivity of our advisors increases over time as we enable them to add new clients, gain shares of their clients’ investable assets, and expand their existing practices with additional advisors. We facilitate these productivity improvements by helping our advisors better manage their practices in an increasingly complex environment. | |
• | Our Business Model has Inherent Economies of Scale. The largely fixed costs necessary to support our advisors deliver higher marginal profitability as our advisors’ client assets and our revenues grow. Historically, this dynamic has been demonstrated through the growth in our operating margins. | |
• | Opportunistic Pursuit of Acquisitions. We have a proven history of expanding our business through opportunistic acquisitions. In the past six years, we have successfully completed four transactions. Our scalable business model and operating platform make us an attractive acquirer in a fragmented market. |
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Common stock we are offering | shares | |
Common stock selling stockholders are offering | shares | |
Common stock to be outstanding after this offering | shares | |
Option to purchase additional shares offered to underwriters | shares |
Use of proceeds | We estimate that the net proceeds from our sale of shares in this offering will be approximately $ million, or approximately $ million if the underwriters exercise their option to purchase additional shares in full. We expect to use all of the net proceeds from this offering received by us to repay a portion of the term loans under our senior secured credit facilities. We will not receive any of the proceeds from the sale of shares by the selling stockholders. See “Use of Proceeds.” The selling stockholders also include certain members of management. |
Risk factors | You should read the “Risk Factors” section of this prospectus beginning on page 14 for a discussion of factors to consider carefully before deciding whether to purchase shares of our common stock. |
Proposed NASDAQ Global Select Market symbol | LPLA |
• | 22,710,790 shares of common stock issuable upon the exercise of options and warrants outstanding as of March 31, 2010, with exercise prices ranging from $1.07 to $27.80 per share and a weighted average exercise price of $7.00 per share (the number, price and range of outstanding options and warrants will be adjusted to reflect any exercise of options and warrants by selling stockholders in connection with this offering); | |
• | 2,823,452 stock units outstanding at March 31, 2010, under our 2008 Nonqualified Deferred Compensation Plan, each representing the right to receive one share of common stock at the earliest of (a) a date in 2012 to be determined by the board of directors; (b) a change in control of the company or (c) death or disability of the holder and | |
• | 3,108,907 additional shares of common stock as of March 31, 2010 reserved for future grants under our equity incentive plans. |
• | assumes the adoption of our amended and restated certificate of incorporation (“certificate of incorporation”) and our second amended and restated bylaws (“bylaws”), to be effective upon the closing of this offering and | |
• | assumes no exercise by the underwriters of their option to purchase up to additional shares of our common stock in this offering. |
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For the Three Months | For the Year Ended December 31, | |||||||||||||||||||||||||||
Ended March 31, | Predecessor(2) | |||||||||||||||||||||||||||
2010(1) | 2009(1) | 2009(1) | 2008(1) | 2007(1) | 2006 | 2005 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
Consolidated statements of income data: | ||||||||||||||||||||||||||||
Net revenues | $ | 743,406 | $ | 642,978 | $ | 2,749,505 | $ | 3,116,349 | $ | 2,716,574 | $ | 1,739,635 | $ | 1,406,320 | ||||||||||||||
Total expenses | 698,690 | 616,193 | 2,676,938 | 3,023,584 | 2,608,741 | 1,684,769 | 1,290,570 | |||||||||||||||||||||
Income from continuing operations before provision for income taxes | 44,716 | 26,785 | 72,567 | 92,765 | 107,833 | 54,866 | 115,750 | |||||||||||||||||||||
Provision for income taxes | 19,162 | 11,988 | 25,047 | 47,269 | 46,764 | 21,224 | 46,461 | |||||||||||||||||||||
Income from continuing operations | 25,554 | 14,797 | 47,520 | 45,496 | 61,069 | 33,642 | 69,289 | |||||||||||||||||||||
Discontinued operations | — | — | — | — | — | — | (26,200 | ) | ||||||||||||||||||||
Net income | 25,554 | 14,797 | 47,520 | 45,496 | 61,069 | 33,642 | 43,089 | |||||||||||||||||||||
Earnings per share | ||||||||||||||||||||||||||||
Basic | $ | 0.29 | $ | 0.17 | $ | 0.54 | $ | 0.53 | $ | 0.72 | $ | 0.41 | $ | 0.52 | ||||||||||||||
Diluted | $ | 0.25 | $ | 0.15 | $ | 0.47 | $ | 0.45 | $ | 0.62 | $ | 0.35 | $ | 0.45 | ||||||||||||||
Pro forma net income per share (unaudited)(3) | ||||||||||||||||||||||||||||
Basic | $ | $ | ||||||||||||||||||||||||||
Diluted | $ | $ |
As of December 31, | ||||||||||||||||||||||||||||
As of March 31, | Predecessor(2) | |||||||||||||||||||||||||||
2010(1) | 2009(1) | 2009(1) | 2008(1) | 2007(1) | 2006 | 2005 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Consolidated statements of financial condition data: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 324,761 | $ | 319,394 | $ | 378,594 | $ | 219,239 | $ | 188,003 | $ | 245,163 | $ | 134,592 | ||||||||||||||
Total assets | 3,343,286 | 3,344,907 | 3,336,936 | 3,381,779 | 3,287,349 | 2,797,544 | 2,638,486 | |||||||||||||||||||||
Total debt(4) | 1,407,117 | 1,465,541 | 1,369,223 | 1,467,647 | 1,451,071 | 1,344,375 | 1,345,000 |
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As of and for the Three | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||
Months Ended March 31, | Predecessor(2) | |||||||||||||||||||||||||||
2010(1) | 2009(1) | 2009(1) | 2008(1) | 2007(1) | 2006 | 2005 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Other financial and operating data: | ||||||||||||||||||||||||||||
Adjusted EBITDA(5) (in thousands) | $ | 105,457 | $ | 81,948 | $ | 356,068 | $ | 350,171 | $ | 329,079 | $ | 247,912 | $ | 188,917 | ||||||||||||||
Adjusted Net Income(5) (in thousands) | $ | 41,099 | $ | 25,311 | $ | 129,556 | $ | 108,863 | $ | 107,404 | $ | 65,372 | $ | 78,278 | ||||||||||||||
Adjusted Net Income per share(5) | $ | 0.42 | $ | 0.26 | $ | 1.32 | $ | 1.09 | $ | 1.08 | $ | 0.68 | $ | 0.82 | ||||||||||||||
Number of advisors(6) | 12,026 | 12,294 | 11,950 | 11,920 | 11,089 | 7,006 | 6,481 | |||||||||||||||||||||
Advisory and brokerage assets(7) (in billions) | $ | 284.6 | $ | 231.7 | $ | 279.4 | $ | 233.9 | $ | 283.2 | $ | 164.7 | $ | 105.4 | ||||||||||||||
Advisory assets under management (in billions) | $ | 81.0 | $ | 57.5 | $ | 77.2 | $ | 59.6 | $ | 73.9 | $ | 51.1 | $ | 38.4 | ||||||||||||||
Insured cash account balances (in billions) | $ | 11.4 | $ | 12.0 | $ | 11.6 | $ | 11.2 | $ | 8.6 | $ | 5.8 | n/a | |||||||||||||||
Money market account balances (in billions) | $ | 6.7 | $ | 10.8 | $ | 7.0 | $ | 11.2 | $ | 7.4 | $ | 3.5 | $ | 6.4 |
(1) | Financial results as of and for the years ended December 31, 2009, 2008 and 2007 and the quarters ended March 31, 2010 and 2009 include the acquisitions of UVEST Financial Services Group, Inc. (“UVEST”) (acquired on January 2, 2007), Pacific Select Group, LLC (renamed LPL Investment Advisory Services Group, LLC) and its wholly owned subsidiaries: Mutual Service Corporation (“MSC”), Associated Financial Group, Inc. (“AFG”), Associated Securities Corp. (“Associated”), Associated Planners Investment Advisory, Inc. (“APIA”) and Waterstone Financial Group, Inc. (“WFG”) (MSC, AFG, Associated, APIA and WFG are collectively referred to herein as the “Affiliated Entities”) (acquired on June 20, 2007) and IFMG Securities, Inc., Independent Financial Marketing Group, Inc. and LSC Insurance Agency of Arizona, Inc. (collectively “IFMG”) (acquired on November 7, 2007). Consequently, the financial results as of and for December 31, 2009, 2008 and 2007 and three months ended March 31, 2010 and 2009 may not be directly comparable to prior periods. |
(2) | On December 28, 2005, investment funds affiliated with the Majority Holders acquired a majority of our capital stock through a merger transaction. Activities as of December 28, 2005 and periods prior are those of the predecessor. Predecessor net revenues were $1,156 million, $908 million, $796 million, $739 million and $812 million for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, respectively. Predecessor net income was $35.4 million, $16.4 million, $35.9 million, $38.1 million and $29.7 million for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, respectively. |
(3) | The unaudited pro forma net income per share gives effect to: (i) the recognition of $ million ofshare-based compensation expense based on the number of restricted shares issued under our Fifth Amended and Restated 2000 Stock Bonus Plan multiplied by the assumed initial public offering price net of the related tax benefit, (ii) the sale by us of shares of common stock (assuming the underwriters do not exercise their option to purchase additional shares) that we are offering at the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the use of proceeds from the sale by us of these shares to reduce amounts outstanding under our senior secured credit facilities. For purposes of this calculation, the assumed initial public offering price is $ per share, which is the midpoint of the range listed on the cover page of this prospectus. | |
(4) | Total debt consists of our senior secured credit facilities, senior unsecured subordinated notes, revolving line of credit facility and bank loans payable. | |
(5) | Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share have limitations as analytical tools and should not be considered in isolation, or as substitutes for analysis of our results as reported under accounting principles generally accepted in the United States (“GAAP”). Some of these limitations are: |
• | Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments; | |
• | Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share do not reflect changes in, or cash requirements for, working capital needs and |
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• | Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt. |
The reconciliation from net income to Adjusted EBITDA and Adjusted Net Income for the periods presented is as follows (in thousands): |
For the Three | ||||||||||||||||||||||||||||
Months | For the Year Ended December 31, | |||||||||||||||||||||||||||
Ended March 31, | Predecessor(2) | |||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Net income | $ | 25,554 | $ | 14,797 | $ | 47,520 | $ | 45,496 | $ | 61,069 | $ | 33,642 | $ | 43,089 | ||||||||||||||
Loss from discontinued operations | — | — | — | — | — | — | 26,200 | |||||||||||||||||||||
Interest expense | 24,336 | 25,941 | 100,922 | 115,558 | 122,817 | 125,103 | 1,388 | |||||||||||||||||||||
Income tax expense | 19,162 | 11,988 | 25,047 | 47,269 | 46,764 | 21,224 | 46,461 | |||||||||||||||||||||
Depreciation and amortization | 25,590 | 27,395 | 108,296 | 100,462 | 78,748 | 65,348 | 17,854 | |||||||||||||||||||||
EBITDA | $ | 94,642 | $ | 80,121 | $ | 281,785 | $ | 308,785 | $ | 309,398 | $ | 245,317 | $ | 134,992 | ||||||||||||||
EBITDA Adjustments: | ||||||||||||||||||||||||||||
Share-based compensation expense (a) | $ | 2,536 | $ | 1,225 | $ | 6,437 | $ | 4,160 | $ | 2,159 | $ | 2,878 | $ | 8,354 | ||||||||||||||
Acquisition and integration related expenses (b) | 140 | 822 | 3,037 | 18,326 | 16,350 | 1,237 | 33,741 | |||||||||||||||||||||
Restructuring and conversion costs (c) | 7,979 | (259 | ) | 64,658 | 15,122 | — | — | — | ||||||||||||||||||||
Other (d) | 160 | 39 | 151 | 3,778 | 1,172 | (1,520 | ) | 11,830 | ||||||||||||||||||||
Adjusted EBITDA | $ | 105,457 | $ | 81,948 | $ | 356,068 | $ | 350,171 | $ | 329,079 | $ | 247,912 | $ | 188,917 | ||||||||||||||
Net income | $ | 25,554 | $ | 14,797 | $ | 47,520 | $ | 45,496 | $ | 61,069 | $ | 33,642 | $ | 43,089 | ||||||||||||||
After-Tax: | ||||||||||||||||||||||||||||
EBITDA Adjustments (e) | 7,015 | 1,395 | 46,089 | 26,045 | 12,263 | 1,820 | 33,919 | |||||||||||||||||||||
Amortization of purchased intangible assets (e)(f) | 8,530 | 9,119 | 35,947 | 37,322 | 34,072 | 29,910 | 1,270 | |||||||||||||||||||||
Adjusted Net Income | $ | 41,099 | $ | 25,311 | $ | 129,556 | $ | 108,863 | $ | 107,404 | $ | 65,372 | $ | 78,278 | ||||||||||||||
Adjusted Net Income per share (g) | $ | 0.42 | $ | 0.26 | $ | 1.32 | $ | 1.09 | $ | 1.08 | $ | 0.68 | $ | 0.82 | ||||||||||||||
Weighted average shares outstanding — diluted | 98,945 | 97,959 | 98,494 | 100,334 | 99,099 | 96,159 | 95,555 |
(a) | Represents share-based compensation for stock options awarded to employees and non-executive directors. | |
(b) | Represents acquisition and integration costs primarily as a result of our 2007 acquisitions of UVEST, the Affiliated Entities and IFMG. | |
(c) | Represents organizational restructuring charges incurred in 2008 and 2009 for severance and one-time termination benefits, asset impairments, lease and contract termination fees and other transfer costs. | |
(d) | Represents impairment charges in 2008 for our equity investment in Blue Frog Solutions, Inc. (“Blue Frog”) and in 2005 for our mortgage subsidiary Innovex Mortgage, Inc., which subsequently ceased operations on December 31, 2007, as well as other taxes and employment tax withholding related to a nonqualified deferred compensation plan. |
(e) | EBITDA Adjustments and amortization of purchased intangible assets, a component of depreciation and amortization, have been tax effected using a federal rate of 35.0% and the applicable effective state rate which ranged from 3.90% to 4.71%, net of the federal tax benefit. |
(f) | Represents amortization of intangible assets and software which were $59.6 million, $61.7 million, $56.1 million, $49.2 million and $2.1 million before taxes for the years ended December 31, 2009, 2008, 2007, 2006 and 2005, respectively, and were $14.1 million and $15.1 million before taxes for the three months ended March 31, 2010 and 2009, respectively. The amortization of intangible assets and software was a result of our purchase accounting adjustments from our merger transaction in 2005 with the Majority Holders and our 2007 acquisitions of UVEST, the Affiliated Entities and IFMG. |
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(g) | Represents Adjusted Net Income divided by weighted average number of shares outstanding on a fully diluted basis. Set forth is a reconciliation of earnings per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Net Income per share: |
For the Three | ||||||||||||||||||||||||||||
Months Ended | For The Year Ended December 31, | |||||||||||||||||||||||||||
March 31, | Predecessor | |||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Earnings per share (diluted) | $ | 0.25 | $ | 0.15 | $ | 0.47 | $ | 0.45 | $ | 0.62 | $ | 0.35 | $ | 0.45 | ||||||||||||||
Adjustment for allocation of undistributed earnings to stock units | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
After-Tax: | ||||||||||||||||||||||||||||
EBITDA Adjustments per share | $ | 0.07 | $ | 0.01 | $ | 0.47 | $ | 0.26 | $ | 0.12 | $ | 0.02 | $ | 0.35 | ||||||||||||||
Amortization of purchased intangible assets per share | $ | 0.09 | $ | 0.09 | $ | 0.37 | $ | 0.38 | $ | 0.34 | $ | 0.31 | $ | 0.02 | ||||||||||||||
Adjusted Net Income per share | $ | 0.42 | $ | 0.26 | $ | 1.32 | $ | 1.09 | $ | 1.08 | $ | 0.68 | $ | 0.82 | ||||||||||||||
(6) | Number of advisors is defined as those investment professionals who are licensed to do business with our broker-dealer subsidiaries. In 2009, we attracted record levels of new advisors due to the dislocation in the marketplace that impacted many of our competitors. This record recruitment was offset due to anticipated attrition related to the consolidation of the operations of the Affiliated Entities. Excluding this attrition, we added 750 net new advisors during 2009, representing 6.3% advisor growth. | |
(7) | Advisory and brokerage assets are comprised of assets that are custodied, networked andnon-networked and reflect market movement in addition to new assets, inclusive of new business development and net of attrition. Non-networked assets was not available in 2005 and accordingly, advisory and brokerage assets is comprised of custodied and networked accounts. |
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• | reduce new investments by both new and existing clients in financial products that are linked to the stock market, such as variable life insurance, variable annuities, mutual funds and managed accounts; | |
• | reduce trading activity, thereby affecting our brokerage commissions; | |
• | reduce the value of advisory and brokerage assets, thereby reducing asset-based fee income and | |
• | motivate clients to withdraw funds from their accounts, reducing advisory and brokerage assets, advisory fee revenue and asset-based fee income. |
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• | illiquid or volatile markets; | |
• | diminished access to debt or capital markets or | |
• | unforeseen cash or capital requirements, adverse legal settlements or judgments (including, among others, risks associated with auction rate securities). |
• | market conditions; | |
• | the general availability of credit; | |
• | the volume of trading activities; | |
• | the overall availability of credit to the financial services industry; | |
• | our credit ratings and credit capacity and | |
• | the possibility that our stockholders, advisors or lenders could develop a negative perception of our long-or short-term financial prospects if the level of our business activity decreases due to a market downturn. |
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• | registered as a broker-dealer with the Securities and Exchange Commission (“SEC”), each of the 50 states, and the District of Columbia, Puerto Rico and the U.S. Virgin Islands; | |
• | registered as an investment advisor with the SEC; | |
• | a member of Financial Industry Regulatory Authority, Inc. (“FINRA”); | |
• | regulated by the Commodities Future Trading Commission (“CFTC”) with respect to the futures and commodities trading activities it conducts as an introducing broker and | |
• | a member of the Nasdaq Stock Market and the Chicago Stock Exchange. |
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• | asset management firms; | |
• | commercial banks and thrift institutions; | |
• | insurance companies; | |
• | other clearing/custodial technology companies and | |
• | brokerage and investment banking firms. |
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• | incurring additional indebtedness or issuing disqualified stock or preferred stock; | |
• | paying dividends on, redeeming or repurchasing our capital stock; | |
• | making investments or acquisitions; | |
• | creating liens; | |
• | selling assets; | |
• | restricting dividends or other payments to us; | |
• | guaranteeing indebtedness; | |
• | engaging in transactions with affiliates and | |
• | consolidating, merging or transferring all or substantially all of our assets. |
• | our ability to successfully maintain and upgrade the capability of our systems; |
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• | our ability to address the needs of our advisors and their clients by using technology to provide products and services that satisfy their demands and | |
• | our ability to retain skilled information technology employees. |
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• | seriously damage our reputation; | |
• | allow competitors access to our proprietary business information; | |
• | subject us to liability for a failure to safeguard client data; | |
• | result in the termination of relationships with our advisors; | |
• | subject us to regulatory sanctions or burdens, based on the authority of the SEC and FINRA to enforce regulations regarding business continuity planning and | |
• | require significant capital and operating expenditures to investigate and remediate the breach. |
• | securities trading and custody; | |
• | portfolio management; | |
• | customer service; | |
• | accounting and internal financial processes and controls and | |
• | regulatory compliance and reporting. |
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• | litigation or regulatory actions; | |
• | failing to deliver minimum standards of service and quality; | |
• | compliance failures and | |
• | unethical behavior and the misconduct of employees, advisors or counterparties. |
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• | actual or anticipated fluctuations in our results of operations; | |
• | variance in our financial performance from the expectations of equity research analysts; | |
• | conditions and trends in the markets we serve; | |
• | announcements of significant new services or products by us or our competitors; | |
• | additions or changes to key personnel; | |
• | the commencement or outcome of litigation; | |
• | changes in market valuation or earnings of our competitors; | |
• | the trading volume of our common stock; | |
• | future sale of our equity securities; | |
• | changes in the estimation of the future size and growth rate of our markets; | |
• | legislation or regulatory policies, practices or actions and | |
• | general economic conditions. |
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• | the division of our board of directors into three classes and the election of each class for three-year terms; | |
• | the sole ability of the board of directors to fill a vacancy created by the expansion of the board of directors; |
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• | advance notice requirements for stockholder proposals and director nominations; | |
• | limitations on the ability of stockholders to call special meetings and to take action by written consent; |
• | when the Majority Holders collectively own 50% or less of our outstanding shares of common stock, the approval of holders of at least two-thirds of the shares entitled to vote generally on the making, alteration, amendment or repeal of our certificate of incorporation or bylaws, will be required to adopt, amend or repeal our bylaws, or amend or repeal certain provisions of our certificate of incorporation; |
• | the required approval of holders of at least two-thirds of the shares entitled to vote at an election of the directors to remove directors and, following the classification of the board of directors, removal only for cause and |
• | the ability of our board of directors to designate the terms of and issue new series of preferred stock, without stockholder approval, which could be used to institute a rights plan, or a poison pill, that would work to dilute the stock ownership or a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors. |
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• | on an actual basis; | |
• | on an as-adjusted basis to give effect to (i) the addition of a new $580.0 million term loan tranche of our senior secured credit facilities on May 24, 2010, (ii) the redemption of the $550.0 million senior unsecured subordinated notes at a price of 105.375% of the outstanding aggregate principal amount plus accrued and unpaid interest through March 31, 2010, (iii) the payment in cash of fees and costs totaling $18.0 million associated with the new term loan tranche and (iv) the after-tax impact to retained earnings of the loss on the early retirement of the senior unsecured subordinated notes of $22.9 million, and | |
• | on a pro forma as-adjusted basis after giving effect to (i) the adjustments described above, (ii) the recognition of $ million of share-based compensation expense based on the number of restricted shares issued under our Fifth Amended and Restated 2000 Stock Bonus Plan multiplied by the assumed initial public offering price net of the related tax benefit, (iii) the sale by us of shares of common stock (assuming the underwriters do not exercise their option to purchase additional shares) that we are offering at the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (iv) the use of proceeds from the sale by us of these shares to reduce amounts outstanding under our senior secured credit facilities. For purpose of this table, the assumed initial public offering price is $ per share, which is the midpoint of the range listed on the cover page of this prospectus. |
March 31, 2010 | ||||||||||||
Pro-Forma, as | ||||||||||||
Actual | As Adjusted | Adjusted | ||||||||||
(In thousands) | ||||||||||||
Cash and cash equivalents(4) | $ | 324,761 | $ | 289,995 | ||||||||
Long-term obligations: | ||||||||||||
Senior secured term loan(1) | $ | 817,117 | $ | 1,397,117 | ||||||||
Senior unsecured subordinated notes(2) | 550,000 | — | ||||||||||
Total long-term obligations | 1,367,117 | 1,397,117 | ||||||||||
Stockholders’ equity: | ||||||||||||
Common stock: $.001 par value; 200,000,000 shares authorized; 94,241,567 shares issued and outstanding | 87 | 87 | ||||||||||
Additional paid-in capital | 682,899 | 682,899 | ||||||||||
Stockholder loans | (51 | ) | (51 | ) | ||||||||
Accumulated other comprehensive loss | (8,614 | ) | (8,614 | ) | ||||||||
Retained earnings | 208,836 | 185,948 | (3 | ) | ||||||||
Total stockholders’ equity(4) | 883,157 | 860,269 | ||||||||||
Total capitalization(4) | $ | 2,250,274 | $ | 2,257,386 | ||||||||
(1) | Borrowings under our senior secured credit facilities bear interest at a base rate equal to either one, two, three, six, nine or twelve-month LIBOR plus the applicable margin, or an alternative base rate (“ABR”) plus the applicable margin. The ABR is equal to the greatest of (a) the prime rate in effect on such day, (b) the effective federal funds rate in effect on such day, plus 0.50% or |
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(c) solely in the case of the 2015 Term Loans and the 2017 Term Loans, 2.50%. The applicable margin on our senior secured term credit facilities could change depending on our credit rating. Our senior secured credit facilities are subject to certain financial and non-financial covenants. We may voluntarily repay outstanding loans under our senior secured credit facilities at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans. The LIBOR Rate with respect to the 2015 Term Loans and the 2017 Term Loans shall in no event be less than 1.50%. | ||
(2) | As of March 31, 2010, we have $550.0 million of senior unsecured subordinated notes due December 15, 2015. The notes bear interest at 10.75% per annum and interest payments are payable semiannually in arrears. We are not required to make mandatory redemption or sinking-fund payments with respect to the notes. The indenture underlying the senior unsecured subordinated notes contains various restrictions on us with respect to us, including one or more restrictions relating to limitations on liens, sale and leaseback arrangements and funded debt of subsidiaries. We may voluntarily repurchase our senior unsecured subordinated notes at any time, pursuant to certain prepayment penalties. | |
(3) | Upon the offering, the 7,423,973 restricted shares of common stock issued to advisors under the Fifth Amended and Restated 2000 Stock Bonus Plan will vest. At such time, we will record expense based upon the initial public offering price per share multiplied by the number of restricted shares. We will also record a tax benefit approximately equal to 39.55% of the expense recorded. |
(4) | A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) cash and cash equivalents, total stockholders’ equity and total capitalization by $ million, $ million and $ million, respectively, assuming the number of shares offered by us and the selling stockholders, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. |
• | 22,710,790 shares of common stock issuable upon the exercise of options and warrants outstanding as of March 31, 2010, with exercise prices ranging from $1.07 to $27.80 per share and a weighted average exercise price of $7.00 per share (the number, price and range of outstanding options and warrants will be adjusted to reflect any exercise of options and warrants by selling stockholders in connection with this offering); | |
• | 2,823,452 stock units outstanding at March 31, 2010, under our 2008 Nonqualified Deferred Compensation Plan, each representing the right to receive one share of common stock at the earliest of (a) a date in 2012 to be determined by the board of directors; (b) a change of control of the company or (c) death or disability of the holder and | |
• | 3,108,907 additional shares of common stock reserved for future grants under our equity incentive plans. |
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For the Three Months | ||||||||||||||||||||||||||||
Ended March 31, | For the Year Ended December 31, | |||||||||||||||||||||||||||
Predecessor(2) | ||||||||||||||||||||||||||||
2010(1) | 2009(1) | 2009(1) | 2008(1) | 2007(1) | 2006 | 2005 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
Consolidated statements of income data: | ||||||||||||||||||||||||||||
Net revenues | $ | 743,406 | $ | 642,978 | $ | 2,749,505 | $ | 3,116,349 | $ | 2,716,574 | $ | 1,739,635 | $ | 1,406,320 | ||||||||||||||
Total expenses | 698,690 | 616,193 | 2,676,938 | 3,023,584 | 2,608,741 | 1,684,769 | 1,290,570 | |||||||||||||||||||||
Income from continuing operations before provision for income taxes | 44,716 | 26,785 | 72,567 | 92,765 | 107,833 | 54,866 | 115,750 | |||||||||||||||||||||
Provision for income taxes | 19,162 | 11,988 | 25,047 | 47,269 | 46,764 | 21,224 | 46,461 | |||||||||||||||||||||
Income from continuing operations | 25,554 | 14,797 | 47,520 | 45,496 | 61,069 | 33,642 | 69,289 | |||||||||||||||||||||
Discontinued operations | — | — | — | — | — | — | (26,200 | ) | ||||||||||||||||||||
Net income | 25,554 | 14,797 | 47,520 | 45,496 | 61,069 | 33,642 | 43,089 | |||||||||||||||||||||
Per share data: | ||||||||||||||||||||||||||||
Earnings per basic share: | ||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.29 | $ | 0.17 | $ | 0.54 | $ | 0.53 | $ | 0.72 | $ | 0.41 | $ | 0.84 | ||||||||||||||
Loss from discontinued operations | — | — | — | — | — | — | $ | (0.32 | ) | |||||||||||||||||||
Earnings per basic share | $ | 0.29 | $ | 0.17 | $ | 0.54 | $ | 0.53 | $ | 0.72 | $ | 0.41 | $ | 0.52 | ||||||||||||||
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For the Three Months | ||||||||||||||||||||||||||||
Ended March 31, | For the Year Ended December 31, | |||||||||||||||||||||||||||
Predecessor(2) | ||||||||||||||||||||||||||||
2010(1) | 2009(1) | 2009(1) | 2008(1) | 2007(1) | 2006 | 2005 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
Earnings per diluted share: | ||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.25 | $ | 0.15 | $ | 0.47 | $ | 0.45 | $ | 0.62 | $ | 0.35 | $ | 0.72 | ||||||||||||||
Loss from discontinued operations | — | — | — | — | — | — | (0.27 | ) | ||||||||||||||||||||
Earnings per diluted share | $ | 0.25 | $ | 0.15 | $ | 0.47 | $ | 0.45 | $ | 0.62 | $ | 0.35 | $ | 0.45 | ||||||||||||||
Pro-forma net income per share (unaudited)(3) | ||||||||||||||||||||||||||||
Basic | $ | $ | ||||||||||||||||||||||||||
Diluted | $ | $ | ||||||||||||||||||||||||||
Predecessor cash dividends, per common share (unaudited) | ||||||||||||||||||||||||||||
Class A & C (Predecessor) | n/a | n/a | n/a | n/a | n/a | n/a | $ | 6.36 | ||||||||||||||||||||
Class B (Predecessor) | n/a | n/a | n/a | n/a | n/a | n/a | $ | 1.47 |
As of March 31, | As of December 31, | |||||||||||||||||||||||||||
Predecessor(2) | ||||||||||||||||||||||||||||
2010 | 2009 | 2009(1) | 2008(1) | 2007(1) | 2006 | 2005 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Consolidated statements of financial condition data: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 324,761 | $ | 319,394 | $ | 378,594 | $ | 219,239 | $ | 188,003 | $ | 245,163 | $ | 134,592 | ||||||||||||||
Total assets | 3,343,286 | 3,344,907 | 3,336,936 | 3,381,779 | 3,287,349 | 2,797,544 | 2,638,486 | |||||||||||||||||||||
Total debt(4) | 1,407,117 | 1,465,541 | 1,369,223 | 1,467,647 | 1,451,071 | 1,344,375 | 1,345,000 |
As of and for the Three Months Ended March 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||
(unaudited) | Predecessor(2) | |||||||||||||||||||||||||||
2010 | 2009 | 2009(1) | 2008(1) | 2007(1) | 2006 | 2005 | ||||||||||||||||||||||
Other financial and operating data: | ||||||||||||||||||||||||||||
Adjusted EBITDA(5) (in thousands) | $ | 105,457 | $ | 81,948 | $ | 356,068 | $ | 350,171 | $ | 329,079 | $ | 247,912 | $ | 188,917 | ||||||||||||||
Adjusted net income(5) (in thousands) | $ | 41,099 | $ | 25,311 | $ | 129,556 | $ | 108,863 | $ | 107,404 | $ | 65,372 | $ | 78,278 | ||||||||||||||
Adjusted net income per share(5) | $ | 0.42 | $ | 0.26 | $ | 1.32 | $ | 1.09 | $ | 1.08 | $ | 0.68 | $ | 0.82 | ||||||||||||||
Gross margin(6) (in thousands) | $ | 230,204 | $ | 200,447 | $ | 844,926 | $ | 953,301 | $ | 781,102 | $ | 508,530 | $ | 407,019 | ||||||||||||||
Gross margin as a % of net revenue(6) | 31.0 | % | 31.2 | % | 30.7 | % | 30.6 | % | 28.8 | % | 29.2 | % | 28.9 | % | ||||||||||||||
Number of advisors(7) | 12,026 | 12,294 | 11,950 | 11,920 | 11,089 | 7,006 | 6,481 | |||||||||||||||||||||
Advisory and brokerage assets(8) (in billions) | $ | 284.6 | $ | 231.7 | $ | 279.4 | $ | 233.9 | $ | 283.2 | $ | 164.7 | $ | 105.4 | ||||||||||||||
Advisory assets under management (in billions) | $ | 81.0 | $ | 57.5 | $ | 77.2 | $ | 59.6 | $ | 73.9 | $ | 51.1 | $ | 38.4 | ||||||||||||||
Insured cash account balances (in billions) | $ | 11.4 | $ | 12.0 | $ | 11.6 | $ | 11.2 | $ | 8.6 | $ | 5.8 | n/a | |||||||||||||||
Money market account balances (in billions) | $ | 6.7 | $ | 10.8 | $ | 7.0 | $ | 11.2 | $ | 7.4 | $ | 3.5 | $ | 6.4 |
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(1) | Financial results as of and for the years ended December 31, 2009, 2008 and 2007 and the quarters ended March 31, 2010 and 2009 include the acquisitions of UVEST Financial Services Group, Inc. (acquired on January 2, 2007), Pacific Select Group, LLC and its wholly owned subsidiaries: Mutual Service Corporation, Associated Financial Group, Inc., Associated Securities Corp., Associated Planners Investment Advisory, Inc. and Waterstone Financial Group, Inc. (acquired on June 20, 2007) and IFMG Securities, Inc., Independent Financial Marketing Group, Inc. and LSC Insurance Agency of Arizona, Inc. (acquired on November 7, 2007). Consequently, the results of operations for 2009, 2008 and 2007 and three months ended March 31, 2010 and 2009 may not be directly comparable to prior periods. |
(2) | On December 28, 2005, investment funds affiliated with the Majority Holders acquired a majority of our capital stock through a merger transaction. Activities as of December 28, 2005 and periods prior are those of the predecessor. |
(3) | The unaudited pro forma net income per share gives effect to: (i) the recognition of $ million ofshare-based compensation expense based on the number of restricted shares issued under our Fifth Amended and Restated 2000 Stock Bonus Plan multiplied by the assumed initial public offering price net of the related tax benefit, (ii) the sale by us of shares of common stock (assuming the underwriters do not exercise their option to purchase additional shares) that we are offering at the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the use of proceeds from the sale by us of these shares to reduce amounts outstanding under our senior secured credit facilities. For purposes of this calculation, the assumed initial public offering price is $ per share, which is the midpoint of the range listed on the cover page of this prospectus. | |
(4) | Total debt consists of our senior secured credit facilities, senior unsecured subordinated notes, revolving line of credit facility and bank loans payable. |
(5) | See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — How We Evaluate Growth” for an explanation of Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share. |
(6) | Gross margin is calculated as net revenues less production expenses. Production expenses consist of the following expense categories from our consolidated statements of income: (i) commissions and advisory fees and (ii) brokerage, clearing and exchange. All other expense categories, including depreciation and amortization, are considered general and administrative in nature. Because our gross margin amounts do not include any depreciation and amortization expense, our gross margin amounts may not be comparable to those of others in our industry. |
(7) | Number of advisors is defined as those investment professionals who are licensed to do business with our broker-dealer subsidiaries. | |
(8) | Advisory and brokerage assets are comprised of assets that are custodied, networked andnon-networked and reflect market movement in addition to new assets, inclusive of new business development and net of attrition. Non-networked assets was not available in 2005 and accordingly, advisory and brokerage assets is comprised of custodied and networked accounts. |
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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• | Commissions and Advisory Fees. Transaction-based commissions and advisory fees both represent advisor-generated revenue, generally 85-90% of which is paid to advisors. |
Commissions. Transaction-based commission revenues represent gross commissions generated by our advisors, primarily from commissions earned on the sale of various financial products such as fixed and variable annuities, mutual funds, general securities, alternative investments and insurance. We also earn trailing commission type revenues (a commission that is paid over time such as 12(b)-1 fees) on mutual funds and variable annuities held by clients of our advisors. Trail commissions are recurring in nature and are earned based on the current market value of investment holdings. | ||
Advisory Fees. Advisory fee revenues represent fees charged by us and our advisors to their clients based on the value of advisory assets. |
• | Asset-Based Fees. Asset-based fees are comprised of fees from cash sweep programs, our financial product manufacturer sponsorship programs, andsub-transfer agency and networking services. Pursuant to contractual arrangements, uninvested cash balances in our advisors’ client accounts are swept into either insured deposit accounts at various banks or third-party money market funds, for which we receive fees, including administrative and record-keeping fees based on account type and the invested balances. In addition, we receive fees from certain financial product manufacturers in connection with sponsorship programs that support our marketing and sales-force education and training efforts. We also earn fees on mutual fund assets for which we provide administrative and record-keeping services as asub-transfer agent. Our networking fees represent fees paid to us by mutual fund and annuity product manufacturers in exchange for administrative and record-keeping services that we provide to |
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clients of our advisors. Networking fees are correlated to the number of positions we administer, not the value of assets under administration. |
• | Transaction and Other Fees. Revenues earned from transaction and other fees primarily consist of transaction fees and ticket charges, subscription fees, IRA custodian fees, contract and license fees, conference fees and small/inactive account fees. We charge fees to our advisors and their clients for executing transactions in brokerage and fee-based advisory accounts. We earn subscription fees for the software and technology services provided to our advisors and on IRA custodial services that we provide for their client accounts. We charge monthly administrative fees to our advisors. We charge fees to financial product manufacturers for participating in our training and marketing conferences and fees to our advisors and their clients for accounts that fail to meet certain specified thresholds of size or activity. | |
• | Interest and Other Revenue. Other revenue includes marketing re-allowances from certain financial product manufacturers as well as interest income from client margin accounts and cash equivalents, net of operating interest expense. |
• | Production Expenses. Production expenses consist of commissions and advisory fees as well as brokerage, clearing and exchange fees. We pay out the majority of commissions and advisory fees received from sales or services provided by our advisors. Substantially all of these payouts are variable and correlated to the revenues generated by each advisor. | |
• | Compensation and Benefits Expense. Compensation and benefits expense includes salaries and wages and related employee benefits and taxes for our employees (including share-based compensation), as well as compensation for temporary employees and consultants. | |
• | General and Administrative Expenses. General and administrative expenses include promotional fees, occupancy and equipment, communications and data processing, regulatory fees, travel and entertainment and professional services. | |
• | Depreciation and Amortization Expense. Depreciation and amortization expense represents the benefits received for using long-lived assets. Those assets represent significant intangible assets established through our acquisitions, as well as fixed assets which include internally developed software, hardware, leasehold improvements and other equipment. | |
• | Restructuring Charges. Restructuring charges represent expenses incurred as a result of our 2009 consolidation of the Affiliated Entities and our strategic business review committed to and implemented in 2008 to reduce our cost structure and approve operating efficiencies. | |
• | Other Expenses. Other expenses include bank fees, other taxes, bad debt expense and other miscellaneous expenses. |
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As of and for the | ||||||||||||||||||||
Three Months | As of and for the Year | |||||||||||||||||||
Ended March 31, | Ended December 31, | |||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
Non-Financial Metrics | ||||||||||||||||||||
Advisors(1) | 12,026 | 12,294 | 11,950 | 11,920 | 11,089 | |||||||||||||||
Advisory and brokerage assets(2) (in billions) | $ | 284.6 | $ | 231.7 | $ | 279.4 | $ | 233.9 | $ | 283.2 | ||||||||||
Advisory assets under management (in billions) | $ | 81.0 | $ | 57.5 | $ | 77.2 | $ | 59.6 | $ | 73.9 | ||||||||||
Financial Metrics | ||||||||||||||||||||
Revenue growth (decline) from prior period | 15.6 | % | (19.5 | )% | (11.8 | )% | 14.7 | % | 56.2 | % | ||||||||||
Recurring revenue as a % of net revenue(3) | 60.1 | % | 55.0 | % | 57.3 | % | 58.5 | % | 57.1 | % | ||||||||||
Gross margin(4) (in millions) | $ | 230.2 | $ | 200.4 | $ | 844.9 | $ | 953.3 | $ | 781.1 | ||||||||||
Gross margin as a % of net revenue(4) | 31.0 | % | 31.2 | % | 30.7 | % | 30.6 | % | 28.8 | % | ||||||||||
Net income (in millions) | $ | 25.6 | $ | 14.8 | $ | 47.5 | $ | 45.5 | $ | 61.1 | ||||||||||
Adjusted EBITDA (in millions) | $ | 105.5 | $ | 81.9 | $ | 356.1 | $ | 350.2 | $ | 329.1 | ||||||||||
Adjusted Net Income (in millions) | $ | 41.1 | $ | 25.3 | $ | 129.6 | $ | 108.9 | $ | 107.4 |
(1) | Advisors are defined as those investment professionals who are licensed to do business with our broker-dealer subsidiaries. In 2009, we attracted record levels of new advisors due to the dislocation in the marketplace that impacted many of our competitors. This record recruitment was offset, however, by the attrition of approximately 720 advisors licensed through the Affiliated Entities related to the consolidation of the operations of the Affiliated Entities. Excluding this attrition, we added 750 new advisors during 2009, representing 6.3% advisor growth. |
(2) | Advisory and brokerage assets are comprised of assets that are custodied, networked andnon-networked and reflect market movement in addition to new assets, inclusive of recruiting and net of attrition. | |
(3) | Recurring revenue is derived from sources such as advisory fees, asset-based fees, trailing commission fees, fees related to our cash sweep programs, interest earned on margin accounts and technology and service fees. In 2009, we revised our definition of recurring revenues. Accordingly, prior period amounts have been recast to reflect this change. |
(4) | Gross margin is calculated as net revenues less production expenses. Production expenses consist of the following expense categories from our consolidated statements of income: (i) commissions and advisory fees and (ii) brokerage, clearing and exchange. All other expense categories, including depreciation and amortization, are considered general and administrative in nature. Because our gross margin amounts do not include any depreciation and amortization expense, our gross margin amounts may not be comparable to those of others in our industry. |
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• | because non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time, stock-based compensation expense is not a key measure of our operating performance and | |
• | because costs associated with acquisitions and the resulting integrations, restructuring and conversions can vary from period to period and transaction to transaction, expenses associated with these activities are not considered a key measure of our operating performance. |
• | as a measure of operating performance; | |
• | for planning purposes, including the preparation of budgets and forecasts; | |
• | to allocate resources to enhance the financial performance of our business; | |
• | to evaluate the effectiveness of our business strategies; | |
• | in communications with our board of directors concerning our financial performance and | |
• | as a bonus target for certain of our employees. |
• | Adjusted EBITDA does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments; | |
• | Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs and | |
• | Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt. |
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For the Three | ||||||||||||||||||||
Months Ended | ||||||||||||||||||||
March 31, | For The Year Ended December 31, | |||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
Net income | $ | 25,554 | $ | 14,797 | $ | 47,520 | $ | 45,496 | $ | 61,069 | ||||||||||
Interest expense | 24,336 | 25,941 | 100,922 | 115,558 | 122,817 | |||||||||||||||
Income tax expense | 19,162 | 11,988 | 25,047 | 47,269 | 46,764 | |||||||||||||||
Depreciation and amortization | 25,590 | 27,395 | 108,296 | 100,462 | 78,748 | |||||||||||||||
EBITDA | $ | 94,642 | $ | 80,121 | $ | 281,785 | $ | 308,785 | $ | 309,398 | ||||||||||
Share-based compensation expense(a) | $ | 2,536 | $ | 1,225 | $ | 6,437 | $ | 4,160 | $ | 2,159 | ||||||||||
Acquisition and integration related expenses(b) | 140 | 822 | 3,037 | 18,326 | 16,350 | |||||||||||||||
Restructuring and conversion costs(c) | 7,979 | (259 | ) | 64,658 | 15,122 | — | ||||||||||||||
Other(d) | 160 | 39 | 151 | 3,778 | 1,172 | |||||||||||||||
Adjusted EBITDA | $ | 105,457 | $ | 81,948 | $ | 356,068 | $ | 350,171 | $ | 329,079 | ||||||||||
(a) | Represents share-based compensation for stock options awarded to employees andnon-executive directors. | |
(b) | Represents acquisition and integration costs primarily as a result of our 2007 acquisitions of UVEST, the Affiliated Entities and IFMG. | |
(c) | Represents organizational restructuring charges incurred in 2008 and 2009 for severance and one-time termination benefits, asset impairments, lease and contract termination fees and other transfer costs. | |
(d) | Represents impairment charges in 2008 for our equity investment in Blue Frog, other taxes and employment tax withholding related to a nonqualified deferred compensation plan. |
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• | because non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time, stock-based compensation expense is not a key measure of our operating performance; | |
• | because costs associated with acquisitions and related integrations, restructuring and conversions can vary from period to period and transaction to transaction, expenses associated with these activities are not considered a key measure of our operating performance and | |
• | because amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired, the amortization of intangible assets obtained in acquisitions are not considered a key measure in comparing our operating performance. |
• | Adjusted Net Income and Adjusted Net Income per share do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; | |
• | Adjusted Net Income and Adjusted Net Income per share do not reflect changes in, or cash requirements for, our working capital needs and | |
• | Other companies in our industry may calculate Adjusted Net Income and Adjusted Net Income per share differently than we do, limiting their usefulness as comparative measures. |
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For the Three Months | For The Year Ended | |||||||||||||||||||
Ended March 31, | December 31 | |||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||
Net income | $ | 25,554 | $ | 14,797 | $ | 47,520 | $ | 45,496 | $ | 61,069 | ||||||||||
After-Tax: | ||||||||||||||||||||
EBITDA Adjustments(1) | 7,015 | 1,395 | 46,089 | 26,045 | 12,263 | |||||||||||||||
Amortization of purchased intangible assets(1)(2) | 8,530 | 9,119 | 35,947 | 37,322 | 34,072 | |||||||||||||||
Adjusted Net Income | $ | 41,099 | $ | 25,311 | $ | 129,556 | $ | 108,863 | $ | 107,404 | ||||||||||
Adjusted Net Income per share(3) | $ | 0.42 | $ | 0.26 | $ | 1.32 | $ | 1.09 | $ | 1.08 | ||||||||||
Weighted average shares outstanding — diluted | 98,945 | 97,959 | 98,494 | 100,334 | 99,099 |
(1) | EBITDA Adjustments and amortization of purchased intangible assets, a component of depreciation and amortization, have been tax effected using a federal rate of 35.0% and the applicable effective state rate which ranged from 4.23% to 4.71%, net of the federal tax benefit. |
(2) | Represents amortization of intangible assets and software, which were $59.6 million, $61.7 million and $56.1 million before taxes for the years ended December 31, 2009, 2008 and 2007, respectively, and were $14.1 million and $15.1 million before taxes for the three months ended March 31, 2010 and 2009, respectively. The amortization of intangible assets and software was a result of our purchase accounting adjustments from our merger transaction in 2005 with the Majority Holders and our 2007 acquisitions of UVEST, the Affiliated Entities and IFMG. |
(3) | Represents Adjusted Net Income divided by weighted average number of shares outstanding on a fully diluted basis. Set forth is a reconciliation of earnings per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Net Income per share: |
For the Three | ||||||||||||||||||||
Months | ||||||||||||||||||||
Ended March 31, | For The Year Ended December 31, | |||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
Earnings per share (diluted) | $ | 0.25 | $ | 0.15 | $ | 0.47 | $ | 0.45 | $ | 0.62 | ||||||||||
Adjustment for allocation of undistributed earnings to stock units | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | — | $ | — | ||||||||||
After-Tax: | ||||||||||||||||||||
EBITDA Adjustments per share | $ | 0.07 | $ | 0.01 | $ | 0.47 | $ | 0.26 | $ | 0.12 | ||||||||||
Amortization of purchased intangible assets per share | $ | 0.09 | $ | 0.09 | $ | 0.37 | $ | 0.38 | $ | 0.34 | ||||||||||
Adjusted Net Income per share | $ | 0.42 | $ | 0.26 | $ | 1.32 | $ | 1.09 | $ | 1.08 | ||||||||||
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Three Months | ||||||||||||
Ended | ||||||||||||
March 31, | ||||||||||||
2010 | 2009 | % Change | ||||||||||
(In thousands) | ||||||||||||
Revenues | ||||||||||||
Commissions | $ | 388,972 | $ | 347,220 | 12.0 | % | ||||||
Advisory fees | 206,330 | 163,905 | 25.9 | % | ||||||||
Asset-based fees | 71,450 | 62,654 | 14.0 | % | ||||||||
Transaction and other fees | 67,363 | 61,338 | 9.8 | % | ||||||||
Other | 9,291 | 7,861 | 18.2 | % | ||||||||
Net revenues | 743,406 | 642,978 | 15.6 | % | ||||||||
Expenses | ||||||||||||
Production | 513,202 | 442,531 | 16.0 | % | ||||||||
Compensation and benefits | 73,575 | 66,978 | 9.8 | % | ||||||||
General and administrative | 53,237 | 49,871 | 6.7 | % | ||||||||
Depreciation and amortization | 25,590 | 27,395 | (6.6 | )% | ||||||||
Restructuring charges | 3,949 | (327 | ) | * | ||||||||
Other | 4,777 | 3,720 | 28.4 | % | ||||||||
Total operating expenses | 674,330 | 590,168 | 14.3 | % | ||||||||
Non-operating interest expense | 24,336 | 25,941 | (6.2 | )% | ||||||||
Loss on equity method investment | 24 | 84 | (71.4 | )% | ||||||||
Total expenses | 698,690 | 616,193 | 13.4 | % | ||||||||
Income before provision for income taxes | 44,716 | 26,785 | 66.9 | % | ||||||||
Provision for income taxes | 19,162 | 11,988 | 59.8 | % | ||||||||
Net income | $ | 25,554 | $ | 14,797 | 72.7 | % | ||||||
* | Not meaningful. |
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Three Months Ended March 31, | ||||||||||||||||
2010 | % Total | 2009 | % Total | |||||||||||||
Variable annuities | $ | 155,692 | 40.0 | % | $ | 129,443 | 37.3 | % | ||||||||
Mutual funds | 115,001 | 29.6 | % | 82,822 | 23.9 | % | ||||||||||
Fixed annuities | 33,888 | 8.7 | % | 60,153 | 17.3 | % | ||||||||||
Equities | 24,106 | 6.2 | % | 20,086 | 5.8 | % | ||||||||||
Fixed income | 21,012 | 5.4 | % | 15,637 | 4.5 | % | ||||||||||
Alternative investments | 20,018 | 5.1 | % | 17,321 | 5.0 | % | ||||||||||
Insurance | 18,678 | 4.8 | % | 21,101 | 6.0 | % | ||||||||||
Other | 577 | 0.2 | % | 657 | 0.2 | % | ||||||||||
Total commission revenue | $ | 388,972 | 100.0 | % | $ | 347,220 | 100.0 | % | ||||||||
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Year Ended December 31, | Percentage Change | |||||||||||||||||||
2009 | 2008 | 2007 | ‘09 vs. ‘08 | ‘08 vs. ‘07 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Commissions | $ | 1,477,655 | $ | 1,640,218 | $ | 1,470,285 | (9.9 | )% | 11.6 | % | ||||||||||
Advisory fees | 704,139 | 830,555 | 738,938 | (15.2 | )% | 12.4 | % | |||||||||||||
Asset-based fees | 272,893 | 352,293 | 260,935 | (22.5 | )% | 35.0 | % | |||||||||||||
Transaction and other fees | 255,574 | 240,486 | 184,604 | 6.3 | % | 30.3 | % | |||||||||||||
Other | 39,244 | 52,797 | 61,812 | (25.7 | )% | (14.6 | )% | |||||||||||||
Net revenues | 2,749,505 | 3,116,349 | 2,716,574 | (11.8 | )% | 14.7 | % | |||||||||||||
Expenses | ||||||||||||||||||||
Production | 1,904,579 | 2,163,048 | 1,935,472 | (11.9 | )% | 11.8 | % | |||||||||||||
Compensation and benefits | 270,436 | 343,171 | 257,200 | (21.2 | )% | 33.4 | % | |||||||||||||
General and administrative | 218,416 | 266,447 | 199,895 | (18.0 | )% | 33.3 | % | |||||||||||||
Depreciation and amortization | 108,296 | 100,462 | 78,748 | 7.8 | % | 27.6 | % | |||||||||||||
Restructuring charges | 58,695 | 14,966 | — | 292.2 | % | * | ||||||||||||||
Other | 15,294 | 17,558 | 13,931 | (12.9 | )% | 26.0 | % | |||||||||||||
Total operating expenses | 2,575,716 | 2,905,652 | 2,485,246 | (11.4 | )% | 16.9 | % | |||||||||||||
Interest expense | 100,922 | 115,558 | 122,817 | (12.7 | )% | (5.9 | )% | |||||||||||||
Loss on equity method investment | 300 | 2,374 | 678 | (87.4 | )% | 250.1 | % | |||||||||||||
Total expenses | 2,676,938 | 3,023,584 | 2,608,741 | (11.5 | )% | 15.9 | % | |||||||||||||
Income before provision for income taxes | 72,567 | 92,765 | 107,833 | (21.8 | )% | (14.0 | )% | |||||||||||||
Provision for income taxes | 25,047 | 47,269 | 46,764 | (47.0 | )% | 1.1 | % | |||||||||||||
Net income | $ | 47,520 | $ | 45,496 | $ | 61,069 | 4.4 | % | (25.5 | )% | ||||||||||
Years Ended December 31, | ||||||||||||||||||||||||
2009 | % Total | 2008 | % Total | 2007 | % Total | |||||||||||||||||||
Variable annuities | $ | 551,345 | 37.3 | % | $ | 627,021 | 38.2 | % | $ | 605,318 | 41.2 | % | ||||||||||||
Mutual funds | 389,458 | 26.4 | % | 474,948 | 28.9 | % | 498,880 | 33.9 | % | |||||||||||||||
Fixed annuities | 225,342 | 15.3 | % | 179,743 | 11.0 | % | 42,775 | 2.9 | % | |||||||||||||||
Equities | 86,606 | 5.8 | % | 85,586 | 5.2 | % | 82,215 | 5.6 | % | |||||||||||||||
Alternative investments | 77,079 | 5.2 | % | 112,706 | 6.9 | % | 113,183 | 7.7 | % | |||||||||||||||
Fixed income | 75,210 | 5.1 | % | 65,309 | 4.0 | % | 48,552 | 3.3 | % | |||||||||||||||
Insurance | 69,907 | 4.7 | % | 91,327 | 5.6 | % | 77,613 | 5.3 | % | |||||||||||||||
Other | 2,708 | 0.2 | % | 3,578 | 0.2 | % | 1,749 | 0.1 | % | |||||||||||||||
Total commission revenue | $ | 1,477,655 | 100.0 | % | $ | 1,640,218 | 100.0 | % | $ | 1,470,285 | 100.0 | % | ||||||||||||
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March 31, | December 31, | September 30, | June 30, | March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2008 | ||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||
(in thousands, except per share) | ||||||||||||||||||||||||||||||||||||
Net revenues | $ | 743,406 | $ | 734,884 | $ | 702,326 | $ | 669,317 | $ | 642,978 | $ | 703,839 | $ | 799,341 | $ | 814,720 | $ | 798,449 | ||||||||||||||||||
Gross margin(1) | $ | 230,204 | $ | 218,006 | $ | 221,144 | $ | 205,329 | $ | 200,447 | $ | 211,844 | $ | 251,788 | $ | 244,551 | $ | 245,118 | ||||||||||||||||||
Net income (loss) | $ | 25,554 | $ | 18,598 | $ | (1,456 | ) | $ | 15,581 | $ | 14,797 | $ | 2,360 | $ | 17,168 | $ | 14,303 | $ | 11,665 | |||||||||||||||||
Earnings (loss) per share — basic | $ | 0.29 | $ | 0.21 | $ | (0.02 | ) | $ | 0.18 | $ | 0.17 | $ | 0.03 | $ | 0.20 | $ | 0.17 | $ | 0.14 | |||||||||||||||||
Earnings (loss) per share — diluted | $ | 0.25 | $ | 0.19 | $ | (0.02 | ) | $ | 0.16 | $ | 0.15 | $ | 0.02 | $ | 0.17 | $ | 0.14 | $ | 0.12 | |||||||||||||||||
Other Finance and Operating Data | ||||||||||||||||||||||||||||||||||||
Adjusted EBITDA(2) | ||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 25,554 | $ | 18,598 | $ | (1,456 | ) | $ | 15,581 | $ | 14,797 | $ | 2,360 | $ | 17,168 | $ | 14,303 | $ | 11,665 | |||||||||||||||||
Interest expense | 24,336 | 24,323 | 24,626 | 26,032 | 25,941 | 29,332 | 27,205 | 28,538 | 30,483 | |||||||||||||||||||||||||||
Income tax expense | 19,162 | 1,521 | (5,029 | ) | 16,567 | 11,988 | 5,285 | 17,249 | 16,101 | 8,634 | ||||||||||||||||||||||||||
Depreciation and amortization | 25,590 | 26,700 | 26,924 | 27,277 | 27,395 | 28,283 | 24,786 | 23,771 | 23,622 | |||||||||||||||||||||||||||
EBITDA | $ | 94,642 | $ | 71,142 | $ | 45,065 | $ | 85,457 | $ | 80,121 | $ | 65,260 | $ | 86,408 | $ | 82,713 | $ | 74,404 | ||||||||||||||||||
EBITDA Adjustments: | ||||||||||||||||||||||||||||||||||||
Share-based compensation expense(3) | $ | 2,536 | $ | 2,525 | $ | 1,640 | $ | 1,047 | $ | 1,225 | $ | 887 | $ | 1,409 | $ | 1,049 | $ | 815 | ||||||||||||||||||
Acquisition and integration related expenses(4) | 140 | 648 | 728 | 839 | 822 | 1,500 | 2,324 | 9,960 | 4,542 | |||||||||||||||||||||||||||
Restructuring and conversion costs(5) | 7,979 | 20,497 | 42,135 | 2,285 | (259 | ) | 15,122 | — | — | — | ||||||||||||||||||||||||||
Other(6) | 160 | 37 | 38 | 37 | 39 | 1,017 | 227 | 2,471 | 63 | |||||||||||||||||||||||||||
Adjusted EBITDA(2) | $ | 105,457 | $ | 94,849 | $ | 89,606 | $ | 89,665 | $ | 81,948 | $ | 83,786 | $ | 90,368 | $ | 96,193 | $ | 79,824 | ||||||||||||||||||
Net income (loss) | $ | 25,554 | $ | 18,598 | $ | (1,456 | ) | $ | 15,581 | $ | 14,797 | $ | 2,360 | $ | 17,168 | $ | 14,303 | $ | 11,665 | |||||||||||||||||
After-Tax: | ||||||||||||||||||||||||||||||||||||
EBITDA Adjustments(7) | 7,015 | 14,745 | 27,177 | 2,772 | 1,395 | 11,442 | 2,712 | 8,364 | 3,527 | |||||||||||||||||||||||||||
Amortization of purchased intangible assets(7)(8) | 8,530 | 8,714 | 8,994 | 9,120 | 9,119 | 9,892 | 9,228 | 9,096 | 9,106 | |||||||||||||||||||||||||||
Adjusted Net Income(2) | $ | 41,099 | $ | 42,057 | $ | 34,715 | $ | 27,473 | $ | 25,311 | $ | 23,694 | $ | 29,108 | $ | 31,763 | $ | 24,298 | ||||||||||||||||||
Adjusted Net Income per share(9) | $ | 0.42 | $ | 0.43 | $ | 0.35 | $ | 0.28 | $ | 0.26 | $ | 0.24 | $ | 0.29 | $ | 0.32 | $ | 0.24 | ||||||||||||||||||
Weighted average shares outstanding — diluted | 98,945 | 98,787 | 98,703 | 98,501 | 97,959 | 100,170 | 100,444 | 100,498 | 99,812 |
(1) | Gross margin is calculated as net revenues less production expenses. Production expenses consist of the following expense categories from our consolidated statements of income: (i) commissions and advisory fees and (ii) brokerage, clearing and exchange. All other expense categories, including depreciation and amortization, are considered general and administrative in nature. Because our gross margin amounts do not include any depreciation and amortization expense, our gross margin amounts may not be comparable to those of others in our industry. |
(2) | This table includes a reconciliation of Adjusted EBITDA and Adjusted Net Income to net income. For a description of why we present Adjusted EBITDA and Adjusted Net Income please see “— How We Evaluate Growth.” | |
(3) | Represents share-based compensation for stock options awarded to our employees and non-executive directors. | |
(4) | Represents acquisition and integration costs primarily as a result of our 2007 acquisitions of UVEST, the Affiliated Entities and IFMG. |
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(5) | Represents organizational restructuring charges incurred in 2008 and 2009 for severance and one-time termination benefits, assets impairments, lease and contract termination fees and other transfer costs, pursuant to the terms of our senior secured credit agreement. | |
(6) | Represents impairment charges in 2008 for our equity investment in Blue Frog, as well as other taxes and employment tax withholding related to a nonqualified deferred compensation plan. |
(7) | EBITDA Adjustments and amortization of purchased intangible assets, a component of depreciation and amortization, have been tax effected using a federal rate of 35% and our applicable effective state rate which ranged from 4.23% to 4.71%. |
(8) | Represents amortization of intangible assets and software which were $14.1 million, $14.4 million, $14.9 million, $15.1 million, $15.1 million, $16.4 million, $15.3 million, $15.0 million and $15.0 million before taxes for the three months ended March 31, 2010, December 31, 2009, September 30, 2009, June 30, 2009, March 31, 2009, December 31, 2008, September 30, 2008, June 30, 2008 and March 31, 2008, respectively. The amortization of intangible assets and software was a result of our purchase accounting adjustments from our merger transaction in 2005 with the Majority Holders and our 2007 acquisitions of UVEST, the Affiliated Entities and IFMG. |
(9) | Represents Adjusted Net Income divided by weighted average number of shares outstanding on a fully diluted basis. Set forth is a reconciliation of earnings per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Net Income per share: |
March 31, | December 31, | September 30, | June 30, | March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2008 | ||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||
Earnings per share (diluted) | $ | 0.25 | $ | 0.19 | $ | (0.02 | ) | $ | 0.16 | $ | 0.15 | $ | 0.02 | $ | 0.17 | $ | 0.14 | $ | 0.12 | |||||||||||||||||
Adjustment for allocation of undistributed earnings to stock units | $ | 0.01 | $ | — | $ | — | $ | — | $ | 0.01 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
After-Tax: | ||||||||||||||||||||||||||||||||||||
EBITDA Adjustments per share | $ | 0.07 | $ | 0.15 | $ | 0.28 | $ | 0.03 | $ | 0.01 | $ | 0.12 | $ | 0.03 | $ | 0.08 | $ | 0.03 | ||||||||||||||||||
Amortization of purchased intangible assets per share | $ | 0.09 | $ | 0.09 | $ | 0.09 | $ | 0.09 | $ | 0.09 | $ | 0.10 | $ | 0.09 | $ | 0.10 | $ | 0.09 | ||||||||||||||||||
Adjusted Net Income per share | $ | 0.42 | $ | 0.43 | $ | 0.35 | $ | 0.28 | $ | 0.26 | $ | 0.24 | $ | 0.29 | $ | 0.32 | $ | 0.24 | ||||||||||||||||||
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Three Months | ||||||||||||||||||||
Ended March 31, | Year Ended December 31, | |||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
Net cash flows provided by (used in): | ||||||||||||||||||||
Operating activities | $ | (86,022 | ) | $ | 103,885 | $ | 271,157 | $ | 89,277 | $ | 10,072 | |||||||||
Investing activities | (3,775 | ) | (1,905 | ) | (13,724 | ) | (76,202 | ) | (168,275 | ) | ||||||||||
Financing activities | 35,964 | (1,825 | ) | (98,078 | ) | 18,161 | 101,043 | |||||||||||||
Net increase (decrease) in cash and cash equivalents | (53,833 | ) | 100,155 | 159,355 | 31,236 | (57,160 | ) | |||||||||||||
Cash and cash equivalents — beginning of period | 378,594 | 219,239 | 219,239 | 188,003 | 245,163 | |||||||||||||||
Cash and cash equivalents — end of period | $ | 324,761 | $ | 319,394 | $ | 378,594 | $ | 219,239 | $ | 188,003 | ||||||||||
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• | 50% (percentage will be reduced to 25% if our total leverage ratio is 5.00 or less and to 0% if our total leverage ratio is 4.00 or less) of our annual excess cash flow (as defined in our senior secured credit agreement) adjusted for, among other things, changes in our net working capital; | |
• | 100% of the net cash proceeds of all nonordinary course asset sales or other dispositions of property, if we do not reinvest or commit to reinvest those proceeds in assets to be used in our business or to make certain other permitted investments within 15 months as long as such reinvestment is completed within 180 days and | |
• | 100% of the net cash proceeds of any incurrence of debt, other than proceeds from debt permitted under the senior secured credit agreement. |
• | incur additional indebtedness; | |
• | create liens; | |
• | enter into sale and leaseback transactions; |
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• | engage in mergers or consolidations; | |
• | sell or transfer assets; | |
• | pay dividends and distributions or repurchase our capital stock; | |
• | make investments, loans or advances; | |
• | prepay certain subordinated indebtedness; | |
• | engage in certain transactions with affiliates; | |
• | amend material agreements governing certain subordinated indebtedness or | |
• | change our lines of business. |
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March 31, 2010 | December 31, 2009 | |||||||||||||||
Covenant | Actual | Covenant | Actual | |||||||||||||
Financial Ratio | Requirement | Ratio | Requirement | Ratio | ||||||||||||
Leverage Test (Maximum) | 4.40 | 3.08 | 4.60 | 3.42 | ||||||||||||
Interest Coverage (Minimum) | 2.25 | 3.97 | 2.15 | 3.81 |
Twelve Months Ended, | ||||||||
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Net income | $ | 58,277 | $ | 47,520 | ||||
Interest expense | 99,317 | 100,922 | ||||||
Income tax expense | 32,221 | 25,047 | ||||||
Depreciation and amortization | 106,491 | 108,296 | ||||||
EBITDA | 296,306 | 281,785 | ||||||
Share-based compensation expense(1) | 7,748 | 6,437 | ||||||
Acquisition and integration related expenses(2) | 2,355 | 3,037 | ||||||
Restructuring and conversion costs(3) | 72,896 | 64,658 | ||||||
Other(4) | 272 | 151 | ||||||
Adjusted EBITDA | 379,577 | 356,068 | ||||||
Pro-forma adjustments(5) | — | — | ||||||
Credit Agreement Adjusted EBITDA | $ | 379,577 | $ | 356,068 | ||||
(1) | Represents share-based compensation for stock options awarded to employees and non-executive directors. | |
(2) | Represents acquisition and integration costs primarily as a result of our 2007 acquisitions of UVEST, the Affiliated Entities and IFMG. | |
(3) | Represents organizational restructuring charges incurred in 2008 and 2009 for severance and one-time termination benefits, assets impairments, lease and contract termination fees and other transfer costs, pursuant to the terms of our senior secured credit agreement. | |
(4) | Represents excise and other taxes, pursuant to the terms of our senior secured credit agreement. | |
(5) | Credit Agreement Adjusted EBITDA excludes pro forma general and administrative expenditures from acquisitions, as defined under the terms our senior secured credit agreement. There were no such adjustments for the twelve month periods ended March 31, 2010 and December 31, 2009. |
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Payments Due by Period | ||||||||||||||||||||
< 1 | 1-3 | 4-5 | > 5 | |||||||||||||||||
Total | Year | Years | Years | Years | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Leases and other obligations(1) | $ | 115,005 | $ | 29,688 | $ | 49,929 | $ | 22,099 | $ | 13,289 | ||||||||||
Bank loans payable — unsecured | 40,000 | 40,000 | — | — | — | |||||||||||||||
Senior secured credit facilities and senior unsecured subordinated notes(2)(3) | 1,367,117 | 8,424 | 16,848 | 791,845 | 550,000 | |||||||||||||||
Fixed interest payments | 337,505 | 59,125 | 118,250 | 118,250 | 41,880 | |||||||||||||||
Variable interest payments(2)(3) | 92,617 | 20,174 | 64,268 | 8,175 | — | |||||||||||||||
Interest rate swap agreements(2)(3) | 17,881 | 12,189 | 5,692 | — | — | |||||||||||||||
Total contractual cash obligations | $ | 1,970,125 | $ | 169,600 | $ | 254,987 | $ | 940,369 | $ | 605,169 | ||||||||||
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(1) | Minimum payments have not been reduced by minimum sublease rental income of $0.5 million due in the future under noncancelable subleases. Note 10 of our unaudited condensed consolidated financial statements provides further detail on operating lease obligations and obligations under non-cancelable service contracts. | |
(2) | Notes 8 and 9 of our unaudited condensed consolidated financial statements provide further detail on these debt obligations. | |
(3) | Our senior secured credit facilities bear interest at floating rates. Of the $817.1 million outstanding at March 31, 2010, we have hedged the variable rate cash flows using interest rate swaps of $400.0 million of principal (see Notes 8 and 9 of our unaudited condensed consolidated financial statements for the three months ended March 31, 2010). Variable interest payments are shown for the unhedged ($417.1 million) portion of the senior secured credit facilities assuming the three-month LIBOR at March 31, 2010 remains unchanged (see Note 8 of our unaudited condensed consolidated financial statements for more information). |
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March 31, | December 31, | |||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
Expected life (in years) | 6.51 | 8.81 | 7.13 | 6.52 | 6.50 | |||||||||||||||
Expected stock price volatility | 50.32 | % | 48.67 | % | 51.35 | % | 33.78 | % | 31.08 | % | ||||||||||
Expected dividend yield | — | — | — | — | — | |||||||||||||||
Annualized forfeiture rate | 4.99 | % | 3.00 | % | 4.35 | % | 1.51 | % | 1.00 | % | ||||||||||
Fair value of options | $ | 12.34 | $ | 10.40 | $ | 12.30 | $ | 9.96 | $ | 9.86 | ||||||||||
Risk-free interest rate | 2.79 | % | 2.45 | % | 2.93 | % | 2.73 | % | 4.93 | % |
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Per Share | ||||||||||||
Weighted | ||||||||||||
Exercise or | Average | |||||||||||
Number of | Purchase | Estimated Fair | ||||||||||
Date of | Shares | Price per | Value of | |||||||||
Issuance | Granted | Share | Options | |||||||||
Q1 2006 | — | n/a | n/a | |||||||||
Q2 2006 | 28,000 | $ | 10.31 | $ | 4.60 | |||||||
Q3 2006 | — | n/a | n/a | |||||||||
Q4 2006 | 80,000 | $ | 15.84 | $ | 9.20 | |||||||
Q1 2007 | 124,000 | $ | 18.89 | $ | 8.36 | |||||||
Q2 2007 | 295,150 | $ | 21.60 | $ | 9.25 | |||||||
Q3 2007 | 100,000 | $ | 25.50 | $ | 10.69 | |||||||
Q4 2007 | 241,500 | $ | 27.40 | $ | 11.05 | |||||||
Q1 2008 | 1,438,500 | $ | 27.80 | $ | 9.78 | |||||||
Q2 2008 | 304,706 | $ | 27.17 | $ | 12.82 | |||||||
Q3 2008 | 184,000 | $ | 26.33 | $ | 11.25 | |||||||
Q4 2008 | 9,000 | $ | 24.96 | $ | 11.98 | |||||||
Q1 2009 | 508,606 | $ | 18.04 | $ | 13.55 | |||||||
Q2 2009 | 319,000 | $ | 19.74 | $ | 9.77 | |||||||
Q3 2009 | 1,993,000 | $ | 22.08 | $ | 11.79 | |||||||
Q4 2009 | 388,755 | $ | 23.02 | $ | 15.41 | |||||||
Q1 2010 | 75,184 | $ | 23.41 | $ | 13.26 |
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Fair Value | ||||
Valuation Date | per Share | |||
December 28, 2005 | $ | 10.31 | ||
March 31, 2006 | $ | 10.31 | ||
June 30, 2006 | $ | 10.31 | ||
September 30, 2006 | $ | 15.84 | ||
December 31, 2006 | $ | 18.89 | ||
March 31, 2007 | $ | 21.60 | ||
June 30, 2007 | $ | 25.50 | ||
September 30, 2007 | $ | 27.40 | ||
December 31, 2007 | $ | 27.80 | ||
March 31, 2008 | $ | 27.17 | ||
June 30, 2008 | $ | 26.33 | ||
September 30, 2008 | $ | 24.96 | ||
December 31, 2008 | $ | 18.04 | ||
March 31, 2009 | $ | 19.74 | ||
June 30, 2009 | $ | 22.08 | ||
September 30, 2009 | $ | 23.02 | ||
December 31, 2009 | $ | 23.41 | ||
March 31, 2010 | $ | 27.81 |
• | current and projected market multiples of revenues and earnings, including for peer companies; | |
• | multiples implied from recently-completed transactions involving financial services companies; | |
• | our projected growth rates in revenues and earnings, including EBITDA, as compared to peer companies; | |
• | contemporaneous independent valuations performed on a quarterly basis and | |
• | our weighted average cost of capital. |
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# of | Assets | Payout | |||||||||||||||||||||
Channel | # of Firms | Advisors | ($ billions) | Range | Example Firms | ||||||||||||||||||
Independent | 1,203 | (1) | 113,746 | (1) | $ | 1,801 | (1) | 70-100% | LPL, Raymond James, Cetera | ||||||||||||||
RIA(2) | 14,502 | 18,582 | $ | 911 | 100% | n/a | |||||||||||||||||
Wirehouse | 4 | 54,865 | $ | 3,947 | 30-50% | Morgan Stanley Smith Barney, Merrill Lynch, UBS, Wells Fargo | |||||||||||||||||
Insurance | 79 | 70,405 | $ | 283 | 40-60% | NYLIFE Securities, Mass Mutual Investor Srvcs, Signator (John Hancock) | |||||||||||||||||
Regional | 199 | 35,960 | $ | 1,149 | 40-60% | Edward Jones, RBC Dain Rauscher, Robert W. Baird, Morgan Keegan | |||||||||||||||||
Bank | 282 | 16,406 | $ | 182 | 30-50% | Citizens Bank, Fifth Third Bank, Third-party marketers (PrimeVest) | |||||||||||||||||
(1) | The number of advisors in the Independent channel includes 14,769 dually-registered advisors managing $619 billion in assets. Dually-registered advisors are not included in firm count. | |
(2) | RIA firms are registered with the SEC but custody their assets with companies such as LPL, Charles Schwab and Fidelity. |
• | Demand for Independent Investment Advice. We believe investors, particularly those in the mass affluent market, and increasingly in the high net worth market, are seeking unbiased, conflict-free advice; a need that has become more acute given recent market volatility, the ever increasing complexity of the securities markets and the baby boomer generation’s focus on retirement savings. Independent financial advisors are uniquely equipped to provide this investment advice because, unlike their captive competitors, they are not committed to any particular proprietary products or production targets and can therefore concentrate solely on what is in the best interest of their clients. | |
• | Ongoing Challenges Among the Captive Platforms. We believe the number of financial advisors electing to leave the large captive financial institutions to become independent financial advisors has accelerated over the last several years because of the ongoing consolidation among the captive platforms, particularly among the wirehouses, and because of the reputational harm suffered by several of the largest financial institutions during the recent financial crisis. Furthermore, we believe many of our captive competitors are unwilling to focus on the mass affluent market because, unlike LPL, they are unable to service this market profitably. |
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• | Greater Autonomy and Economics Desired by Financial Advisors. We believe many financial advisors have entrepreneurial aspirations and are attracted to the flexibility and control of the independent financial advisor model. Independent financial advisors also enjoy a greater share of the brokerage commissions and advisory fees than financial advisors at the employee model firms — generally80-90% compared to30-50%. |
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• | comprehensive account lookup for accounts and direct business data; | |
• | straight-through processing of trade orders and account maintenance requests and | |
• | secure and reliable data maintenance |
• | direct access to financial product information, exclusive research commentaries, detailed regulatory requirements, valuable marketing tools, operational details, comprehensive training and technical support; | |
• | client management and business development tools; | |
• | trading and research tools and | |
• | business management resources. |
• | order routing, trading support, execution and clearing, and position keeping; | |
• | regulatory and tax compliance and reporting and | |
• | investment accounting and recordkeeping. |
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• | training advisors on new products, new FINRA guidelines, compliance tools, security policies and procedures, anti-money laundering and best practices; | |
• | review and approval of advertising materials; | |
• | technology-enabled surveillance of trading activities and sales practices; | |
• | oversight and monitoring of registered investment advisory activities; | |
• | securities registration, advisory and insurance licensing of advisors and | |
• | audits of branch offices. |
• | personalized business consulting support that helps advisors enhance the value and operational efficiency of their businesses; | |
• | advisory and brokerage consulting to support advisors in growing their businesses with our broad range of products and fee-based offerings, as well as wealth management services to assist advisors serving high net worth clients with comprehensive estate, tax, philanthropic, and financial planning processes; | |
• | marketing campaigns and consultation to enable advisors to build awareness of their services and capitalize on opportunities in their local markets; | |
• | transition services to help advisors establish independent practices and migrate client accounts to us and | |
• | training programs on topics including technology, use of advisory platforms and business development. |
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• | keep abreast of changes in markets and the global economy, through our daily market update call and email, published materials, blogs and media presence; | |
• | proactively respond to emerging trends; | |
• | leverage the expertise and experience of our research team in building individual investment portfolios that are fully integrated in our technology platform and | |
• | seek specific advice through our ASK (accurate, swift and knowledgeable) Research Service Desk, a team of research professionals dedicated exclusively to advisor investment-research inquiries via phone and email. |
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• | Our revenues stem from diverse sources, including advisor-generated commission and advisory fees as well as fees from product manufacturers, recordkeeping, cash sweep balances and other ancillary services. They are not concentrated by advisor, product or geography. For the year ended December 31, 2009, no single relationship with our independent advisor practices, banks, credit unions, or insurance companies accounted for more than 3% of our net revenues, and no single advisor accounted for more than 1% of our net revenues. | |
• | Furthermore, a majority of our revenue base is recurring in nature. | |
• | Our expenses are primarily variable, as they consist principally of payouts on advisor-generated revenues. | |
• | Our profit margins are stable and should expand over time because we actively manage our general and administrative expenses. | |
• | We are able to operate with low capital expenditures and limited capital requirements, and as a result our cash flow is not encumbered. | |
• | We generate substantial free cash flow which we reinvest into our business. |
• | A significant proportion of our revenues are not correlated with the equity financial markets, such as software licensing, account and client fees. | |
• | The variable component of our cost base is directly linked to revenues generated by our advisors. Furthermore, the payout percentages are tied to advisor productivity levels. | |
• | Our general and administrative expenses can be actively managed. |
• | Significant Scale and Market Leadership Position. We are an established leader in the independent advisor market, which is our core business focus. Our scale enables us to benefit from the following dynamics: |
• | We actively reinvest in our comprehensive technology platform and practice support, which further improves the productivity of our advisors. |
• | As one of the largest distributors of financial products in the United States, we are able to obtain attractive economics from product manufacturers. | |
• | Among the five largest U.S. broker-dealers by number of advisors, we offer the highest average payout ratios to our advisors. |
• | Unique Value Proposition for Independent Advisors. We deliver a comprehensive and integrated suite of products and services to support the practices of our independent advisors. We believe we are the only institution that offers a conflict-free, open architecture and scalable |
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platform. The benefits of our purchasing power lead to high payouts and greater economics to the advisors. Our platform also creates an entrepreneurial opportunity that empowers independent advisors to build equity in their businesses. This generates a significant opportunity to attract and retain highly qualified advisors who are seeking independence. |
• | Unique Value Proposition for Institutions. We provide solutions to financial institutions, such as regional banks, credit unions and insurers, who seek to provide a broad array of services for their customers. We believe many institutions find the technology, infrastructure and regulatory requirements associated with delivering financial advice to be cost-prohibitive. We provide comprehensive solutions that enable financial advisors at these institutions to offer financial advice. | |
• | Ability to Profitably Serve the Mass-Affluent Market. Since inception, our core focus has been on advisors who serve the mass-affluent market. We have designed and integrated all aspects of our platforms and services to profitably meet the needs of these advisors. We believe there is an attractive opportunity in the mass-affluent market, in part because wirehouses have not historically focused on the mass affluent market. We believe our scale position will sustain and strengthen our competitive advantage in the mass-affluent market. | |
• | Ability to Serve a Broad Range of Advisor Models. As a result of our integrated technology platform and the resulting flexibility, we are able to attract and retain advisors from multiple channels, including wirehouses, regional broker-dealers and other independent broker-dealers. This platform serves a variety of independent advisor models, including independent financial advisors, RIAs and hybrid-RIAs. Additionally, we are able to give our advisors flexibility in choosing how they conduct their business. This enables us to better retain our existing advisor base by facilitating their ability to transition among independent advisor models as preferences evolve within the market. In addition, although we have grown through our focus on the mass affluent market, the breadth of our platform has facilitated growing penetration of the high net worth market. As of March 31, 2010 our advisors supported accounts with more than $1 million in assets that in the aggregate represented $42.2 billion in advisory and brokerage assets, or 15% of our total. Although our advisors average production is typically below that of some of the wirehouse channel firms, our array of integrated technology and services supports advisors with significant production. In the 2010 rankings of the Top 1,000 Financial Advisors in Barron’s survey, thirty-one of our advisors appeared in the top 1,000 and three in the top 100. In addition, we ranked fifth in the number of advisors included in the ranking. | |
• | Experienced and Committed Senior Management Team. We have an experienced and committed senior management team that provides stable and long-standing leadership for our business. On average, our senior management has 26 years of industry experience. The team has a track record of success as demonstrated in the company’s financial performance through the recent market downturn. As the current management team has played a significant role in building out the business, they have a fundamental understanding of the operations from the ground up. The management team is aligned with stockholders and holds significant equity ownership in the company. |
• | Growth in Investable Assets. According to Cerulli Associates, total assets under management in the United States is anticipated to grow at 7% per year over the next 4 years |
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and retirement assets are expected to grow 8% from 2008 to 2014 (in part due to the retirement of the baby boomer generation and the resulting assets which are projected to flow out of retirement plans and into individual retirement accounts). In addition, individual retirement account rollovers are projected to double, growing from $3.6 trillion as of 2008 to $6.8 trillion by 2014. |
• | Increasing Demand for Independent Financial Advice. Retail investors, particularly in the mass affluent market, are increasingly seeking financial advice from independent sources. We are highly focused on helping independent advisors meet the needs of the mass-affluent market, which constitutes a significant portion of investable assets, according to Cerulli Associates, and we believe presents significant opportunity for growth. | |
• | Advisor Migration to Independence. Independent channels are gaining market share from captive channels. We believe that we are not just a beneficiary of this secular shift, but an active catalyst in the movement to independence. | |
• | Macroeconomic Trends. As the macroeconomic environment continues to stabilize, we anticipate an appreciation in asset prices and a rise in interest rates from current, historically low levels. We expect that our business will benefit from growth in advisory and brokerage assets as well as increasing asset-based and cash sweep fees. |
• | Attracting New Advisors to Our Platform. We intend to grow the number of advisors — either independent or with financial institutions — who are served by our platform. Based on the number of financial advisors, we have only 3.8% market share of the approximately 310,000 financial advisors in the United States, according to Cerulli Associates, and we have the ability to attract seasoned advisors of any practice size and from any channel, including wirehouses, regional broker-dealers and other independent broker-dealers. Additionally, we are able to support a wide range of business models, including independent financial advisors, RIAs and hybrid-RIAs. This flexibility drives sustainable growth in new advisors who seek to transfer to our platform. We also expect to significantly expand our developing share of the RIA market. | |
• | Ramp-up of Newly-Attracted Advisors. We predominately attract experienced advisors who have established practices. In our experience, it takes an average of three years for newly hired advisors to re-establish their practices and associated revenues. This seasoning process creates accelerated growth of revenue from new advisors. | |
• | Increasing Productivity of Existing Advisor Base. The productivity of advisors increases over time as we enable them to add new clients, gain shares of their clients’ investable assets, and expand their existing practices with additional advisors. We facilitate these productivity improvements by helping our advisors better manage their practices in an increasingly complex environment. | |
• | Our Business Model has Inherent Economies of Scale. The largely fixed costs necessary to support our advisors delivers higher marginal profitability as client assets and revenue grow. Historically, this dynamic has been demonstrated through the growth in our operating margins. | |
• | Opportunistic Pursuit of Acquisitions. We have a proven history of expanding our business through opportunistic acquisitions. In the past six years, we have successfully completed four transactions. Our scalable business model and operating platform make us an attractive acquirer in a fragmented market. |
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Name | Age | Position | ||||
Mark S. Casady | 49 | Chief Executive Officer and Chairman of the Board | ||||
Esther M. Stearns | 50 | President and Chief Operating Officer | ||||
Robert J. Moore | 48 | Chief Financial Officer | ||||
William E. Dwyer | 52 | Managing Director, President — National Sales and Marketing | ||||
Denise M. Abood | 48 | Managing Director, Human Capital | ||||
Dan H. Arnold | 45 | Managing Director and Divisional President, Institution Services | ||||
Stephanie L. Brown | 57 | Managing Director, General Counsel | ||||
Jonathan G. Eaton | 51 | Managing Director, Custom Clearing Services | ||||
Christopher F. Feeney | 54 | Managing Director, Chief Information Officer | ||||
Mark R. Helliker | 47 | Managing Director, Broker-Dealer Support Services | ||||
John J. McDermott | 53 | Managing Director, Chief Risk Officer | ||||
James S. Putnam | 55 | Director, Vice-Chairman | ||||
Richard W. Boyce | 56 | Director(3) | ||||
John J. Brennan | 55 | Director(1) | ||||
Erik D. Ragatz | 37 | Director | ||||
James S Riepe | 67 | Director(1)(2)(3) | ||||
Richard P. Schifter | 57 | Director(2) | ||||
Jeffrey E. Stiefler | 63 | Director(1) | ||||
Allen R. Thorpe | 39 | Director(2)(3) |
(1) | Member of Audit Committee. | |
(2) | Member of Nominating and Governance Committee. | |
(3) | Member of Compensation Committee. |
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• | unique perspective and insights into our operations as our current chairman and chief executive officer, including knowledge of our business relationships, competitive and financial positioning, senior leadership, and strategic opportunities and challenges; | |
• | operating, business, and management experience as chief executive officer and | |
• | expertise in the financial industry, underscored by his current role as a member of the board of governors of FINRA and a member of the board of the Insured Retirement Institute. |
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• | unique current and historical perspective and insights into our operations as our current Vice Chairman and our former managing director of national sales; | |
• | operating, business and management experience as a current chief executive officer at GPA and | |
• | expertise in the financial industry and deep familiarity with our advisors. |
• | high level of financial, operating and management experience, gained through his roles as chief executive officer of J. Crew Group, Inc. and as chairman of the board of directors of Burger King Corporation; | |
• | high level of financial literacy gained through his investment experience as a partner at TPG Capital and | |
• | knowledge and experience gained through service on the board of other public companies. |
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• | high level of financial literacy and operating and management experience, gained through his roles as chief executive officer and as chairman of the board of directors of The Vanguard Group, Inc. and through his service with the Financial Accounting Foundation and | |
• | expertise in the financial industry, underscored by his current role as a member of the board of governors of FINRA. |
• | high level of financial literacy gained through his investment experience as a managing director at Hellman & Friedman LLC and | |
• | experience on other company boards and board committees, including his role as chairman of the board at Goodman Global, Inc. |
• | high level of financial literacy and operating and management experience, gained through his executive management positions and role as chairman of the board of directors of T. Rowe Price Group, Inc.; | |
• | expertise in the financial industry, underscored by his 35 years of experience in investment management and his prior roles as a member of the board of governors of FINRA and as chairman of the board of governors of the Investment Company Institute and | |
• | knowledge and experience gained through service on the board of other public companies. |
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• | high level of financial literacy gained through his investment experience as a partner at TPG Capital; | |
• | experience on other company boards and board committees and | |
• | nearly 15 years of experience as a corporate attorney with an internationally-recognized law firm. |
• | high level of financial literacy and operating and management experience, gained through his roles as chief executive officer, advisor and director of various corporations and | |
• | expertise in the financial industry, underscored by his experience as president and director of American Express Company and president and chief executive officer of IDS Financial Services Corporation. |
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• | high level of financial literacy gained through his investment experience as a managing director at Hellman & Friedman LLC and | |
• | knowledge and experience gained through service on the boards of other public companies including those in the financial services sector. |
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• | selecting the independent auditors; | |
• | pre-approving all audit engagement fees and terms, as well as audit and permitted non-audit services to be provided by the independent auditors; | |
• | at least annually, obtaining and reviewing a report of the independent auditors describing the audit firm’s internal quality-control procedures and any material issues raised by its most recent review of internal quality controls; | |
• | annually evaluating the qualifications, performance and independence of the independent auditors; | |
• | discussing the scope of the audit and any problems or difficulties; | |
• | setting policies regarding the hiring of current and former employees of the independent auditors; | |
• | reviewing and discussing the annual audited and quarterly unaudited financial statements and “Management’s Discussion and Analysis of Financial Conditions in Results of Operations” with management and the independent auditor; | |
• | discussing types of information to be disclosed in earnings press releases and provided to analysts and rating agencies; |
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• | discussing policies governing the process by which risk assessment and risk management is to be undertaken; | |
• | reviewing disclosures made by the chief executive officer and chief financial officer regarding any significant deficiencies or material weaknesses in our internal control over financial reporting; | |
• | reviewing internal audit activities and qualifications of the internal audit function; | |
• | establishing procedures for receipt, retention and treatment of complaints received by us regarding accounting, auditing or internal controls and the submission of anonymous employee concerns regarding accounting and auditing; | |
• | discussing with our general counsel legal matters that could reasonably be expected to have a material impact on business or financial statements; |
• | approving all related person transactions; |
• | periodically reviewing and reassessing the Audit Committee charter; | |
• | providing information to our board of directors that may be relevant to the annual evaluation of performance and effectiveness of the board of directors and its committees and | |
• | preparing the report required by the SEC to be included in our annual report onForm 10-K or our proxy or information statement. |
• | recruiting and retention of qualified persons to serve on our board of directors; | |
• | proposing such individuals to the board of directors for nomination for election as directors; | |
• | evaluating the performance, size and composition of our board of directors and | |
• | compliance activities. |
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• | reviewing and approving corporate and individual goals and objectives relevant to executive officer compensation and evaluating the performance of executive officers in light of the goals and objectives; | |
• | reviewing and approving executive officer compensation; | |
• | reviewing and approving the chief executive officer’s compensation based upon the Compensation Committee’s evaluation of the chief executive officer’s performance; | |
• | making recommendations to the board of directors regarding the adoption of new incentive compensation and equity-based plans, and administering our existing incentive compensation and equity-based plans; | |
• | making recommendations to the board of directors regarding compensation of the board members and its committee members; | |
• | reviewing and discussing with management the compensation discussion and analysis to be included in our filings with the SEC and preparing an annual compensation committee report for inclusion in our annual proxy statement; | |
• | reviewing and approving generally any significant non-executive compensation and benefits plans; | |
• | reviewing our significant policies, practices and procedures concerning human resource-related matters and | |
• | overseeing any other such matters as the board of directors shall deem appropriate from time to time. |
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Ameriprise Financial, Inc. | Jeffries Group, Inc. | |
Automatic Data Processing, Inc. | Knight Capital Group, Inc. | |
Broadridge Financial Solutions, Inc. | MF Global Holdings Ltd | |
Charles Schwab & Co., Inc. | National Financial Partners Corp. | |
DST Systems, Inc. | Penson Worldwide, Inc. | |
E*Trade Financial Corp. | Raymond James Financial, Inc. | |
Fidelity National Information Systems | SEI Investments Company | |
Fiserv, Inc. | Stifel Financial Corp. | |
GFI Group Inc. | TD Ameritrade Inc. | |
Investment Technology Group, Inc. | Waddell & Reed Inc. |
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Mark S. Casady, Chairman and Chief Executive Officer | $ | 1,226,500 | ||
Esther M. Stearns, President and Chief Operating Officer | $ | 591,250 | ||
Robert J. Moore, Chief Financial Officer | $ | 350,000 | ||
William E. Dwyer, President, National Sales and Marketing | $ | 288,750 | ||
Stephanie L. Brown, Managing Director, General Counsel | $ | 187,000 |
Mark S. Casady, Chairman and Chief Executive Officer | $ | 1,500,000 | ||
Esther M. Stearns, President and Chief Operating Officer | $ | 650,000 | ||
Robert J. Moore, Chief Financial Officer | $ | 350,000 | ||
William E. Dwyer, President, National Sales and Marketing | $ | 450,000 | ||
Stephanie L. Brown, Managing Director, General Counsel | $ | 300,000 |
Strategic Objectives | Performance | |
• Achieve $353.4 million in Adjusted EBITDA | • Adjusted EBITDA of $356.1 million achieved | |
• Articulate an overarching service philosophy to improve support to advisors | • Succeeded in improving and articulating service philosophy to our advisors | |
• Increase the likelihood that our advisors will recommend us to other advisors through a measurable process | • Successfully utilized a methodology to measure the likelihood that our advisors will recommend us to other advisors | |
• Deliver programs to increase accuracy, quality and accountability in broker-dealer support services | • Successfully delivered programs increasing accuracy, quality and accountability in broker-dealer support services | |
• Maintain SOX compliance and enhance existing risk management programs | • Improved SOX compliance processes and enhanced risk management programs |
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• | twenty-four months in the event of termination without cause or for good reason during the initial term; |
• | twenty-four months in the event of termination for cause, retirement or disability; |
• | eighteen months in the event of nonrenewal of the employment agreement; |
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• | eighteen months in the event of termination without cause or for good reason during renewal periods and |
• | twelve months in the event of voluntary termination without good reason, unless the Company elects to pay severance, in which case the applicable period is twenty-four months. |
• | twelve months in the event of termination without cause (including non-renewal), for good reason, for cause, as a result of retirement, or as a result of disability and |
• | twelve months in the event of voluntary termination without good reason, unless the Company elects to pay severance, in which case the applicable period is twenty-four months. |
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Change in | ||||||||||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||||||||||||
Non-Equity | Deferred | |||||||||||||||||||||||||||||||||||
Stock | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | Total | |||||||||||||||||||||||||||||
Name and Principal Position | Year | ($)(1) | ($)(2) | ($) | ($)(3) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||
Mark S. Casady | 2009 | 800,000 | 1,500,000 | — | 1,414,440 | — | — | 10,738 | (4) | 3,725,178 | ||||||||||||||||||||||||||
Chairman; CEO | 2008 | 800,000 | 1,032,742 | — | — | — | — | 10,707 | (5) | 1,843,449 | ||||||||||||||||||||||||||
2007 | 761,923 | 2,230,000 | — | — | — | — | 11,438 | (6) | 3,003,361 | |||||||||||||||||||||||||||
Robert J. Moore | 2009 | 600,000 | 350,000 | — | 2,215,413 | — | — | 157,668 | (7) | 3,323,081 | ||||||||||||||||||||||||||
CFO | 2008 | 198,077 | 378,910 | — | 1,352,352 | — | — | 27,236 | (8) | 1,956,575 | ||||||||||||||||||||||||||
2007 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Esther M. Stearns | 2009 | 625,000 | 650,000 | — | 942,960 | — | — | 9,922 | (9) | 2,227,882 | ||||||||||||||||||||||||||
President, COO | 2008 | 531,250 | 497,846 | — | 783,200 | — | — | 5,912 | (10) | 1,818,208 | ||||||||||||||||||||||||||
2007 | 425,000 | 1,075,000 | — | — | — | — | 3,137 | (11) | 1,503,137 | |||||||||||||||||||||||||||
William E. Dwyer | 2009 | 450,000 | 450,000 | — | 589,350 | — | — | 10,673 | (12) | 1,500,023 | ||||||||||||||||||||||||||
Managing Director, President — National | 2008 | 450,000 | 243,134 | — | 342,650 | — | — | 10,913 | (13) | 1,046,697 | ||||||||||||||||||||||||||
Sales and Marketing | 2007 | 408,500 | 600,000 | — | — | — | — | 110,817 | (14) | 1,119,317 | ||||||||||||||||||||||||||
Stephanie L. Brown(15) | 2009 | 355,000 | 300,000 | — | 471,480 | — | — | — | 1,126,480 | |||||||||||||||||||||||||||
Managing Director, | 2008 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
General Counsel | 2007 | — | — | — | — | — | — | — | — |
(1) | Includes the dollar value of base salary earned by each named executive officer. | |
(2) | Includes the dollar value of bonus earned by each named executive officer. | |
(3) | The amounts in this column reflect the aggregate grant date fair value of option awards granted to our named executive officers in fiscal 2009. We use the Black-Scholes option pricing model to estimate our compensation cost for stock option awards. For a description of the assumptions used in determining grant date fair value, see Note 15 to our consolidated financial statements included elsewhere in this prospectus. | |
(4) | Includes automobile lease payments and related expenses and securities commissions. | |
(5) | Includes automobile lease payments and related expenses and securities commissions. | |
(6) | Includes automobile lease payments and related expenses and securities commissions. | |
(7) | Includes $156,548, the aggregate incremental cost of taxable relocation expenses and $1,021, the aggregate incremental cost relating to automobile lease payments and related expenses. | |
(8) | Includes $26,891, the aggregate incremental cost of taxable relocation expenses and $345, the aggregate incremental cost relating to automobile lease payments and related expenses. | |
(9) | Includes automobile lease payments and related expenses, securities commissions and for medical taxable fringe benefits. | |
(10) | Includes automobile lease payments and related expenses, medical taxable fringe benefits and securities commissions. |
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(11) | Includes automobile lease payments and related expenses and securities commissions. | |
(12) | Includes automobile lease payments and related expenses and securities commissions. | |
(13) | Includes automobile lease payments and related expenses and securities commissions. | |
(14) | Includes $10,242, the aggregate incremental cost relating to automobile lease payments and related expenses, $100,000, the aggregate incremental cost for relocation payment and $575, the aggregate incremental cost in securities commissions. | |
(15) | Ms. Brown was not a named executive officer in 2008 or 2007. Her compensation is therefore only disclosed for the year ended December 31, 2009. |
Option | ||||||||||||||||
Awards: | Grant Date Fair | |||||||||||||||
Securities | Exercise or Base | Value of | ||||||||||||||
Underlying | Price of Option or | Stock and | ||||||||||||||
Grant | Options | Stock Awards ($/Sh) | Option Awards | |||||||||||||
Name | Date | (#)(1) | (2) | (3) | ||||||||||||
Mark S. Casady | 9/14/2009 | 120,000 | $ | 22.08 | $ | 1,414,440 | ||||||||||
Robert J. Moore | 6/12/2009 | 130,000 | $ | 19.74 | $ | 1,272,453 | ||||||||||
9/14/2009 | 80,000 | $ | 22.08 | $ | 942,960 | |||||||||||
Esther M. Stearns | 9/14/2009 | 80,000 | $ | 22.08 | $ | 942,960 | ||||||||||
William E. Dwyer | 9/14/2009 | 50,000 | $ | 22.08 | $ | 589,350 | ||||||||||
Stephanie L. Brown | 9/14/2009 | 40,000 | $ | 22.08 | $ | 471,480 |
(1) | This represents the number of stock options granted to our executives under the 2008 Stock Option Plan. With the exception of one of Mr. Moore’s grants, these awards are scheduled to vest over a five-year period in five equal tranches with the first tranche vesting on the first anniversary of the grant date. Mr. Moore’s option award granted June 12, 2009 is scheduled to vest completely on the third anniversary of the grant date. |
(2) | For a discussion of our methodology for determining the fair value of our common stock, see “Management’s Discussion and Analysis of Financial Condition — Results of Operations — Critical Accounting Policies — Share Based Compensation.” |
(3) | These amounts are the grant date fair value of the stock options as represented by the total compensation expense that will be recognized for these awards. We use the Black-Scholes option pricing model to estimate our compensation cost for stock option awards. The assumptions used in the Black-Scholes model for grants made on June 12, 2009 were: (i) an expected life of 6.5 years for each option; (ii) dividend yield of 0.0%; (iii) expected stock price volatility of 45.57%; and (iv) a risk-free rate of return of 3.14%. The assumptions used in the Black-Scholes model for grants made on September 14, 2009 were: (i) an expected life of 6.5 years for each option; (ii) dividend yield of 0.0%; (iii) expected stock price volatility of 51.62%; and (iv) a risk-free rate of return of 2.69%. |
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Option Awards | ||||||||||||||||||||
Equity | ||||||||||||||||||||
Incentive Plan | ||||||||||||||||||||
Awards: | ||||||||||||||||||||
Number of | ||||||||||||||||||||
Number of | Number of | Securities | ||||||||||||||||||
Securities | Securities | Underlying | ||||||||||||||||||
Underlying | Underlying | Unexercised | Option | |||||||||||||||||
Unexercised | Unexercised | Unearned | Exercise | Option | ||||||||||||||||
Options (#) | Options (#) | Options | Price | Expiration | ||||||||||||||||
Name | Exercisable | Unexercisable | (#) | ($) | Date | |||||||||||||||
Mark S. Casady | 2,003,650 | — | — | 1.88 | 5/2/2013 | |||||||||||||||
500,910 | — | — | 1.35 | 11/30/2013 | ||||||||||||||||
1,402,560 | — | — | 1.49 | 5/31/2014 | ||||||||||||||||
— | 120,000 | — | 22.08 | 9/14/2019 | ||||||||||||||||
Robert J. Moore | 24,000 | 96,000 | — | 26.33 | 9/9/2018 | |||||||||||||||
— | 130,000 | (1) | — | 19.74 | 6/12/2019 | |||||||||||||||
— | 80,000 | — | 22.08 | 9/14/2019 | ||||||||||||||||
Esther M. Stearns | 2,003,760 | — | — | 1.88 | 5/2/2013 | |||||||||||||||
16,000 | 64,000 | — | 27.80 | 2/5/2018 | ||||||||||||||||
— | 80,000 | — | 22.08 | 9/14/2019 | ||||||||||||||||
William E. Dwyer | 13,360 | — | — | 2.07 | 1/15/2012 | |||||||||||||||
554,380 | — | — | 1.88 | 5/2/2013 | ||||||||||||||||
267,160 | — | — | 1.35 | 11/30/2013 | ||||||||||||||||
667,920 | — | — | 1.49 | 5/31/2014 | ||||||||||||||||
7,000 | 28,000 | — | 27.80 | 2/5/2018 | ||||||||||||||||
50,000 | — | 22.08 | 9/14/2019 | |||||||||||||||||
Stephanie L. Brown | 3,000 | 12,000 | — | 27.80 | 2/5/2018 | |||||||||||||||
40,000 | — | 22.08 | 9/14/2019 |
(1) | This award is scheduled to vest completely on the third anniversary of the grant date. |
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Option Awards | ||||||||
Number of | ||||||||
Shares | Value | |||||||
Acquired on | Realized on | |||||||
Exercise | Exercise | |||||||
Name | (#) | ($)(1) | ||||||
Mark S. Casady | — | — | ||||||
Robert J. Moore | — | — | ||||||
Esther M. Stearns | — | — | ||||||
William E. Dwyer | 23,000 | 513,820 | ||||||
Stephanie L. Brown | 64,680 | 1,444,951 |
(1) | Amount is based on a value of $23.41 per share, which we believe is the fair market value based on our valuation as of December 31, 2009. |
Non-Qualified Deferred Compensation | ||||||||||||||||||||
For the Year Ended December 31, 2009 | ||||||||||||||||||||
Executive | Aggregate | |||||||||||||||||||
Contributions in | Registrant | Earnings in | Aggregate | |||||||||||||||||
Last Fiscal | Contributions in | Last Fiscal | Aggregate | Balance at | ||||||||||||||||
Year | Last Fiscal | Year | Withdrawals/ | 12/31/09 | ||||||||||||||||
Name | ($) | Year | ($)(1) | Distributions | ($)(1) | |||||||||||||||
Mark S. Casady | — | — | — | — | — | |||||||||||||||
Robert J. Moore | — | — | — | — | — | |||||||||||||||
Esther M. Stearns | — | — | 3,371,915 | — | 14,699,560 | |||||||||||||||
William E. Dwyer | — | — | 510,922 | — | 2,227,438 | |||||||||||||||
Stephanie L. Brown | — | — | 326,727 | — | 1,424,335 |
(1) | Amounts included herein do not constitute above-market or preferential earnings and therefore are not reported as compensation in the Summary Compensation Table. |
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Without Cause or for | Death and | Change-in- | ||||||||||||
Named Executive Officer | Benefit | Good Reason ($) | Disability ($) | Control ($)(6) | ||||||||||
Mark S. Casady | Severance(1) | 4,545,000 | — | — | ||||||||||
Bonus(2) | — | 2,230,000 | — | |||||||||||
Stock Options(3) | 84,932,774 | 85,092,374 | 85,092,374 | |||||||||||
COBRA Reimbursement(4) | 19,321 | 19,321 | — | |||||||||||
Esther M. Stearns | Severance(1) | 2,550,000 | — | — | ||||||||||
Bonus(2) | — | 1,075,000 | — | |||||||||||
Stock Options(3) | 43,140,953 | 43,247,353 | 43,247,353 | |||||||||||
COBRA Reimbursement(4) | 17,534 | 17,534 | — | |||||||||||
Robert J. Moore(5) | Severance | — | — | — | ||||||||||
Bonus | — | 350,000 | — | |||||||||||
Stock Options(3) | — | 583,500 | 583,500 | |||||||||||
COBRA Reimbursement | — | — | — | |||||||||||
William E. Dwyer | Severance(1) | 1,462,500 | — | — | ||||||||||
Bonus(2) | — | 525,000 | — | |||||||||||
Stock Options(3) | 32,755,260 | 32,821,760 | 32,821,760 | |||||||||||
COBRA Reimbursement(4) | 18,165 | 18,165 | — | |||||||||||
Stephanie L. Brown | Severance(1) | 1,042,500 | — | — | ||||||||||
Bonus(2) | — | 340,000 | — | |||||||||||
Stock Options(3) | — | 53,200 | 53,200 | |||||||||||
COBRA Reimbursement(4) | 19,321 | 19,321 | — |
(1) | Represents payment under Current Agreements of a severance multiplier of 1.5 times the executive officer’s base salary and target bonus for the year of termination. |
(2) | Represents payment under Current Agreements of target bonus for the year of termination. |
(3) | Represents exercise by executive of all vested stock options upon termination without cause or for good reason or in case of termination for death or disability and of all vested and unvested stock options uponchange-in-control. See “— Stock Options.” Amounts are based on a value of $23.41 per share, which we believe is the fair market value as of December 31, 2009. |
(4) | Represents lump sum payment under Current Agreements equal to the costs of COBRA coverage for the executive officer and his or her family for a one-year period. |
(5) | Mr. Moore does not have a Current Agreement, but was guaranteed a bonus for 2009 pursuant to his offer letter, as amended. |
(6) | If the executive’s employment with us is terminated without cause or for good reason (as described further below) in connection with achange-in-control, he or she would also be eligible for the severance and COBRA reimbursement payments under the column titled “Without Cause or For Good Reason.” |
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• | the named executive officer’s base salary and target bonus for the year of termination (the “Severance”) multiplied by 1.5; |
• | any and all accrued but unpaid compensation, vacation and business expenses (the “Accrued Compensation”); |
• | a lump sum equal to one year of premiums (including administrative charges) of continued health and dental plan participation under COBRA by such executive and his or her dependents (the “COBRA Payment”) and |
• | 2 years continued participation under our group life, health, dental and vision plans in which the named executive officer was participating immediately prior to the date of termination (“Continued Benefits Participation”). |
• | the intentional failure to perform his or her duties or gross negligence or willful misconduct in the regular duties or other breach of fiduciary duty or material breach of the employment agreement that remains uncured after 30 days’ notice; |
• | conviction of a felony; or |
• | fraud, embezzlement or other dishonesty that has a material adverse effect on us. |
• | any consolidation or merger of the company with or into any other person, or any other similar transaction, whether or not we are a party thereto, in which our stockholders immediately prior to such transaction own directly or indirectly capital stock either (1) representing less than 50% of the equity interests or voting power of the company or the surviving entity or (2) that does not have directly or indirectly have the power to elect a majority of the entire Board or other similar governing body; | |
• | any transaction or series of transactions, whether or not we are a party thereto, after giving effect to which in excess of 50% is owned directly or indirectly by any person other than us and our affiliates or | |
• | a sale or disposition of all of our assets; |
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• | Severance multiplied by two for terminations during the initial term and 1.5 thereafter (including non-renewal by us); |
• | Accrued Compensation; |
• | a pro-rated annual bonus based on actual performance for the year of termination (not to exceed the pro-rated target bonus) (the “Pro-Rata Actual Bonus”) and |
• | Continued Benefits Participation. |
• | Severance multiplied by one; |
• | Accrued Compensation; |
• | the Pro-Rata Actual Bonus, and |
• | Continued Benefits Participation. |
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Change in | ||||||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||||||
Fees | Value and | |||||||||||||||||||||||||||||||
Earned | Non-Equity | Nonqualified | ||||||||||||||||||||||||||||||
or Paid | Stock | Option | Incentive Plan | Deferred | All Other | |||||||||||||||||||||||||||
in Cash | Awards | Awards | Compensation | Compensation | Compensation | Total | ||||||||||||||||||||||||||
Name | Year | ($) | ($) | ($) | ($) | Earnings | ($)(1) | ($) | ||||||||||||||||||||||||
Richard W. Boyce | 2009 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
John J. Brennan(1) | 2009 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Jeffrey A. Goldstein(2) | 2009 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Douglas M. Haines(3) | 2009 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
James S. Putnam | 2009 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Erik D. Ragatz | 2009 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
James S. Riepe | 2009 | 25,000 | — | 131,895 | — | — | — | 156,895 | ||||||||||||||||||||||||
Richard P. Schifter | 2009 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Jeffrey E. Stiefler | 2009 | 25,000 | — | 131,895 | — | — | — | 156,895 | ||||||||||||||||||||||||
Allen R. Thorpe | 2009 | — | — | — | — | — | — | — |
(1) | Mr. Brennan joined our board of directors on February 11, 2010 and therefore received no compensation in fiscal year 2009. | |
(2) | Mr. Goldstein resigned from his position as director on July 24, 2009. | |
(3) | Mr. Haines resigned from his position as director on June 2, 2009. |
• | a compensation mix overly weighted toward annual bonus awards; | |
• | an excessive focus on stock option awards that would cause behavior to drive short-term stock price gains in lieu of long-term value creation and | |
• | unreasonable financial goals or thresholds that would encourage efforts to generate near-term revenue with an adverse impact on long-term success. |
• | we have defined processes for developing strategic and annual operating plans, approval of capital investments, internal controls over financial reporting, and other financial, operational and compliance policies and practices; | |
• | annual review of corporate and individual objectives of the executive officers to align these goals with our annual operating and strategic plans, achieve the proper risk reward balance, and do not encourage unnecessary or excessive risk taking; |
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• | incentive awards are based on a review of a variety of indicators, including both financial performance and strategic achievements, reducing the potential to concentrate on one indicator as the basis of an annual incentive award; | |
• | the mixes between fixed and variable, annual and long-term, and cash and equity compensation are designed to encourage strategies and actions that are in our long-term best interests; | |
• | discretionary authority by the Compensation Committee to adjust annual bonus funding and payments reduces business risk associated with our cash bonus program and | |
• | stock option awards vest over a period of time. As a result of the longer time horizon to receive the value of a stock option award, the prospect of short-term or risky behavior is mitigated. |
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• | the related person’s relationship to us and interest in the transaction; |
• | the material facts of the proposed transaction, including the proposed aggregate value of the transaction; |
• | the impact on a director’s independence in the event the related person is a director or an immediate family member of the director; |
• | the benefits to us of the proposed transaction; |
• | if applicable, the availability of other sources of comparable products or services and |
• | an assessment of whether the proposed transaction is on terms that are comparable to the terms available to an unrelated third party or to employees generally. |
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• | each person whom we know beneficially owns more than five percent of our common stock; | |
• | each of our directors; | |
• | each of our named executive officers; | |
• | all of our directors and executive officers as a group and | |
• | each other selling stockholder. |
Number of Shares of | Number of Shares of | |||||||||||||||||||
Common Stock Beneficially | Common Stock Beneficially | |||||||||||||||||||
Owned Prior to the | Number of | Owned After the | ||||||||||||||||||
Offering | Shares | Offering | ||||||||||||||||||
Name of Beneficial Owner | Number | Percentage | Offered | Number | Percentage | |||||||||||||||
Hellman & Friedman LLC(1) | 34,210,185 | 36.3 | % | % | ||||||||||||||||
TPG Partners, IV, L.P.(2) | 34,210,185 | 36.3 | % | % | ||||||||||||||||
Mark S. Casady(3) | 3,907,120 | 4.1 | % | % | ||||||||||||||||
Robert J. Moore(4) | 24,000 | * | % | |||||||||||||||||
Esther M. Stearns(5) | 2,036,260 | 2.2 | % | % | ||||||||||||||||
William E. Dwyer(6) | 1,772,936 | 1.9 | % | % | ||||||||||||||||
Stephanie L. Brown(7) | 844,873 | * | % | |||||||||||||||||
Richard W. Boyce(8) | — | — | % | |||||||||||||||||
John J. Brennan | 22,136 | * | % | |||||||||||||||||
James S. Putnam | 486,970 | * | % | |||||||||||||||||
Erik D. Ragatz(1) | — | — | % | |||||||||||||||||
James S. Riepe(9) | 86,070 | * | % | |||||||||||||||||
Richard P. Schifter(10) | — | — | % | |||||||||||||||||
Jeffrey E. Stiefler(11) | 119,066 | * | % | |||||||||||||||||
Allen R. Thorpe(1) | — | — | �� | % | ||||||||||||||||
All directors and executive officers as a group (19 persons)(12) | 10,551,241 | 11.2 | % | % | ||||||||||||||||
Selling Stockholders |
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(1) | Hellman & Friedman Capital Partners V, L.P., Hellman & Friedman Capital Partners V (Parallel), L.P. and Hellman & Friedman Capital Associates V, L.P. beneficially own 34,210,185.10 shares of our common stock. The address for each of these funds isc/o Hellman & Friedman LLC, One Maritime Plaza, 12th Fl., San Francisco, CA 94111. Hellman & Friedman Investors V, L.P. is the sole general partner of Hellman & Friedman Capital Partners V, L.P. and Hellman & Friedman Capital Partners V (Parallel), L.P. Hellman & Friedman LLC is the sole general partner of each of Hellman & Friedman Investors V, L.P. and Hellman & Friedman Capital Associates V, L.P. The shares of the company are owned of record by Hellman & Friedman Capital Partners V, L.P., which owns 30,077,594.70 shares, Hellman & Friedman Capital Partners V (Parallel), L.P., which owns 4,115,485.30 shares, and Hellman & Friedman Capital Associates V, L.P., which owns 17,105.10 shares. An investment committee of Hellman & Friedman LLC has sole voting and dispositive control over the shares of the company. The investment committee is comprised of F. Warren Hellman, Brian M. Powers, Philip U. Hammarskjold, Patrick J. Healy and Thomas F. Steyer; provided, however, that Mr. Steyer has no authority or voting rights with respect to investment committee decisions relating to the company. Messrs. Ragatz and Thorpe serve as Managing Directors of Hellman & Friedman LLC, but neither of them serves on the investment committee. Each of the members of the investment committee, as well as Messrs. Ragatz and Thorpe, disclaim beneficial ownership of the shares in the company, except to the extent of their respective pecuniary interest therein. |
(2) | Includes 34,210,185 shares of common stock (the “TPG Stock”) held by TPG Partners IV, L.P., a Delaware limited partnership (“TPG Partners IV”), whose general partner is TPG GenPar IV, L.P., a Delaware limited partnership, whose general partner is TPG GenPar IV Advisors, LLC, a Delaware limited liability company, whose sole member is TPG Holdings I, L.P., a Delaware limited partnership, whose general partner is TPGHoldings I-A, LLC, a Delaware limited liability company, whose sole member is TPG Group Holdings (SBS), L.P., a Delaware limited partnership, whose general partner is TPG Group Holdings (SBS) Advisors, Inc. David Bonderman and James G. Coulter are directors, officers and sole shareholders of TPG Group Holdings (SBS) Advisors, Inc. and may therefore be deemed to be the beneficial owners of the TPG Stock. The address for each of TPG Partners IV, TPG Group Holdings (SBS) Advisors, Inc. and Messrs. Bonderman and Coulter isc/o TPG Capital, L.P., 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. |
(3) | Includes 3,907,120 shares of common stock issuable upon exercise of stock options exercisable within 60 days. |
(4) | Includes 24,000 shares of common stock issuable upon exercise of stock options exercisable within 60 days. |
(5) | Includes 2,035,760 shares of common stock issuable upon exercise of stock options exercisable within 60 days. |
(6) | Consists of 23,000 shares that Mr. Dwyer holds directly and 1,516,820 shares of common stock issuable upon exercise of stock options exercisable within 60 days. This also includes 233,115 held through trusts over which Mr. Dwyer disclaims beneficial ownership. |
(7) | Includes 6,000 shares of common stock issuable upon exercise of stock options exercisable within 60 days. |
(8) | Mr. Boyce, who is one of our directors, is a partner at TPG Capital, L.P., which is an affiliate of TPG Partners IV. Mr. Boyce has no voting or investment power over, and disclaims beneficial ownership of, the TPG Stock. The address of Mr. Boyce isc/o TPG Capital, L.P., 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. |
(9) | Includes 11,992 shares of common stock issuable upon exercise of stock options exercisable within 60 days. |
(10) | Mr. Schifter, who is one of our directors, is a partner at TPG Capital, L.P., which is an affiliate of TPG Partners IV. Mr. Schifter has no voting or investment power over, and disclaims beneficial ownership of, the TPG Stock. The address of Mr. Schifter isc/o TPG Capital, L.P., 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. |
(11) | Includes 44,988 shares of common stock issuable upon exercise of stock options exercisable within 60 days. |
(12) | Includes an aggregate of 8,363,410 shares of common stock issuable upon exercise of stock options exercisable within 60 days. |
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Number of Shares | Date of Availability for Sale | |
Various times after the date of this prospectus pursuant to Rule 144 | ||
Various times beginning 180 days after the date of this prospectus |
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• | 1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering and |
• | the average weekly trading volume in our common stock on the Nasdaq Global Select Market during the four calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale. |
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NON-U.S. HOLDERS OF COMMON STOCK
• | an individual who is a citizen or resident of the United States; | |
• | a corporation or any other organization taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; | |
• | an estate, the income of which is included in gross income for U.S. federal income tax purposes regardless of its source; or | |
• | a trust if (1) a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons have the authority to control all of the trust’s substantial decisions or (2) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. |
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• | IRSForm W-8BEN (or successor form) claiming, under penalties of perjury, a reduction in withholding under an applicable income tax treaty, or | |
• | IRSForm W-8ECI (or successor form) stating that a dividend paid on common stock is not subject to withholding tax because it is effectively connected with a trade or business in the United States of theNon-U.S. Holder (in which case such dividend generally will be subject to regular graduated U.S. tax rates as described below). |
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Underwriters | Number of Shares | |||
Goldman, Sachs & Co. | ||||
Morgan Stanley & Co. Incorporated | ||||
Merrill Lynch, Pierce, Fenner & Smith Incorporated | ||||
J.P. Morgan Securities Inc. | ||||
Total | ||||
Paid by the Company | No Exercise | Full Exercise | ||||||
Per Share | $ | $ | ||||||
Total | $ | $ |
Paid by the Selling Stockholders | No Exercise | Full Exercise | ||||||
Per Share | $ | $ | ||||||
Total | $ | $ |
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• | transfers of shares of common stock by any such person other than us (i) as abona fidegift or gifts, (ii) to immediate family members, trusts for the benefit of such person or its immediate family members, or limited partnerships the partners of which are such personand/or its immediate family members, (iii) by will or intestacy or (iv) to limited or general partners, members, stockholders or affiliates (as defined underRule 12b-2 of the Exchange Act) of such person or, in the case of a corporation, to its wholly-owned subsidiary; provided that in each case, the donee, distributee or transferee shall sign and deliver alock-up agreement, such transfer or distribution shall be a disposition for no value and no filing under Section 16(a) of the Exchange Act during the restricted period shall be required or shall be voluntarily made in connection therewith; |
• | the exercise of options to purchase shares of common stock granted prior to the date hereof under our stock incentive plan or stock purchase plan described herein, or the disposition to us of shares of restricted stock granted pursuant to the terms of such plan prior to the date hereof, provided that no filing under Section 16(a) of the Exchange Act during the restricted period shall be required or shall be voluntarily made in connection therewith; |
• | transfer by any such person other than us of shares of common stock acquired on the open market following the completion of this offering, provided that no filing under Section 16(a) of the Exchange Act during the restricted period shall be required or shall be voluntarily made in connection therewith; |
• | the establishment of a trading plan pursuant toRule 10b5-1 under the Exchange Act for the transfer of shares of common stock, provided that such plan does not provide for the transfer of shares of common stock during the restricted period; |
• | the sale of shares of common stock to the underwriters in connection with this offering; and |
• | transfers of shares of common stock with the prior written consent of the underwriters. |
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• | our annual report onForm 10-K for the fiscal year ended December 31, 2009 as filed on March 9, 2010; | |
• | our quarterly report onForm 10-Q for the three months ended March 31, 2010 as filed on May 7, 2010; |
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• | our current reports onForm 8-K filed on January 27, 2010, February 18, 2010, May 28, 2010, June 14, 2010 and June 17, 2010; |
• | our proxy statement on Schedule 14A as filed on April 27, 2010 and |
• | our definitive information statement on Schedule 14C as filed on June 28, 2010. |
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Condensed Consolidated Financial Statements | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-7 | ||||
Consolidated Financial Statements | ||||
F-27 | ||||
F-28 | ||||
F-29 | ||||
F-30 | ||||
F-31 | ||||
F-33 |
F-1
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Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
REVENUES: | ||||||||
Commissions | $ | 388,972 | $ | 347,220 | ||||
Advisory fees | 206,330 | 163,905 | ||||||
Asset-based fees | 71,450 | 62,654 | ||||||
Transaction and other fees | 67,363 | 61,338 | ||||||
Interest income, net of operating interest expense | 4,871 | 5,394 | ||||||
Other | 4,420 | 2,467 | ||||||
Net revenues | 743,406 | 642,978 | ||||||
EXPENSES: | ||||||||
Commissions and advisory fees | 504,862 | 434,702 | ||||||
Compensation and benefits | 73,575 | 66,978 | ||||||
Depreciation and amortization | 25,590 | 27,395 | ||||||
Promotional | 14,350 | 12,642 | ||||||
Occupancy and equipment | 12,018 | 12,445 | ||||||
Professional services | 9,799 | 8,366 | ||||||
Communications and data processing | 8,526 | 9,186 | ||||||
Brokerage, clearing and exchange | 8,340 | 7,829 | ||||||
Regulatory fees and expenses | 6,148 | 5,474 | ||||||
Restructuring charges | 3,949 | (327 | ) | |||||
Travel and entertainment | 2,396 | 1,758 | ||||||
Other | 4,777 | 3,720 | ||||||
Total operating expenses | 674,330 | 590,168 | ||||||
Non-operating interest expense | 24,336 | 25,941 | ||||||
Loss on equity method investment | 24 | 84 | ||||||
Total expenses | 698,690 | 616,193 | ||||||
INCOME BEFORE PROVISION FOR INCOME TAXES | 44,716 | 26,785 | ||||||
PROVISION FOR INCOME TAXES | 19,162 | 11,988 | ||||||
NET INCOME | $ | 25,554 | $ | 14,797 | ||||
EARNINGS PER SHARE (Note 12): | ||||||||
Basic | $ | 0.29 | $ | 0.17 | ||||
Diluted | $ | 0.25 | $ | 0.15 |
F-2
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March 31, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 324,761 | $ | 378,594 | ||||
Cash and securities segregated under federal and other regulations | 310,411 | 288,608 | ||||||
Receivables from: | ||||||||
Clients, net of allowance of $797 at March 31, 2010 and $792 at December 31, 2009 | 272,708 | 257,529 | ||||||
Product sponsors, broker-dealers and clearing organizations | 208,971 | 171,900 | ||||||
Others, net of allowances of $8,077 at March 31, 2010 and $6,159 at December 31, 2009 | 146,374 | 139,317 | ||||||
Securities owned: | ||||||||
Trading(1) | 15,703 | 15,361 | ||||||
Held-to-maturity | 10,339 | 10,454 | ||||||
Securities borrowed | 3,310 | 4,950 | ||||||
Fixed assets, net of accumulated depreciation and amortization of $254,952 at March 31, 2010 and $239,868 at December 31, 2009 | 87,080 | 101,584 | ||||||
Goodwill | 1,293,366 | 1,293,366 | ||||||
Intangible assets, net of accumulated amortization of $144,980 at March 31, 2010 and $136,177 at December 31, 2009 | 587,823 | 597,083 | ||||||
Other assets | 82,440 | 78,190 | ||||||
Total assets | $ | 3,343,286 | $ | 3,336,936 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
LIABILITIES: | ||||||||
Bank loans payable | $ | 40,000 | $ | — | ||||
Drafts payable | 134,747 | 125,767 | ||||||
Payables to clients | 410,208 | 493,943 | ||||||
Payables to broker-dealers and clearing organizations | 23,441 | 18,217 | ||||||
Accrued commissions and advisory fees payable | 113,812 | 110,040 | ||||||
Accounts payable and accrued liabilities | 177,319 | 175,742 | ||||||
Income taxes payable | 38,718 | 24,226 | ||||||
Interest rate swaps | 14,250 | 17,292 | ||||||
Securities sold but not yet purchased — at market value | 2,312 | 4,003 | ||||||
Senior credit facilities and subordinated notes | 1,367,117 | 1,369,223 | ||||||
Deferred income taxes — net | 138,205 | 147,608 | ||||||
Total liabilities | 2,460,129 | 2,486,061 | ||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Common stock, $.001 par value; 200,000,000 shares authorized; 94,241,567 shares issued and outstanding at March 31, 2010 of which 7,430,381 are restricted, and 94,214,762 shares issued and outstanding at December 31, 2009 of which 7,423,973 are restricted | 87 | 87 | ||||||
Additional paid-in capital | 682,899 | 679,277 | ||||||
Stockholder loans | (51 | ) | (499 | ) | ||||
Accumulated other comprehensive loss | (8,614 | ) | (11,272 | ) | ||||
Retained earnings | 208,836 | 183,282 | ||||||
Total stockholders’ equity | 883,157 | 850,875 | ||||||
Total liabilities and stockholders’ equity | $ | 3,343,286 | $ | 3,336,936 | ||||
(1) | Includes $7,799 and $7,797 pledged to clearing organizations at March 31, 2010 and December 31, 2009, respectively. |
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Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(Dollars in thousands)
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common | Paid-In | Stockholder | Comprehensive | Retained | Stockholders’ | |||||||||||||||||||
Stock | Capital | Loans | Income (Loss) | Earnings | Equity | |||||||||||||||||||
BALANCE — December 31, 2008 | $ | 87 | $ | 670,897 | $ | (936 | ) | $ | (15,498 | ) | $ | 135,762 | $ | 790,312 | ||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 14,797 | 14,797 | ||||||||||||||||||||||
Unrealized gain on interest rate swaps, net of tax expense of $393 | 1,034 | 1,034 | ||||||||||||||||||||||
Total comprehensive income | 15,831 | |||||||||||||||||||||||
Stockholder loans | 456 | 456 | ||||||||||||||||||||||
Share-based compensation | 1,426 | 1,426 | ||||||||||||||||||||||
Repurchase of 10,000 shares of common stock | (181 | ) | (181 | ) | ||||||||||||||||||||
BALANCE — March 31, 2009 | $ | 87 | $ | 672,142 | $ | (480 | ) | $ | (14,464 | ) | $ | 150,559 | $ | 807,844 | ||||||||||
BALANCE — December 31, 2009 | $ | 87 | $ | 679,277 | $ | (499 | ) | $ | (11,272 | ) | $ | 183,282 | $ | 850,875 | ||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 25,554 | 25,554 | ||||||||||||||||||||||
Unrealized gain on interest rate swaps, net of tax expense of $384 | 2,658 | 2,658 | ||||||||||||||||||||||
Total comprehensive income | 28,212 | |||||||||||||||||||||||
Exercise of stock options | 9 | 9 | ||||||||||||||||||||||
Stockholder loans | 448 | 448 | ||||||||||||||||||||||
Share-based compensation | 3,145 | 3,145 | ||||||||||||||||||||||
Issuance of 20,000 shares of common stock | 468 | 468 | ||||||||||||||||||||||
BALANCE — March 31, 2010 | $ | 87 | $ | 682,899 | $ | (51 | ) | $ | (8,614 | ) | $ | 208,836 | $ | 883,157 | ||||||||||
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Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 25,554 | $ | 14,797 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Noncash items: | ||||||||
Depreciation and amortization | 25,590 | 27,395 | ||||||
Amortization of debt issuance costs | 1,111 | 936 | ||||||
Impairment of fixed assets | 195 | — | ||||||
Loss (gain) on disposal of fixed assets | 2 | (14 | ) | |||||
Share-based compensation | 3,145 | 1,426 | ||||||
Provision for bad debts | 2,169 | 672 | ||||||
Deferred income tax provision | (9,787 | ) | (5,397 | ) | ||||
Loss on equity method investment | 24 | 84 | ||||||
Lease abandonment | (80 | ) | — | |||||
Loan forgiveness | 1,627 | — | ||||||
Other | (222 | ) | 431 | |||||
Changes in operating assets and liabilities: | ||||||||
Cash and securities segregated under federal and other regulations | (21,803 | ) | 10,607 | |||||
Receivables from clients | (15,237 | ) | 54,234 | |||||
Receivables from product sponsors, broker-dealers and clearing organizations | (37,071 | ) | 63,140 | |||||
Receivables from others | (10,339 | ) | (14,810 | ) | ||||
Securities owned | (101 | ) | 553 | |||||
Securities borrowed | 1,640 | (361 | ) | |||||
Other assets | (574 | ) | (2,988 | ) | ||||
Drafts payable | 8,980 | 2,084 | ||||||
Payables to clients | (83,735 | ) | (55,241 | ) | ||||
Payables to broker-dealers and clearing organizations | 5,224 | 3,549 | ||||||
Accrued commissions and advisory fees payable | 3,772 | 288 | ||||||
Accounts payable and accrued liabilities | 1,093 | (7,413 | ) | |||||
Income taxes payable | 14,492 | 11,646 | ||||||
Securities sold but not yet purchased | (1,691 | ) | (1,733 | ) | ||||
Net cash (used in) provided by operating activities | (86,022 | ) | 103,885 | |||||
F-5
Table of Contents
Condensed Consolidated Statements of Cash Flows — (Continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures | $ | (1,463 | ) | $ | (1,235 | ) | ||
Proceeds from the disposal of fixed assets | — | 67 | ||||||
Purchase of securities classified asheld-to-maturity | (2,008 | ) | (2,237 | ) | ||||
Proceeds from maturity of securities classified asheld-to-maturity | 2,100 | 1,500 | ||||||
Deposits of restricted cash | (2,454 | ) | — | |||||
Release of restricted cash | 50 | — | ||||||
Net cash used in investing activities | (3,775 | ) | (1,905 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from bank loans payable | 40,000 | — | ||||||
Repayment of senior credit facilities | (2,106 | ) | (2,106 | ) | ||||
Payment of debt issuance costs | (2,407 | ) | — | |||||
Repayment of stockholder loans | — | 462 | ||||||
Proceeds from stock options exercised | 9 | — | ||||||
Issuance of common stock | 468 | — | ||||||
Repurchase of common stock | — | (181 | ) | |||||
Net cash provided by (used in) financing activities | 35,964 | (1,825 | ) | |||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (53,833 | ) | 100,155 | |||||
CASH AND CASH EQUIVALENTS — Beginning of period | 378,594 | 219,239 | ||||||
CASH AND CASH EQUIVALENTS — End of period | $ | 324,761 | $ | 319,394 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Interest paid | $ | 9,595 | $ | 11,221 | ||||
Income taxes paid | $ | 14,796 | $ | 5,758 | ||||
NONCASH DISCLOSURES: | ||||||||
Capital expenditures purchased through short-term credit | $ | 560 | $ | 1,034 | ||||
Increase in unrealized gain on interest rate swaps, net of tax expense | $ | 2,658 | $ | 953 | ||||
F-6
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1. | Organization and Description of the Company |
2. | Basis of Presentation |
F-7
Table of Contents
3. | Restructuring |
Accrued Balance | Accrued Balance | Cumulative | ||||||||||||||
at December 31, | at March 31, | Costs Incurred | ||||||||||||||
2009 | Payments | 2010 | to Date(1) | |||||||||||||
Severance and benefits | $ | 1,996 | $ | (696 | ) | $ | 1,300 | $ | 14,505 | |||||||
(1) | At March 31, 2010, cumulative costs incurred to date represent the total expected costs. |
F-8
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Accrued | Accrued | Cumulative | Total | |||||||||||||||||||||||||
Balance at | Balance at | Costs | Expected | |||||||||||||||||||||||||
December 31, | Costs | March 31, | Incurred | Restructuring | ||||||||||||||||||||||||
2009 | Incurred | Payments | Non-cash | 2010 | to Date | Costs | ||||||||||||||||||||||
Severance and benefits | $ | 2,759 | $ | 1,774 | $ | (2,412 | ) | $ | (456 | ) | $ | 1,665 | $ | 11,210 | $ | 11,525 | ||||||||||||
Lease and contract termination fees | 7,458 | 485 | (1,519 | ) | 80 | 6,504 | 16,404 | 18,455 | ||||||||||||||||||||
Asset impairments | — | 195 | — | (195 | ) | — | 20,119 | 20,177 | ||||||||||||||||||||
Conversion and transfer costs | 304 | 1,495 | (397 | ) | (1,128 | ) | 274 | 15,378 | 23,599 | |||||||||||||||||||
Total | $ | 10,521 | $ | 3,949 | $ | (4,328 | ) | $ | (1,699 | ) | $ | 8,443 | $ | 63,111 | $ | 73,756 | ||||||||||||
4. | Fair Value Measurements |
F-9
Table of Contents
• | Level 1 — Quoted prices in active markets for identical assets or liabilities. | |
• | Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. | |
• | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
F-10
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Fair Value | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Measurements | |||||||||||||
At March 31, 2010: | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | 152,683 | $ | — | $ | — | $ | 152,683 | ||||||||
Securities segregated under federal and other regulations | 308,387 | — | — | 308,387 | ||||||||||||
Securities owned — trading: | ||||||||||||||||
Money market funds | 177 | — | — | 177 | ||||||||||||
Mutual funds | 7,035 | — | — | 7,035 | ||||||||||||
Equity securities | 30 | — | — | 30 | ||||||||||||
Debt securities | — | 365 | — | 365 | ||||||||||||
U.S. treasury obligations | 7,799 | — | — | 7,799 | ||||||||||||
Certificates of deposit | — | 297 | — | 297 | ||||||||||||
Total securities owned — trading | 15,041 | 662 | — | 15,703 | ||||||||||||
Other assets | 14,874 | — | — | 14,874 | ||||||||||||
Total assets at fair value | $ | 490,985 | $ | 662 | $ | — | $ | 491,647 | ||||||||
Liabilities | ||||||||||||||||
Securities sold but not yet purchased: | ||||||||||||||||
Mutual funds | $ | 2,200 | $ | — | $ | — | $ | 2,200 | ||||||||
Equity securities | 19 | — | — | 19 | ||||||||||||
Certificates of deposit | — | 72 | — | 72 | ||||||||||||
Debt securities | — | 21 | — | 21 | ||||||||||||
Total securities sold but not yet purchased | 2,219 | 93 | — | 2,312 | ||||||||||||
Interest rate swaps | — | 14,250 | — | 14,250 | ||||||||||||
Total liabilities at fair value | $ | 2,219 | $ | 14,343 | $ | — | $ | 16,562 | ||||||||
F-11
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Fair Value | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Measurements | |||||||||||||
At December 31, 2009: | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | 223,665 | $ | — | $ | — | $ | 223,665 | ||||||||
Securities segregated under federal and other regulations | 279,579 | — | — | 279,579 | ||||||||||||
Securities owned — trading: | ||||||||||||||||
Money market funds | 181 | — | — | 181 | ||||||||||||
Mutual funds | 6,694 | — | — | 6,694 | ||||||||||||
Equity securities | 11 | — | — | 11 | ||||||||||||
Debt securities | — | 425 | — | 425 | ||||||||||||
U.S. treasury obligations | 7,797 | — | — | 7,797 | ||||||||||||
Certificates of deposit | — | 253 | — | 253 | ||||||||||||
Total securities owned — trading | 14,683 | 678 | — | 15,361 | ||||||||||||
Other assets | 12,739 | — | — | 12,739 | ||||||||||||
Total assets at fair value | $ | 530,666 | $ | 678 | $ | — | $ | 531,344 | ||||||||
Liabilities | ||||||||||||||||
Securities sold but not yet purchased: | ||||||||||||||||
Mutual funds | $ | 3,773 | $ | — | $ | — | $ | 3,773 | ||||||||
U.S. treasury obligations | 5 | — | — | 5 | ||||||||||||
Equity securities | 7 | — | — | 7 | ||||||||||||
Certificates of deposit | — | 123 | — | 123 | ||||||||||||
Debt securities | — | 95 | — | 95 | ||||||||||||
Total securities sold but not yet purchased | 3,785 | 218 | — | 4,003 | ||||||||||||
Interest rate swaps | — | 17,292 | — | 17,292 | ||||||||||||
Total liabilities at fair value | $ | 3,785 | $ | 17,510 | $ | — | $ | 21,295 | ||||||||
5. | Held-to-Maturity Securities |
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Gross | ||||||||||||
Amortized | Unrealized | |||||||||||
Cost | Gains | Fair Value | ||||||||||
At March 31, 2010: | ||||||||||||
U.S. government notes | $ | 10,339 | $ | 55 | $ | 10,394 | ||||||
At December 31, 2009: | ||||||||||||
U.S. government notes | $ | 10,354 | $ | 49 | $ | 10,403 | ||||||
Certificate of deposit | 100 | — | 100 | |||||||||
Total | $ | 10,454 | $ | 49 | $ | 10,503 | ||||||
Within 1 Year | 1-2 Years | Total | ||||||||||
U.S. government notes — at amortized cost | $ | 3,763 | $ | 6,576 | $ | 10,339 | ||||||
U.S. government notes — at fair value | $ | 3,780 | $ | 6,614 | $ | 10,394 | ||||||
6. | Intangible Assets |
Gross | Net | |||||||||||
Carrying | Accumulated | Carrying | ||||||||||
Value | Amortization | Value | ||||||||||
At March 31, 2010: | ||||||||||||
Definite-lived intangible assets: | ||||||||||||
Advisor and financial institution relationships | $ | 458,424 | $ | (97,869 | ) | $ | 360,555 | |||||
Product sponsor relationships | 231,930 | (46,426 | ) | 185,504 | ||||||||
Trust client relationships | 2,630 | (685 | ) | 1,945 | ||||||||
Total definite-lived intangible assets | $ | 692,984 | $ | (144,980 | ) | $ | 548,004 | |||||
Indefinite-lived intangible assets: | ||||||||||||
Trademark and trade name | 39,819 | |||||||||||
Total intangible assets | $ | 587,823 | ||||||||||
At December 31, 2009: | ||||||||||||
Definite-lived intangible assets: | ||||||||||||
Advisor and financial institution relationships | $ | 458,424 | $ | (91,586 | ) | $ | 366,838 | |||||
Product sponsor relationships | 231,930 | (43,482 | ) | 188,448 | ||||||||
Trust client relationships | 2,630 | (652 | ) | 1,978 | ||||||||
Trademarks and trade names | 457 | (457 | ) | — | ||||||||
Total definite-lived intangible assets | $ | 693,441 | $ | (136,177 | ) | $ | 557,264 | |||||
Indefinite-lived intangible assets: | ||||||||||||
Trademark and trade name | 39,819 | |||||||||||
Total intangible assets | $ | 597,083 | ||||||||||
F-13
Table of Contents
2010 — remainder | $ | 27,746 | ||
2011 | 36,840 | |||
2012 | 36,548 | |||
2013 | 35,927 | |||
2014 | 35,927 | |||
Thereafter | 375,016 | |||
Total | $ | 548,004 | ||
7. | Income Taxes |
8. | Indebtedness |
F-14
Table of Contents
March 31, 2010 | December 31, 2009 | |||||||||||||||||||
Interest | Interest | |||||||||||||||||||
Maturity | Balance | Rate | Balance | Rate | ||||||||||||||||
Bank loans payable — unsecured | 7/31/2010 | $ | 40,000 | 1.00 | % | $ | — | |||||||||||||
Senior secured term loan: | ||||||||||||||||||||
Unhedged | 6/28/2013 | 417,117 | 2.04 | %(1) | 419,223 | 2.00 | %(3) | |||||||||||||
Hedged with interest rate swaps | 6/28/2013 | 400,000 | 2.04 | %(2) | 400,000 | 2.00 | %(4) | |||||||||||||
Senior unsecured subordinated notes | 12/15/2015 | 550,000 | 10.75 | % | 550,000 | 10.75 | % | |||||||||||||
Total borrowings | 1,407,117 | 1,369,223 | ||||||||||||||||||
Less current borrowings (maturities within 12 months) | 48,424 | 8,424 | ||||||||||||||||||
Long-term borrowings — net of current portion | $ | 1,358,693 | $ | 1,360,799 | ||||||||||||||||
(1) | As of March 31, 2010, the variable interest rate for the unhedged portion of the senior secured term loan is based on the three-month LIBOR of 0.29%, plus the applicable interest rate margin of 1.75%. | |
(2) | As of March 31, 2010, the variable interest rate for the hedged portion of the senior secured term loan is based on the three-month LIBOR of 0.29%, plus the applicable interest rate margin of 1.75%. | |
(3) | As of December 31, 2009, the variable interest rate for the unhedged portion of the senior secured term loan is based on the three-month LIBOR of 0.25% plus the applicable interest rate margin of 1.75%. | |
(4) | As of December 31, 2009, the variable interest rate for the hedged portion of the senior secured term loan is based on the three-month LIBOR of 0.25%, plus the applicable interest rate margin of 1.75%. |
F-15
Table of Contents
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Average balance outstanding | $ | 8,168 | $ | 90,000 | ||||
Weighted-average interest rate | 1.16 | % | 2.45 | % |
Senior | Senior | Total | ||||||||||
Secured | Unsecured | Amount | ||||||||||
2010 — remainder | $ | 6,318 | $ | — | $ | 6,318 | ||||||
2011 | 8,424 | — | 8,424 | |||||||||
2012 | 8,424 | — | 8,424 | |||||||||
2013 | 793,951 | — | 793,951 | |||||||||
2014 | — | — | — | |||||||||
Thereafter | — | 550,000 | 550,000 | |||||||||
Total | $ | 817,117 | $ | 550,000 | $ | 1,367,117 | ||||||
9. | Interest Rate Swaps |
Variable | ||||||||||||||||
Notional | Fixed | Receive | Fair | Maturity | ||||||||||||
Balance | Pay Rate | Rate(1) | Value | Date | ||||||||||||
$ | 70,000 | 3.43 | % | 0.29 | % | $ | (550 | ) | June 30, 2010 | |||||||
120,000 | 4.79 | % | 0.29 | % | (1,352 | ) | June 30, 2010 | |||||||||
145,000 | 4.83 | % | 0.29 | % | (7,384 | ) | June 30, 2011 | |||||||||
65,000 | 4.85 | % | 0.29 | % | (4,964 | ) | June 30, 2012 | |||||||||
$ | 400,000 | $ | (14,250 | ) | ||||||||||||
(1) | The variable receive rate reset on the last day of the period, based on the applicable three-month LIBOR. The effective rate from December 31, 2009 through March 30, 2010 was 0.25%. As of March 31, 2010, the effective rate was 0.29%. |
F-16
Table of Contents
10. | Commitments and Contingencies |
Years ending December 31 | ||||
2010 — remainder | $ | 22,152 | ||
2011 | 30,144 | |||
2012 | 23,469 | |||
2013 | 15,410 | |||
2014 | 8,765 | |||
Thereafter | 15,065 | |||
Total(1) | $ | 115,005 | ||
(1) | Minimum payments have not been reduced by minimum sublease rental income of $0.5 million due in the future under noncancellable subleases. |
F-17
Table of Contents
F-18
Table of Contents
11. | Share-Based Compensation |
2010 | 2009 | |||||||
Expected life (in years) | 6.51 | 8.81 | ||||||
Expected stock price volatility | 50.32 | % | 48.67 | % | ||||
Expected dividend yield | — | — | ||||||
Annualized forfeiture rate | 4.99 | % | 3.00 | % | ||||
Fair value of options | $ | 12.34 | $ | 10.40 | ||||
Risk-free interest rate | 2.79 | % | 2.45 | % |
F-19
Table of Contents
Weighted-Average | ||||||||||||||||
Remaining | Aggregate | |||||||||||||||
Number of | Weighted-Average | Contractual | Intrinsic | |||||||||||||
Shares | Exercise Price | Term (Years) | Value | |||||||||||||
(In thousands) | ||||||||||||||||
Outstanding — December 31, 2009 | 22,702,469 | $ | 6.99 | |||||||||||||
Granted | 68,776 | 23.41 | ||||||||||||||
Exercised | (397 | ) | 22.82 | |||||||||||||
Forfeited | (60,058 | ) | 23.30 | |||||||||||||
Outstanding — March 31, 2010 | 22,710,790 | $ | 7.00 | 4.76 | $ | 472,708 | ||||||||||
Exercisable — March 31, 2010 | 18,221,524 | $ | 3.05 | 3.74 | $ | 451,193 | ||||||||||
Outstanding | Exercisable | |||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||
Total | Average | Average | Average | |||||||||||||||||
Number of | Remaining | Exercise | Number of | Exercise | ||||||||||||||||
Range of Exercise Prices | Shares | Life (Years) | Price | Shares | Price | |||||||||||||||
At March 31, 2010: | ||||||||||||||||||||
$1.07 — $2.38 | 17,185,660 | 3.50 | $ | 1.74 | 17,185,660 | $ | 1.74 | |||||||||||||
$10.30 — $19.74 | 948,799 | 8.65 | 18.30 | 198,876 | 16.74 | |||||||||||||||
$21.60 — $22.08 | 2,209,650 | 9.18 | 22.02 | 124,499 | 21.60 | |||||||||||||||
$23.02 — $27.80 | 2,366,681 | 8.24 | 26.58 | 712,489 | 27.49 | |||||||||||||||
22,710,790 | 4.76 | $ | 7.00 | 18,221,524 | $ | 3.05 | ||||||||||||||
F-20
Table of Contents
Weighted Average | ||||||||
Number of | Grant-Date | |||||||
Shares | Fair Value | |||||||
Nonvested at January 1, 2010 | — | $ | — | |||||
Granted | 6,408 | 23.41 | ||||||
Vested | — | — | ||||||
Forfeited | — | — | ||||||
Nonvested at March 31, 2010 | 6,408 | $ | 23.41 | |||||
F-21
Table of Contents
12. | Earnings per Share |
For the Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Basic earnings per share: | ||||||||
Net income, as reported | $ | 25,554 | $ | 14,797 | ||||
Less: allocation of undistributed earnings to stock units | (414 | ) | (380 | ) | ||||
Net income, for computing basic earnings per share | $ | 25,140 | $ | 14,417 | ||||
Diluted earnings per share: | ||||||||
Net income, as reported | $ | 25,554 | $ | 14,797 | ||||
Less: allocation of undistributed earnings to stock units | (364 | ) | (337 | ) | ||||
Net income, for computing diluted earnings per share | $ | 25,190 | $ | 14,460 | ||||
For the Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Basic weighted average number of shares outstanding | 86,800 | 86,542 | ||||||
Dilutive common share equivalents | 12,145 | 11,417 | ||||||
Diluted weighted average number of shares outstanding | 98,945 | 97,959 | ||||||
F-22
Table of Contents
For the Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Basic earnings per share | $ | 0.29 | $ | 0.17 | ||||
Diluted earnings per share | $ | 0.25 | $ | 0.15 |
13. | Related Party Transactions |
F-23
Table of Contents
14. | Net Capital/Regulatory Requirements |
Minimum Net | Excess Net | |||||||||||
Net Capital | Capital Required | Capital | ||||||||||
LPL Financial Corporation | $ | 102,639 | $ | 6,646 | $ | 95,993 | ||||||
UVEST Financial Services Group, Inc. | 10,874 | 1,656 | 9,218 | |||||||||
Total | $ | 113,513 | $ | 8,302 | $ | 105,211 | ||||||
15. | Financial Instruments with Off-Balance-Sheet Credit Risk and Concentrations of Credit Risk |
F-24
Table of Contents
16. | Subsequent Events |
F-25
Table of Contents
F-26
Table of Contents
F-27
Table of Contents
2009 | 2008 | 2007 | ||||||||||
REVENUES: | ||||||||||||
Commissions | $ | 1,477,655 | $ | 1,640,218 | $ | 1,470,285 | ||||||
Advisory fees | 704,139 | 830,555 | 738,938 | |||||||||
Asset-based fees | 272,893 | 352,293 | 260,935 | |||||||||
Transaction and other fees | 255,574 | 240,486 | 184,604 | |||||||||
Interest income, net of interest expense | 20,545 | 33,684 | 35,677 | |||||||||
Other | 18,699 | 19,113 | 26,135 | |||||||||
Total net revenues | 2,749,505 | 3,116,349 | 2,716,574 | |||||||||
EXPENSES: | ||||||||||||
Commissions and advisory fees | 1,872,478 | 2,132,050 | 1,908,666 | |||||||||
Compensation and benefits | 270,436 | 343,171 | 257,200 | |||||||||
Depreciation and amortization | 108,296 | 100,462 | 78,748 | |||||||||
Promotional | 61,451 | 99,707 | 64,302 | |||||||||
Restructuring charges | 58,695 | 14,966 | — | |||||||||
Occupancy and equipment | 50,475 | 58,752 | 43,419 | |||||||||
Professional services | 38,071 | 31,492 | 31,478 | |||||||||
Communications and data processing | 36,194 | 39,967 | 27,822 | |||||||||
Brokerage, clearing and exchange | 32,101 | 30,998 | 26,806 | |||||||||
Regulatory fees and expenses | 23,217 | 21,747 | 17,939 | |||||||||
Travel and entertainment | 9,008 | 14,782 | 14,935 | |||||||||
Other | 15,294 | 17,558 | 13,931 | |||||||||
Total operating expenses | 2,575,716 | 2,905,652 | 2,485,246 | |||||||||
Interest expense from senior credit facilities, subordinated notes and revolving line of credit | 100,922 | 115,558 | 122,817 | |||||||||
Loss on equity method investment | 300 | 2,374 | 678 | |||||||||
Total expenses | 2,676,938 | 3,023,584 | 2,608,741 | |||||||||
INCOME BEFORE PROVISION FOR INCOME TAXES | 72,567 | 92,765 | 107,833 | |||||||||
PROVISION FOR INCOME TAXES | 25,047 | 47,269 | 46,764 | |||||||||
NET INCOME | $ | 47,520 | $ | 45,496 | $ | 61,069 | ||||||
EARNINGS PER SHARE (Note 16): | ||||||||||||
Basic | $ | 0.54 | $ | 0.53 | $ | 0.72 | ||||||
Diluted | $ | 0.47 | $ | 0.45 | $ | 0.62 |
F-28
Table of Contents
2009 | 2008 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 378,594 | $ | 219,239 | ||||
Cash and securities segregated under federal and other regulations | 288,608 | 341,575 | ||||||
Receivables from: | ||||||||
Clients, net of allowance of $792 at December 31, 2009 and $972 at December 31, 2008 | 257,529 | 295,797 | ||||||
Product sponsors, broker-dealers and clearing organizations | 171,900 | 231,400 | ||||||
Others, net of allowances of $6,159 at December 31, 2009 and $4,076 at December 31, 2008 | 139,317 | 93,771 | ||||||
Securities owned: | ||||||||
Trading | 15,361 | 10,811 | ||||||
Held-to-maturity | 10,454 | 10,504 | ||||||
Securities borrowed | 4,950 | 604 | ||||||
Fixed assets, net of accumulated depreciation and amortization of $239,868 at December 31, 2009 and $185,537 at December 31, 2008 | 101,584 | 161,760 | ||||||
Debt issuance costs, net of accumulated amortization of $15,724 at December 31, 2009 and $11,981 at December 31, 2008 | 16,542 | 19,927 | ||||||
Goodwill | 1,293,366 | 1,293,366 | ||||||
Intangible assets, net of accumulated amortization of $136,177 at December 31, 2009 and $106,563 at December 31, 2008 | 597,083 | 654,703 | ||||||
Other assets | 61,648 | 48,322 | ||||||
Total assets | $ | 3,336,936 | $ | 3,381,779 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
LIABILITIES: | ||||||||
Drafts payable | $ | 125,767 | $ | 154,431 | ||||
Revolving line of credit | — | 90,000 | ||||||
Payables to clients | 493,943 | 463,011 | ||||||
Payables to broker-dealers and clearing organizations | 18,217 | 21,734 | ||||||
Accrued commissions and advisory fees payable | 110,040 | 100,327 | ||||||
Accounts payable and accrued liabilities | 129,898 | 120,882 | ||||||
Income taxes payable | 24,226 | 12,281 | ||||||
Unearned revenue | 45,844 | 36,658 | ||||||
Interest rate swaps | 17,292 | 25,417 | ||||||
Securities sold but not yet purchased — at market value | 4,003 | 3,910 | ||||||
Senior credit facilities and subordinated notes | 1,369,223 | 1,377,647 | ||||||
Deferred income taxes — net | 147,608 | 185,169 | ||||||
Total liabilities | 2,486,061 | 2,591,467 | ||||||
COMMITMENTS AND CONTINGENCIES (Notes 14 and 20) | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Common stock, $.001 par value; 200,000,000 shares authorized; 94,214,762 shares issued and outstanding at December 31, 2009 of which 7,423,973 are restricted, and 93,967,967 shares issued and outstanding at December 31, 2008 of which 7,423,973 are restricted | 87 | 87 | ||||||
Additional paid-in capital | 679,277 | 670,897 | ||||||
Stockholder loans | (499 | ) | (936 | ) | ||||
Accumulated other comprehensive loss | (11,272 | ) | (15,498 | ) | ||||
Retained earnings | 183,282 | 135,762 | ||||||
Total stockholders’ equity | 850,875 | 790,312 | ||||||
Total liabilities and stockholders’ equity | $ | 3,336,936 | $ | 3,381,779 | ||||
F-29
Table of Contents
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common | Paid-In | Stockholder | Comprehensive | Retained | Stockholders’ | |||||||||||||||||||
Stock | Capital | Loans | Income (Loss) | Earnings | Equity | |||||||||||||||||||
BALANCE — December 31, 2006 | $ | 83 | $ | 591,254 | $ | — | $ | 1,938 | $ | 33,642 | $ | 626,917 | ||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 61,069 | 61,069 | ||||||||||||||||||||||
Unrealized loss on interest rate swaps, net of tax benefit of $5,573 | (8,450 | ) | (8,450 | ) | ||||||||||||||||||||
Total comprehensive income | 52,619 | |||||||||||||||||||||||
Cumulative effect of change in accounting principle upon adoption of new tax guidance, net of tax benefit of $2,101 | (4,445 | ) | (4,445 | ) | ||||||||||||||||||||
Stockholder loans | (1,242 | ) | (1,242 | ) | ||||||||||||||||||||
Tax benefit from stock options exercised | 191 | 191 | ||||||||||||||||||||||
Exercise of stock options | 52 | 52 | ||||||||||||||||||||||
Share-based compensation | 2,160 | 2,160 | ||||||||||||||||||||||
Issuance of common stock for acquisitions | 3 | 70,911 | 70,914 | |||||||||||||||||||||
BALANCE — December 31, 2007 | $ | 86 | $ | 664,568 | $ | (1,242 | ) | $ | (6,512 | ) | $ | 90,266 | $ | 747,166 | ||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 45,496 | 45,496 | ||||||||||||||||||||||
Unrealized loss on interest rate swaps, net of tax benefit of $5,596 | (8,986 | ) | (8,986 | ) | ||||||||||||||||||||
Total comprehensive income | 36,510 | |||||||||||||||||||||||
Stockholder loans | 306 | 306 | ||||||||||||||||||||||
Tax benefit from stock options exercised | 668 | 668 | ||||||||||||||||||||||
Exercise of stock options | 1 | 585 | 586 | |||||||||||||||||||||
Share-based compensation | 4,859 | 4,859 | ||||||||||||||||||||||
Issuance of 143,884 shares of common stock | 4,000 | 4,000 | ||||||||||||||||||||||
Repurchase of 136,470 shares of common stock | (3,783 | ) | (3,783 | ) | ||||||||||||||||||||
BALANCE — December 31, 2008 | $ | 87 | $ | 670,897 | $ | (936 | ) | $ | (15,498 | ) | $ | 135,762 | $ | 790,312 | ||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 47,520 | 47,520 | ||||||||||||||||||||||
Unrealized gain on interest rate swaps, net of tax expense of $3,899 | 4,226 | 4,226 | ||||||||||||||||||||||
Total comprehensive income | 51,746 | |||||||||||||||||||||||
Stockholder loans | 437 | 437 | ||||||||||||||||||||||
Exercise of stock options | 290 | 290 | ||||||||||||||||||||||
Tax benefit from stock options exercised | 147 | 147 | ||||||||||||||||||||||
Share-based compensation | 8,124 | 8,124 | ||||||||||||||||||||||
Repurchase of 10,000 shares of common stock | (181 | ) | (181 | ) | ||||||||||||||||||||
BALANCE — December 31, 2009 | $ | 87 | $ | 679,277 | $ | (499 | ) | $ | (11,272 | ) | $ | 183,282 | $ | 850,875 | ||||||||||
F-30
Table of Contents
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2009, 2008 and 2007
(Dollars in thousands)
2009 | 2008 | 2007 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 47,520 | $ | 45,496 | $ | 61,069 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Noncash items: | ||||||||||||
Benefits received from retention plans | — | 4,347 | 8,293 | |||||||||
Depreciation and amortization | 108,296 | 100,462 | 78,748 | |||||||||
Amortization of debt issuance costs | 3,757 | 3,742 | 3,675 | |||||||||
Impairment of fixed assets | 1,288 | — | — | |||||||||
Loss on disposal of fixed assets | 329 | 47 | 129 | |||||||||
Share-based compensation | 8,124 | 4,859 | 2,160 | |||||||||
Provision for bad debts | 3,319 | 3,471 | 3,142 | |||||||||
Deferred income tax provision | (41,460 | ) | (26,138 | ) | (21,320 | ) | ||||||
Loss on equity method investment | 300 | 2,374 | 678 | |||||||||
Impairment of intangible assets | 18,636 | — | — | |||||||||
Lease abandonment | 6,612 | — | — | |||||||||
Loan forgiveness | 2,072 | — | — | |||||||||
Other | (647 | ) | 1,815 | 561 | ||||||||
Mortgage loans held for sale: | ||||||||||||
Originations of loans | — | — | (114,755 | ) | ||||||||
Proceeds from sale of loans | — | — | 120,193 | |||||||||
Gain on sale of loans | — | — | (1,061 | ) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Cash and securities segregated under federal and other regulations | 52,967 | (145,764 | ) | (143,633 | ) | |||||||
Receivables from clients | 38,268 | 114,833 | (85,024 | ) | ||||||||
Receivables from product sponsors, broker-dealers and clearing organizations | 59,500 | (71,247 | ) | (52,508 | ) | |||||||
Receivables from others | (50,937 | ) | 423 | (37,109 | ) | |||||||
Securities owned | (3,832 | ) | 2,542 | (3,771 | ) | |||||||
Securities borrowed | (4,346 | ) | 8,434 | 3,648 | ||||||||
Other assets | (8,061 | ) | (6,687 | ) | (6,103 | ) | ||||||
Drafts payable | (28,664 | ) | 27,287 | 22,257 | ||||||||
Payables to clients | 30,932 | 56,334 | 112,103 | |||||||||
Payables to broker-dealers and clearing organizations | (3,517 | ) | (26,191 | ) | 17,570 | |||||||
Accrued commissions and advisory fees payable | 9,713 | (26,257 | ) | 16,442 | ||||||||
Accounts payable and accrued liabilities | (236 | ) | 26,628 | 13,750 | ||||||||
Income taxes payable | 11,945 | 1,633 | 475 | |||||||||
Unearned revenue | 9,186 | (4,239 | ) | 8,432 | ||||||||
Securities sold but not yet purchased | 93 | (8,927 | ) | 2,031 | ||||||||
Net cash provided by operating activities | 271,157 | 89,277 | 10,072 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Capital expenditures | (8,313 | ) | (62,812 | ) | (71,294 | ) | ||||||
Proceeds from disposal of fixed assets | 200 | — | 41 | |||||||||
Purchase of securities classified asheld-to-maturity | (3,746 | ) | (7,732 | ) | (5,493 | ) | ||||||
Proceeds from maturity of securities classified asheld-to-maturity | 3,700 | 7,600 | 5,604 | |||||||||
Purchase of equity method investment | — | — | (5,000 | ) |
F-31
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Proceeds from the sale of equity investment | 31 | — | — | |||||||||
Deposits of restricted cash | (12,759 | ) | — | — | ||||||||
Release of restricted cash | 7,163 | — | — | |||||||||
Purchase of intangible assets | — | — | (3,444 | ) | ||||||||
Acquisitions, net of existing cash balance | — | (13,258 | ) | (88,689 | ) | |||||||
Net cash used in investing activities | (13,724 | ) | (76,202 | ) | (168,275 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Net (repayment of) proceeds from revolving line of credit | $ | (90,000 | ) | $ | 25,000 | $ | 65,000 | |||||
Repayment of senior credit facilities | (8,424 | ) | (8,424 | ) | (8,304 | ) | ||||||
Proceeds from senior credit facilities | — | — | 50,000 | |||||||||
Payment of debt amendment costs | (372 | ) | — | (936 | ) | |||||||
Excess tax benefit related to stock options exercised | 147 | 668 | 191 | |||||||||
Loans to stockholders | — | — | (1,242 | ) | ||||||||
Repayment of stockholder loans | 462 | 114 | — | |||||||||
Proceeds from stock options exercised | 290 | 586 | 52 | |||||||||
Issuance of common stock | — | 4,000 | — | |||||||||
Repurchase of common stock | (181 | ) | (3,783 | ) | — | |||||||
Proceeds from warehouse lines of credit | — | — | 114,781 | |||||||||
Repayment of warehouse lines of credit | — | — | (118,499 | ) | ||||||||
Net cash (used in) provided by financing activities | (98,078 | ) | 18,161 | 101,043 | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 159,355 | 31,236 | (57,160 | ) | ||||||||
CASH AND CASH EQUIVALENTS — Beginning of year | 219,239 | 188,003 | 245,163 | |||||||||
CASH AND CASH EQUIVALENTS — End of year | $ | 378,594 | $ | 219,239 | $ | 188,003 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||
Interest paid | $ | 101,128 | $ | 116,581 | $ | 124,382 | ||||||
Income taxes paid | $ | 54,919 | $ | 71,487 | $ | 66,079 | ||||||
NONCASH DISCLOSURES: | ||||||||||||
Capital expenditures purchased through short-term credit | $ | 2,640 | $ | 1,294 | ||||||||
Increase (decrease) in unrealized gain (loss) on interest rate swaps, net of tax expense (benefit) | $ | 4,226 | $ | (8,986 | ) | $ | (8,450 | ) | ||||
Income taxes payable recorded as a cumulative effect of change in accounting principle upon the adoption of new tax guidance, net of tax benefit | $ | (4,445 | ) | |||||||||
Acquisitions: | ||||||||||||
Fair value of assets acquired | $ | 17,556 | $ | 322,057 | ||||||||
Cash paid for common stock acquired | — | (167,071 | ) | |||||||||
Additional consideration for post-closing payments | (13,258 | ) | — | |||||||||
Common stock issued for acquisitions | — | (68,552 | ) | |||||||||
Liabilities assumed | $ | 4,298 | $ | 86,434 | ||||||||
Common stock issued to acquire intangible assets | $ | 1,118 | ||||||||||
Common stock issued to satisfy accrued liability | $ | 1,244 | ||||||||||
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1. | Organization and Description of the Company |
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2. | Summary of Significant Accounting Policies |
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2009 | 2008 | |||||||
Beginning balance — January 1 | $ | 972 | $ | 529 | ||||
Provision | — | 443 | ||||||
Recoveries | (180 | ) | — | |||||
Ending balance — December 31 | $ | 792 | $ | 972 | ||||
2009 | 2008 | |||||||
Beginning balance — January 1 | $ | 4,076 | $ | 5,266 | ||||
Provision for bad debts(1) | 3,319 | 3,028 | ||||||
Charge-offs — net of recoveries | (1,236 | ) | (4,218 | ) | ||||
Ending balance — December 31 | $ | 6,159 | $ | 4,076 | ||||
(1) | For the year ended December 31, 2009, the Company has classified $0.3 million of the provision for bad debt as restructuring charges with the consolidated statements of income (see Note 4). |
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3. | Acquisitions |
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4. | Restructuring |
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Accrued | Accrued | Cumulative | ||||||||||||||||||||||
Balance at | Balance at | Costs | ||||||||||||||||||||||
December 31, | Costs | December 31, | Incurred | |||||||||||||||||||||
2008 | Incurred(1) | Payments | Non-cash | 2009 | to Date(2) | |||||||||||||||||||
Severance and benefits | $ | 14,533 | $ | (467 | ) | $ | (12,070 | ) | $ | — | $ | 1,996 | $ | 14,505 | ||||||||||
(1) | Represent changes in the Company’s estimates for the cost of providing post employment benefits to employees impacted by its restructuring activities. | |
(2) | At December 31, 2009, cumulative costs incurred to date represent the total expected costs. |
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Accrued | Accrued | Total | ||||||||||||||||||||||
Balance at | Balance at | Expected | ||||||||||||||||||||||
December 31, | Costs | December 31, | Restructuring | |||||||||||||||||||||
2008 | Incurred(1) | Payments | Non-cash | 2009 | Costs | |||||||||||||||||||
Severance and benefits | $ | — | $ | 9,436 | $ | (6,551 | ) | $ | (126 | ) | $ | 2,759 | $ | 11,356 | ||||||||||
Lease and contract termination fees | — | 15,919 | (8,358 | ) | (103 | ) | 7,458 | 19,079 | ||||||||||||||||
Asset impairments | — | 19,924 | — | (19,924 | ) | — | 20,238 | |||||||||||||||||
Conversion and transfer costs | — | 13,883 | (11,222 | ) | (2,357 | ) | 304 | 23,483 | ||||||||||||||||
Total | $ | — | $ | 59,162 | $ | (26,131 | ) | $ | (22,510 | ) | $ | 10,521 | $ | 74,156 | ||||||||||
(1) | At December 31, 2009, costs incurred represent the total cumulative costs incurred. |
5. | Equity Method Investment |
6. | Fair Value Measurements |
• | Level 1 — Quoted prices in active markets for identical assets or liabilities. | |
• | Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
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• | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
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Fair Value | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Measurements | |||||||||||||
At December 31, 2009: | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | 223,665 | $ | — | $ | — | $ | 223,665 | ||||||||
Securities segregated under federal and other regulations | 279,579 | — | — | 279,579 | ||||||||||||
Securities owned — trading: | ||||||||||||||||
Money market funds | 181 | — | — | 181 | ||||||||||||
Mutual funds | 6,694 | — | — | 6,694 | ||||||||||||
Equity securities | 11 | — | — | 11 | ||||||||||||
Debt securities | — | 425 | — | 425 | ||||||||||||
U.S. treasury obligations | 7,797 | — | ��� | 7,797 | ||||||||||||
Certificates of deposit | — | 253 | — | 253 | ||||||||||||
Total securities owned — trading | 14,683 | 678 | — | 15,361 | ||||||||||||
Other assets | 12,739 | — | — | 12,739 | ||||||||||||
Total assets at fair value | $ | 530,666 | $ | 678 | $ | — | $ | 531,344 | ||||||||
Liabilities | ||||||||||||||||
Securities sold but not yet purchased: | ||||||||||||||||
Mutual funds | $ | 3,773 | $ | — | $ | — | $ | 3,773 | ||||||||
U.S. treasury obligations | 5 | — | — | 5 | ||||||||||||
Equity securities | 7 | — | — | 7 | ||||||||||||
Certificates of deposit | — | 123 | — | 123 | ||||||||||||
Debt securities | — | 95 | — | 95 | ||||||||||||
Total securities sold but not yet purchased | 3,785 | 218 | — | 4,003 | ||||||||||||
Interest rate swaps | — | 17,292 | — | 17,292 | ||||||||||||
Total liabilities at fair value | $ | 3,785 | $ | 17,510 | $ | — | $ | 21,295 | ||||||||
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Fair Value | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Measurements | |||||||||||||
At December 31, 2008: | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | 56,122 | $ | — | $ | — | $ | 56,122 | ||||||||
Securities owned — trading: | ||||||||||||||||
Money market funds | 238 | — | — | 238 | ||||||||||||
Mutual funds | 6,659 | — | — | 6,659 | ||||||||||||
Equity securities | 585 | — | — | 585 | ||||||||||||
Debt securities | — | 510 | — | 510 | ||||||||||||
U.S. treasury obligations | 2,819 | — | — | 2,819 | ||||||||||||
Total securities owned — trading | 10,301 | 510 | — | 10,811 | ||||||||||||
Other assets | 6,965 | — | — | 6,965 | ||||||||||||
Total assets at fair value | $ | 73,388 | $ | 510 | $ | — | $ | 73,898 | ||||||||
Liabilities | ||||||||||||||||
Securities sold but not yet purchased: | ||||||||||||||||
Mutual funds | $ | 3,585 | $ | — | $ | — | $ | 3,585 | ||||||||
Equity securities | 87 | — | — | 87 | ||||||||||||
Debt securities | — | 238 | — | 238 | ||||||||||||
Total securities sold but not yet purchased | 3,672 | 238 | — | 3,910 | ||||||||||||
Interest rate swaps | — | 25,417 | — | 25,417 | ||||||||||||
Total liabilities at fair value | $ | 3,672 | $ | 25,655 | $ | — | $ | 29,327 | ||||||||
7. | Held-to-Maturity Securities |
Gross | ||||||||||||
Amortized | Unrealized | |||||||||||
Cost | Gains | Fair Value | ||||||||||
At December 31, 2009: | ||||||||||||
U.S. government notes | $ | 10,354 | $ | 49 | $ | 10,403 | ||||||
Certificate of deposit | 100 | — | 100 | |||||||||
Total | $ | 10,454 | $ | 49 | $ | 10,503 | ||||||
At December 31, 2008: | ||||||||||||
U.S. government notes | $ | 10,404 | $ | 173 | $ | 10,577 | ||||||
Certificate of deposit | 100 | — | 100 | |||||||||
Total | $ | 10,504 | $ | 173 | $ | 10,677 | ||||||
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Within 1 Year | 1-2 Years | Total | ||||||||||
U.S. government notes | $ | 5,126 | $ | 5,228 | $ | 10,354 | ||||||
Certificate of deposit | 100 | — | 100 | |||||||||
Total amortized cost | $ | 5,226 | $ | 5,228 | $ | 10,454 | ||||||
Total fair value | $ | 5,256 | $ | 5,247 | $ | 10,503 | ||||||
8. | Receivables From Product Sponsors, Broker-Dealers and Clearing Organizations and Payables to Broker-Dealers and Clearing Organizations |
December 31, | ||||||||
2009 | 2008 | |||||||
Receivables: | ||||||||
Commissions receivable from product sponsors and others | $ | 102,920 | $ | 87,078 | ||||
Receivable from clearing organizations | 49,793 | 88,722 | ||||||
Receivable from broker-dealers | 12,195 | 45,630 | ||||||
Securitiesfailed-to-deliver | 6,992 | 9,970 | ||||||
Total receivables | $ | 171,900 | $ | 231,400 | ||||
Payables: | ||||||||
Securities loaned | $ | 7,239 | $ | 5,252 | ||||
Securitiesfailed-to-receive | 5,495 | 9,227 | ||||||
Payable to broker-dealers | 2,787 | 4,079 | ||||||
Payable to clearing organizations | 2,696 | 3,176 | ||||||
Total payables | $ | 18,217 | $ | 21,734 | ||||
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9. | Fixed Assets |
December 31, | ||||||||
2009 | 2008 | |||||||
Internally developed software | $ | 193,682 | $ | 190,949 | ||||
Computers and software | 82,459 | 87,113 | ||||||
Leasehold improvements | 41,559 | 42,547 | ||||||
Furniture and equipment | 17,180 | 20,116 | ||||||
Property | 6,572 | 6,572 | ||||||
Total fixed assets | 341,452 | 347,297 | ||||||
Accumulated depreciation and amortization | (239,868 | ) | (185,537 | ) | ||||
Fixed assets — net | $ | 101,584 | $ | 161,760 | ||||
10. | Goodwill and Intangible Assets |
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Gross | Net | |||||||||||
Carrying | Accumulated | Carrying | ||||||||||
Value | Amortization | Value | ||||||||||
At December 31, 2009: | ||||||||||||
Definite-lived intangible assets: | ||||||||||||
Advisor and financial institution relationships | $ | 458,424 | $ | (91,586 | ) | $ | 366,838 | |||||
Product sponsor relationships | 231,930 | (43,482 | ) | 188,448 | ||||||||
Trust client relationships | 2,630 | (652 | ) | 1,978 | ||||||||
Trademarks and trade names | 457 | (457 | ) | — | ||||||||
Total definite-lived intangible assets | $ | 693,441 | $ | (136,177 | ) | $ | 557,264 | |||||
Indefinite-lived intangible assets: | ||||||||||||
Trademark and trade name | 39,819 | |||||||||||
Total intangible assets | $ | 597,083 | ||||||||||
At December 31, 2008: | ||||||||||||
Definite-lived intangible assets: | ||||||||||||
Advisor and financial institution relationships | $ | 482,397 | $ | (71,318 | ) | $ | 411,079 | |||||
Product sponsor relationships | 233,663 | (33,442 | ) | 200,221 | ||||||||
Trust client relationships | 2,630 | (521 | ) | 2,109 | ||||||||
Trademarks and trade names | 2,757 | (1,282 | ) | 1,475 | ||||||||
Total definite-lived intangible assets | $ | 721,447 | $ | (106,563 | ) | $ | 614,884 | |||||
Indefinite-lived intangible assets: | ||||||||||||
Trademark and trade name | 39,819 | |||||||||||
Total intangible assets | $ | 654,703 | ||||||||||
2010 | $ | 37,006 | ||
2011 | 36,840 | |||
2012 | 36,548 | |||
2013 | 35,927 | |||
2014 | 35,927 | |||
Thereafter | 375,016 | |||
Total | $ | 557,264 | ||
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11. | Income Taxes |
2009 | 2008 | 2007 | ||||||||||
Current provision: | ||||||||||||
Federal | $ | 53,757 | $ | 61,498 | $ | 58,123 | ||||||
State | 12,750 | 11,909 | 9,961 | |||||||||
Total current provision | 66,507 | 73,407 | 68,084 | |||||||||
Deferred benefit: | ||||||||||||
Federal | (24,360 | ) | (25,385 | ) | (18,151 | ) | ||||||
State | (17,100 | ) | (753 | ) | (3,169 | ) | ||||||
Total deferred benefit | (41,460 | ) | (26,138 | ) | (21,320 | ) | ||||||
Provision for income taxes | $ | 25,047 | $ | 47,269 | $ | 46,764 | ||||||
2009 | 2008 | 2007 | ||||||||||
Taxes computed at statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes — net of federal benefit | (3.9 | ) | 7.8 | 4.1 | ||||||||
Share-based compensation | 1.5 | 1.0 | — | |||||||||
Uncertain tax positions | 1.8 | 3.6 | 3.7 | |||||||||
Non-deductible expenses | 0.6 | 1.6 | 1.3 | |||||||||
Change in valuation allowance | 0.1 | 1.2 | — | |||||||||
Other | (0.6 | ) | 0.8 | (0.7 | ) | |||||||
Provision for income taxes | 34.5 | % | 51.0 | % | 43.4 | % | ||||||
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December 31, | ||||||||
2009 | 2008 | |||||||
Deferred tax assets: | ||||||||
State taxes | $ | 15,019 | $ | 19,976 | ||||
Reserves for litigation, vacation, and bonuses | 24,030 | 19,003 | ||||||
Unrealized gain on interest rate swaps | 5,675 | 9,920 | ||||||
Deferred rent | 5,649 | 6,457 | ||||||
Share-based compensation | 6,905 | 5,212 | ||||||
Provision for bad debts | 2,849 | 2,041 | ||||||
Net operating losses of acquired subsidiaries | 172 | 236 | ||||||
Other | 1,841 | 2,777 | ||||||
Subtotal | 62,140 | 65,622 | ||||||
Valuation allowance | (1,340 | ) | (1,290 | ) | ||||
Total deferred tax assets | 60,800 | 64,332 | ||||||
Deferred tax liabilities: | ||||||||
Amortization of intangible assets and trademarks and trade names | (191,108 | ) | (228,163 | ) | ||||
Depreciation of fixed assets | (17,300 | ) | (21,338 | ) | ||||
Other | — | — | ||||||
Total deferred tax liabilities | (208,408 | ) | (249,501 | ) | ||||
Deferred income taxes — net | $ | (147,608 | ) | $ | (185,169 | ) | ||
2009 | 2008 | 2007 | ||||||||||
Balance — Beginning of year | $ | 20,258 | $ | 15,139 | $ | 8,533 | ||||||
Increases related to acquired tax positions | 142 | 969 | 2,725 | |||||||||
Increases related to current year tax positions | 4,066 | 6,480 | 5,657 | |||||||||
Reductions as a result of a lapse of the applicable statute of limitations related to acquired tax positions | (627 | ) | (596 | ) | (524 | ) | ||||||
Reductions as a result of a lapse of the applicable statute of limitations related to prior period tax positions | (1,881 | ) | (1,734 | ) | (1,252 | ) | ||||||
Balance — End of year | $ | 21,958 | $ | 20,258 | $ | 15,139 | ||||||
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12. | Indebtedness |
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December 31, | ||||||||||||||||||||
2009 | 2008 | |||||||||||||||||||
Interest | Interest | |||||||||||||||||||
Maturity | Balance | Rate | Balance | Rate | ||||||||||||||||
Revolving line of credit | 12/28/2011 | $ | — | — | % | $ | 90,000 | 2.46 | %(3) | |||||||||||
Senior secured term loan: | ||||||||||||||||||||
Unhedged | 6/28/2013 | 419,223 | 2.00 | %(1) | 332,647 | 2.23 | %(4) | |||||||||||||
Hedged with interest rate swaps | 6/28/2013 | 400,000 | 2.00 | %(2) | 495,000 | 3.21 | %(5) | |||||||||||||
Senior unsecured subordinated notes | 12/15/2015 | 550,000 | 10.75 | % | 550,000 | 10.75 | % | |||||||||||||
Total borrowings | 1,369,223 | 1,467,647 | ||||||||||||||||||
Less current borrowings (maturities within 12 months) | 8,424 | 8,424 | ||||||||||||||||||
Long-term borrowings — net of current portion | $ | 1,360,799 | $ | 1,459,223 | ||||||||||||||||
(1) | As of December 31, 2009, the variable interest rate for the unhedged portion of the senior secured term loan is based on the three-month LIBOR of 0.25%, plus the applicable interest rate margin of 1.75%. | |
(2) | As of December 31, 2009, the variable interest rate for the hedged portion of the senior secured term loan is based on the three-month LIBOR of 0.25%, plus the applicable interest rate margin of 1.75%. | |
(3) | As of December 31, 2008, the variable interest rate for the revolving line of credit is based on the one-month LIBOR of 0.46% plus the applicable interest rate margin of 2.00%. | |
(4) | As of December 31, 2008, the variable interest rate for the unhedged portion of the senior secured term loan is based on a weighted average of the one- and three-month LIBOR of 0.46% and 1.46%, respectively, plus the applicable interest rate margin of 1.75%. | |
(5) | As of December 31, 2008, the variable interest rate for the hedged portion of the senior secured term loan is based on the three-month LIBOR of 1.46%, plus the applicable interest rate margin of 1.75%. |
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Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Average balance outstanding | $ | 56,472 | $ | 48,725 | $ | 6,282 | ||||||
Weighted-average interest rate | 2.41 | % | 4.74 | % | 6.93 | % |
Senior | Senior | Total | ||||||||||
Secured | Unsecured | Amount | ||||||||||
2010 | $ | 8,424 | $ | — | $ | 8,424 | ||||||
2011 | 8,424 | — | 8,424 | |||||||||
2012 | 8,424 | — | 8,424 | |||||||||
2013 | 793,951 | — | 793,951 | |||||||||
2014 | — | — | — | |||||||||
Thereafter | — | 550,000 | 550,000 | |||||||||
Total | $ | 819,223 | $ | 550,000 | $ | 1,369,223 | ||||||
13. | Interest Rate Swaps |
Variable | ||||||||||||||||||
Notional | Fixed | Receive | Fair | Maturity | ||||||||||||||
Balance | Pay Rate | Rate(1) | Value | Date | ||||||||||||||
70,000 | 3.43% | 0.25% | $ (1,087) | June 30, 2010 | ||||||||||||||
120,000 | 4.79% | 0.25% | (2,672) | June 30, 2010 | ||||||||||||||
145,000 | 4.83% | 0.25% | (8,406) | June 30, 2011 | ||||||||||||||
65,000 | 4.85% | 0.25% | (5,127) | June 30, 2012 | ||||||||||||||
$400,000 | $(17,292) | |||||||||||||||||
(1) | The variable receive rate reset on the last day of the period, based on the applicable three-month LIBOR. The effective rate from September 30, 2009 through December 30, 2009, was 0.28%. As of December 31, 2009, the effective rate was 0.25%. |
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14. | Commitments and Contingencies |
Years ending December 31 | ||||
2010 | $ | 27,543 | ||
2011 | 27,445 | |||
2012 | 20,495 | |||
2013 | 13,662 | |||
2014 | 7,483 | |||
Thereafter | 16,324 | |||
Total | $ | 112,952 | ||
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15. | Share-Based Compensation |
2009 | 2008 | 2007 | ||||||||||
Expected life (in years) | 7.13 | 6.52 | 6.50 | |||||||||
Expected stock price volatility | 51.35 | % | 33.78 | % | 31.08 | % | ||||||
Expected dividend yield | — | — | — | |||||||||
Annualized forfeiture rate | 4.35 | % | 1.51 | % | 1.00 | % | ||||||
Fair value of options | $ | 12.30 | $ | 9.96 | $ | 9.86 | ||||||
Risk-free interest rate | 2.93 | % | 2.73 | % | 4.93 | % |
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Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted- | Remaining | Aggregate | ||||||||||||||
Number of | Average | Contractual | Intrinsic | |||||||||||||
Shares | Exercise Price | Term (Years) | Value | |||||||||||||
(In thousands) | ||||||||||||||||
Outstanding — December 31, 2006 | 21,047,950 | $ | 1.64 | |||||||||||||
Granted | 760,650 | 23.51 | ||||||||||||||
Exercised | (47,180 | ) | 1.12 | |||||||||||||
Forfeited | (13,340 | ) | 14.76 | |||||||||||||
Outstanding — December 31, 2007 | 21,748,080 | 2.46 | ||||||||||||||
Granted | 1,936,206 | 27.55 | ||||||||||||||
Exercised | (286,968 | ) | 2.04 | |||||||||||||
Forfeited | (3,319,035 | ) | 2.59 | |||||||||||||
Outstanding — December 31, 2008 | 20,078,283 | 4.87 | ||||||||||||||
Granted | 3,209,361 | 21.32 | ||||||||||||||
Exercised | (256,795 | ) | 1.13 | |||||||||||||
Forfeited | (328,380 | ) | 21.83 | |||||||||||||
Outstanding — December 31, 2009 | 22,702,469 | $ | 6.99 | 5.00 | $ | 380,301 | ||||||||||
Exercisable — December 31, 2009 | 17,884,685 | $ | 2.64 | 3.91 | $ | 373,153 | ||||||||||
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Outstanding | Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
Average | Weighted- | Weighted- | ||||||||||||||||||
Total | Remaining | Average | Average | |||||||||||||||||
Number of | Life | Exercise | Number of | Exercise | ||||||||||||||||
Range of Exercise Prices | Shares | (Years) | Price | Shares | Price | |||||||||||||||
At December 31, 2009: | ||||||||||||||||||||
$1.07 — $2.38 | 17,185,660 | 3.75 | $ | 1.74 | 17,185,660 | $ | 1.74 | |||||||||||||
$10.30 — $19.74 | 952,164 | 8.90 | 18.30 | 90,262 | 15.00 | |||||||||||||||
$21.60 — $22.08 | 2,247,650 | 9.43 | 22.02 | 124,499 | 21.60 | |||||||||||||||
$23.02 — $27.80 | 2,316,995 | 8.43 | 26.68 | 484,264 | 27.34 | |||||||||||||||
22,702,469 | 5.00 | $ | 6.99 | 17,884,685 | $ | 2.64 | ||||||||||||||
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16. | Earnings per Share |
For The Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Basic earnings per share: | ||||||||||||
Net income, as reported | $ | 47,520 | $ | 45,496 | $ | 61,069 | ||||||
Less: allocation of undistributed earnings to stock units | (919 | ) | (4 | ) | — | |||||||
Net income, for computing basic earnings per share | $ | 46,601 | $ | 45,492 | $ | 61,069 | ||||||
Diluted earnings per share: | ||||||||||||
Net income, as reported | $ | 47,520 | $ | 45,496 | $ | 61,069 | ||||||
Less: allocation of undistributed earnings to stock units | (810 | ) | (3 | ) | — | |||||||
Net income, for computing diluted earnings per share | $ | 46,710 | $ | 45,493 | $ | 61,069 | ||||||
For The Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Basic weighted average number of shares outstanding | 86,649 | 86,447 | 84,950 | |||||||||
Dilutive common share equivalents | 11,845 | 13,887 | 14,149 | |||||||||
Diluted weighted average number of shares outstanding | 98,494 | 100,334 | 99,099 | |||||||||
For The Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Basic earnings per share | $ | 0.54 | $ | 0.53 | $ | 0.72 | ||||||
Diluted earnings per share | $ | 0.47 | $ | 0.45 | $ | 0.62 |
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17. | Employee and Advisor Benefit Plans |
18. | Related Party Transactions |
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19. | Net Capital/Regulatory Requirements |
December 31, 2009 | ||||||||||||
Minimum | ||||||||||||
Net | Net Capital | Excess Net | ||||||||||
Capital | Required | Capital | ||||||||||
LPL Financial Corporation | $ | 64,149 | $ | 6,221 | $ | 57,928 | ||||||
UVEST Financial Services Group, Inc. | 10,099 | 1,673 | 8,426 | |||||||||
Total | $ | 74,248 | $ | 7,894 | $ | 66,354 | ||||||
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20. | Financial Instruments with Off-Balance-Sheet Credit Risk and Concentrations of Credit Risk |
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21. | Selected Quarterly Financial Data (Unaudited) |
2009 | ||||||||||||||||
(In thousands) | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Revenues | $ | 643,040 | $ | 669,366 | $ | 702,378 | $ | 734,906 | ||||||||
Net revenues | 642,978 | 669,317 | 702,326 | 734,884 | ||||||||||||
Gross margin(1) | 200,447 | 205,329 | 221,144 | 218,006 | ||||||||||||
Net income (loss) | $ | 14,797 | $ | 15,581 | $ | (1,456 | ) | $ | 18,598 |
2008 | ||||||||||||||||
(In thousands) | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Revenues | $ | 798,647 | $ | 814,947 | $ | 799,537 | $ | 703,999 | ||||||||
Net revenues | 798,449 | 814,720 | 799,341 | 703,839 | ||||||||||||
Gross margin(1) | 245,118 | 244,551 | 251,788 | 211,844 | ||||||||||||
Net income | $ | 11,665 | $ | 14,303 | $ | 17,168 | $ | 2,360 |
(1) | Gross margin is calculated as net revenues less production expenses. Production expenses consist of the following expense categories from the consolidated statements of income: (i) commissions and advisory fees and (ii) brokerage, clearing and exchange. All other expense categories, including depreciation and amortization, are considered general and administrative in nature. Because the Company’s gross margin amounts do not include any depreciation and amortization expense, the gross margin amounts may not be comparable to those of others in the Company’s industry. |
22. | Subsequent Events |
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Item 13. | Other Expenses of Issuance and Distribution. |
Amount | ||||
SEC registration fee | $ | 42,780 | ||
FINRA filing fee | 60,500 | |||
Stock exchange listing fee | 25,000 | |||
Accountants’ fees and expenses | * | |||
Legal fees and expenses | * | |||
Blue Sky fees and expenses | * | |||
Transfer Agent’s fees and expenses | * | |||
Printing and engraving expenses | * | |||
Miscellaneous | * | |||
Total Expenses | $ | * | ||
* | To be filed by amendment. |
Item 14. | Indemnification of Directors and Officers. |
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Item 15. | Recent Sales of Unregistered Securities. |
• | On January 2, 2007, we issued 17 stockholders of UVEST an aggregate of 669,480 shares of common stock based on a stock valuation of $18.90 per share. These shares were issued and sold in connection with the UVEST acquisition in reliance upon the available exemptions from |
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registration requirements of Section 4(2) of the Securities Act. Each stockholder was provided information about our finances, business and management in connection with the acquisition. The offering was made through direct communication with this small stockholder group in connection with our acquisition of UVEST. Each recipient became a party to our Stockholders’ Agreement, which prohibits the transfers of shares unless in compliance with the terms of the Stockholders’ Agreement and applicable securities laws. The shares of common stock issued contain restrictive legends. |
• | On June 20, 2007, we issued 2,645,500 shares of our common stock to Pacific Select, LLC. These shares were issued in connection with a Purchase and Sale Agreement among Pacific Life Insurance Company, Pacific Select Group, LLC, the Company and LPL Holdings pursuant to which we acquired the Affiliated Entities from Pacific Select Group, LLC. These shares were issued in reliance upon the available exemptions from registration requirements of Section 4(2) of the Securities Act. Information about our finances, business and management was accessible to Pacific Select Group, LLC through materials provided in connection with the Purchase and Sale Agreement. Pacific Select Group, LLC is a party to our Stockholders’ Agreement, which prohibits the transfers of shares unless in compliance with the terms of the Stockholders’ Agreement and applicable securities laws. The shares of common stock issued contain restrictive legends. |
• | On September 17, 2007, we issued 4,386 shares of our common stock to 21 credit unions, each of which were stockholders of XCU Capital Corporation, Inc. (“XCU”). These shares were issued in connection with an Institution Transfer Agreement with XCU and its parent, XCU Corporation, Inc. pursuant to which we acquired the rights related to business relationships with certain institutions from XCU. These shares were issued in reliance upon the available exemptions from registration requirements of Section 4(2) of the Securities Act. Information about our finances, business and management was accessible to these sophisticated institutions through our annual and quarterly reports filed pursuant to the Exchange Act and through materials provided in connection with the Institution Transfer Agreement. The offering was made through direct communication with these sophisticated institutions. Each recipient became a party to our Stockholders’ Agreement, which prohibits the transfers of shares unless in compliance with the terms of the Stockholders’ Agreement and applicable securities laws. The shares of common stock issued contain restrictive legends. |
• | On March 14, 2008, we issued and sold to a trust affiliated with our director, Jeffrey Stiefler, 71,942 shares of our common stock, at a price per share of $27.80. On March 14, 2008, our director, James Riepe, and an affiliated trust, each acquired 35,971 shares of our common stock at a price per share of $27.80. The transactions were conducted in reliance upon the available exemptions from the registration requirements of Section 4(2) of the Securities Act. Both directors are accredited investors. As directors, each has access to information about our finances, business and management. The directors and affiliated trusts are parties to our Stockholders’ Agreement, which prohibits the transfers of shares unless in compliance with the terms of the Stockholders’ Agreement and applicable securities laws. The shares of common stock issued contain restrictive legends. |
• | On June 10, 2008, we issued incentive equity awards in the form of warrants to 44 credit unions and banks, each of which is an accredited investor, to purchase up to an aggregate total of 9,575 shares of our common stock at an exercise price per share of $27.17, pursuant to our 2008 Financial Institution Incentive Plan. These warrants were issued in reliance upon the available exemptions from registration requirements of Section 4(2) of the Securities Act and pursuant to Rule 506 of Regulation D promulgated under the Securities Act. This issuance was not for purposes of raising capital and no consideration was paid by the credit unions or banks. Each credit union and bank had an established relationship with us prior to the issuance. In addition, information about our finances, business and management was accessible to the credit unions and banks through our annual and quarterly reports filed |
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pursuant to the Exchange Act. The common stock issuable upon exercise of these warrants is subject to our Stockholders’ Agreement, which prohibits the transfers of these shares unless in compliance with the terms of the Stockholders’ Agreement and applicable securities laws. Shares issued upon exercise of these warrants contain restrictive legends. |
• | On June 13, 2008, we issued incentive equity awards in the form of warrants to one credit union and one bank, each of which is an accredited investor, to purchase up to an aggregate total of 579 shares of our common stock at an exercise price per share of $27.17, pursuant to our 2008 Financial Institution Incentive Plan. These warrants were issued in reliance upon the available exemptions from registration requirements of Section 4(2) of the Securities Act and pursuant to Rule 506 of Regulation D promulgated under the Securities Act. This issuance was not for purposes of raising capital and no consideration was paid by the credit union or bank. The credit union and bank had an established relationship with us prior to the issuance. In addition, information about our finances, business and management was accessible to the credit union and bank through our annual and quarterly reports filed pursuant to the Exchange Act. The common stock issuable upon exercise of these warrants is subject to our Stockholders’ Agreement, which prohibits the transfers of these shares unless in compliance with the terms of the Stockholders’ Agreement and applicable securities laws. Shares issued upon exercise of these warrants contain restrictive legends. |
• | On December 28, 2008, we issued 7,423,973 restricted shares to our advisors who held bonus credits under our fifth amended and restated 2000 Stock Bonus Plan. These restricted shares may not be sold, assigned or transferred and are not entitled to receive dividends or non-cash distributions, until either a sale of the company that constitutes a change in control or an initial public offering. No consideration was paid to the registrant by any recipient of any of the recipient shares. The transactions were conducted in reliance upon the available exemptions from registration requirements of the Securities Act, including those contained in Section 3(a)(9). | |
• | On December 31, 2008, we issued 2,823,452 restricted stock units under our 2008 Nonqualified Deferred Compensation Plan to certain employees. These restricted stock units were issued to holders of options issued under our 2005 Stock Option Plan for Non-Qualified Stock Options and our 2005 Stock Option Plan for Incentive Stock Options, that were expiring in 2009 and 2010. No consideration was paid to the registrant by any recipient of any of the restricted stock units. The transactions were conducted in reliance upon the available exemptions from registration requirements of the Securities Act, including those contained in Section 3(a)(9). |
• | On February 19, 2009, we issued incentive equity awards in the form of warrants to 57 credit unions and banks, each of which is an accredited investor, to purchase up to an aggregate total of 12,362 shares of our common stock at an exercise price per share of $18.04, pursuant to our 2008 Financial Institution Incentive Plan. These warrants were issued in reliance upon the available exemptions from registration requirements of Section 4(2) of the Securities Act and pursuant Rule 506 of Regulation D promulgated under the Securities Act. This issuance was not for the purposes of raising capital and no consideration was paid by the credit unions or banks. Each credit union and bank had an established relationship with us prior to the issuance. In addition, information about our finances, business and management was accessible to the credit unions and banks through our annual and quarterly reports filed pursuant to the Exchange Act. The common stock issuable upon exercise of these warrants is subject to our Stockholders’ Agreement, which prohibits the transfers of these shares unless in compliance with the terms of the Stockholders’ Agreement and applicable securities laws. Shares issued upon exercise of these warrants contain restrictive legends. |
• | On November 4, 2009, we issued incentive equity awards in the form of warrants to 44 credit unions and banks, each of which is an accredited investor, to purchase up to an aggregate |
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total of 18,763 shares of our common stock at an exercise price per share of $23.02, pursuant to our 2008 Financial Institution Incentive Plan. These warrants were issued in reliance upon the available exemptions from registration requirements of Section 4(2) of the Securities Act and pursuant to Rule 506 of Regulation D promulgated under the Securities Act. This issuance was not for the purposes of raising capital and no consideration was paid by the credit unions or banks. Each credit union and bank had an established relationship with us prior to the issuance. In addition, information about our finances, business and management was accessible to the credit unions and banks through our annual and quarterly reports filed pursuant to the Exchange Act. The common stock issuable upon exercise of these warrants is subject to our Stockholders’ Agreement, which prohibits the transfers of these shares unless in compliance with the terms of the Stockholders’ Agreement and applicable securities laws. Shares issued upon exercise of these warrants contain restrictive legends. |
Item 16. | Exhibits and Financial Statement Schedules. |
Number | Description | |||
1 | .1 | Form of Underwriting Agreement | ||
3 | .1 | Amended and Restated Certificate of Incorporation (to be effective upon completion of this offering) | ||
3 | .2* | Second Amended and Restated Bylaws (to be effective upon completion of this offering) | ||
4 | .1* | Specimen common stock certificate | ||
4 | .2 | Stockholders’ Agreement, dated as of December 28, 2005, among LPLIH Investment Holdings Inc., LPL Holdings, Inc. and other stockholders party thereto (1) | ||
4 | .3 | Fifth Amended and Restated LPL Investment Holdings Inc. 2000 Stock Bonus Plan (6) | ||
5 | .1* | Opinion of Ropes & Gray LLP | ||
10 | .1 | 2005 Stock Option Plan for Incentive Stock Options (2) | ||
10 | .2 | 2005 Stock Option Plan for Nonqualified Stock Options (2) | ||
10 | .3 | Executive Employment Agreement between Mark S. Casady and LPL Holdings, Inc., dated December 28, 2005 (2) | ||
10 | .4 | Executive Employment Agreement between Esther M. Stearns and LPL Holdings, Inc., dated December 28, 2005 (2) | ||
10 | .5 | Executive Employment Agreement between William E. Dwyer III and LPL Holdings, Inc., dated December 28, 2005 (2) | ||
10 | .6** | Executive Employment Agreement between Dan H. Arnold and UVEST Financial Services Group Inc. dated January 2, 2007 | ||
10 | .7** | Amendment dated September 28, 2009 to the Executive Employment Agreement between Dan H. Arnold and UVEST Financial Services Group Inc. dated January 2, 2007 | ||
10 | .8** | Executive Employment Agreement between Stephanie L. Brown and LPL Holdings, Inc., dated December 28, 2005 | ||
10 | .9** | Executive Employment Agreement between Jonathan G. Eaton and LPL Holdings, Inc., dated December 28, 2005 | ||
10 | .10 | Form of Indemnification Agreement | ||
10 | .11 | LPL Investment Holdings Inc. 2008 Stock Option Plan (3) | ||
10 | .12** | Form of LPL Investment Holdings Inc. Stock Option Agreement | ||
10 | .13 | 2008 Nonqualified Deferred Compensation Plan (5) | ||
10 | .14 | LPL Investment Holdings Inc. Advisor Incentive Plan (4) | ||
10 | .15** | LPL Investment Holdings Inc. 2008 Financial Institution Incentive Plan |
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Number | Description | |||
10 | .16 | LPL Investment Holdings Inc. and Affiliates Corporate Executive Bonus Plan, approved on March 15, 2010 (9) | ||
10 | .17** | Thomson Transaction Services Master Subscription Agreement dated as of January 5, 2009 between LPL Financial Corporation and Thomson Financial LLC | ||
10 | .18 | Third Amended and Restated Credit Agreement, dated as of May 24, 2010, by and among LPL Investment Holdings Inc., LPL Holdings, Inc., the several lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc. as administrative agent, and Morgan Stanley & Co. as collateral agent (10) | ||
10 | .19 | 2010 Omnibus Equity Incentive Plan | ||
10 | .20* | Form of 2010 Omnibus Equity Incentive Plan Option Agreement | ||
21 | .1 | List of Subsidiaries of LPL Investment Holdings Inc. (8) | ||
23 | .1 | Consent of Deloitte & Touche LLP, independent registered public accounting firm | ||
23 | .2* | Consent of Ropes & Gray LLP (included in Exhibit 5.1) | ||
24 | .1** | Power of Attorney |
(1) | Incorporated by reference to the Amendment No. 1 to Registration Statement on Form 10 of the Company filed on July 10, 2007. |
(2) | Incorporated by reference to the Registration Statement on Form 10 of the Company filed on April 30, 2007. |
(3) | Incorporated by reference to theForm 8-K filed on February 21, 2008. | |
(4) | Incorporated by reference to the Form S-8 on June 5, 2008. | |
(5) | Incorporated by reference to theForm 8-K filed on November 25, 2008. | |
(6) | Incorporated by reference to theForm 8-K filed on December 18, 2008. | |
(7) | Incorporated by reference to theForm 10-Q filed on May 14, 2009. | |
(8) | Incorporated by reference to theForm 10-K filed on March 9, 2010. | |
(9) | Incorporated by reference to the Schedule 14A filed on April 27, 2010. | |
(10) | Incorporated by reference to theForm 8-K filed on May 28, 2010. |
* | To be filed by amendment |
** | Previously filed |
† | Confidential treatment requested as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission. |
Item 17. | Undertakings. |
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By: | /s/ Mark S. Casady |
Signature | Title | Date | ||||
* Mark S. Casady | Chief Executive Officer and Chairman(Principal Executive Officer) | July 9, 2010 | ||||
* Robert J. Moore | Chief Financial Officer (Principal Financial Officer) | July 9, 2010 | ||||
* Thomas D. Lux | Chief Accounting Officer (Principal Accounting Officer) | July 9, 2010 | ||||
* John J. Brennan | Director | July 9, 2010 | ||||
* Richard W. Boyce | Director | July 9, 2010 | ||||
* James S. Putnam | Director, Vice Chairman | July 9, 2010 | ||||
* Erik D. Ragatz | Director | July 9, 2010 | ||||
* James S. Riepe | Director | July 9, 2010 | ||||
* Richard P. Schifter | Director | July 9, 2010 | ||||
* Jeffrey E. Stiefler | Director | July 9, 2010 |
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Signature | Title | Date | ||||
* Allen R. Thorpe | Director | July 9, 2010 | ||||
*By: | /s/ Mark S. Casady Mark S. Casady Attorney-in-fact |
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