UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2010
Commission File Number 1-15799
LADENBURG THALMANN FINANCIAL SERVICES INC.
(Exact Name Of Registrant As Specified In Its Charter)
Florida
(State or other jurisdiction of
incorporation or organization)
4400 Biscayne Boulevard, 12th Floor
Miami, Florida
(Address of principal executive offices)
65-0701248
(I.R.S. Employer
Identification Number)
33137
(Zip Code)
(212) 409-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $.0001 per share
Name of each exchange on which registered
NYSE Amex
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statement incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See the definitions of “large accelerated filer,“ “accelerated filer“ and “smaller reporting company“ in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of June 30, 2010 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate
market value of the registrant’s common stock (based on the closing price on the NYSE Amex on that date) held by non-affiliates
of the registrant was approximately $131,546,506.
As of March 7, 2011, there were 183,596,492 shares of the registrant’s common stock outstanding.
Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K is incorporated by reference from the definitive Proxy
Statement for the 2011 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission no later than
Documents Incorporated by Reference:
120 days after the end of the Registrant’s fiscal year covered by this report.
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
Form 10-K
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
SIGNATURES
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Removed and Reserved
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
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ITEM 1. BUSINESS.
General
PART I
We are engaged in investment banking, equity research, institutional sales and trading, independent brokerage and advisory
services, asset management services and trust services through our principal subsidiaries, Ladenburg Thalmann & Co. Inc.
(“Ladenburg”), Investacorp Inc. (collectively with related companies, “Investacorp“), Triad Advisors, Inc. (“Triad”), Ladenburg
Thalmann Asset Management Inc. (“LTAM”) and Premier Trust, Inc. (“Premier”). We are committed to establishing a significant
presence in the financial services industry by meeting the varying investment needs of our corporate, institutional and retail
clients.
Ladenburg is a full service broker-dealer that has been a member of the New York Stock Exchange (“NYSE”) since 1879. It
provides its services principally for middle market and emerging growth companies and high net worth individuals through a
coordinated effort among corporate finance, capital markets, asset management, brokerage and trading professionals.
Investacorp is an independent broker-dealer and registered investment advisor that has been serving the independent financial
advisor community since 1978. Investacorp’s national network of independent contractor financial advisors primarily serves retail
clients. We acquired Investacorp in October 2007. Investacorp’s independent financial advisors are located in approximately 309
offices in 42 states.
Triad is an independent broker-dealer and registered investment advisor that offers a broad range of products, services and
total wealth management solutions to independent contractor financial advisors located nationwide. Triad’s independent financial
advisors primarily serve retail clients. Triad was founded in 1998 and we acquired Triad in August 2008. Triad’s independent
financial advisors are located in approximately 257 offices in 40 states.
LTAM is a registered investment advisor. LTAM offers various asset management products utilized by Ladenburg clients as
well as clients of Investacorp’s and Triad’s financial advisors.
Premier, a Nevada trust company, provides trust administration of personal and retirement accounts, estate and financial
planning, wealth management and custody services. We acquired Premier in September 2010.
Through our acquisitions of Investacorp and Triad, we have become a significant presence in the independent broker-dealer
space. During the past decade, this has been one of the fastest growing segments of the financial services industry. With combined
revenues of approximately $150 million for 2010 and approximately 1,042 financial advisors for Investacorp and Triad, we have
become one of the approximately 25 largest independent broker-dealers. We believe that we have the opportunity through
acquisition and recruiting to significantly expand our market share in this segment over the next several years. Our goal remains as
a public financial services company to marry the more recurring and predictable revenue and cash flows of the independent
broker-dealer business with Ladenburg’s traditional investment banking, capital markets, institutional equity and related
businesses. Ladenburg’s businesses are generally more volatile and subject to the cycles of the capital markets than our
independent broker-dealer subsidiaries, but historically have enjoyed strong operating margins in good market conditions.
Each of Ladenburg, Investacorp and Triad is subject to regulation by, among others, the Securities and Exchange Commission
(“SEC”), the Financial Industry Regulatory Authority (“FINRA”), and the Municipal Securities Rulemaking Board (“MSRB”) and
is a member of the Securities Investor Protection Corporation (“SIPC”). Ladenburg and Triad are also subject to regulation by the
Commodities Futures Trading Commission (“CFTC”) and National Futures Association. Premier is subject to regulation by the
Nevada Department of Business and Industry Financial Institutions Division.
Ladenburg’s private client services and institutional sales departments serve approximately 11,000 accounts nationwide and
LTAM provides investment management services to numerous individuals and institutions. At December 31, 2010, Investacorp’s
approximately 440 financial advisors served approximately 153,000 accounts nationwide and Investacorp had approximately
$8.0 billion in client assets. Triad’s
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approximately 602 financial advisors served approximately 125,000 accounts nationwide and had approximately $13.0 billion in
client assets at December 31, 2010. On a consolidated basis, total client assets exceeded $22 billion at December 31, 2010.
We were incorporated under the laws of the State of Florida in February 1996.
Available Information
Our corporate filings, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on
Form 8-K, our proxy statements and reports filed by our officers and directors under Section 16(a) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and any amendments to those filings, are available, free of charge, on our Web site,
www.ladenburg.com, as soon as reasonably practicable after we electronically file or furnish such material with the SEC. We do
not intend for information contained in our Web site, or those of our subsidiaries, to be a part of this annual report on Form 10-K.
In February 2004, our board of directors adopted a code of ethics that applies to our directors, officers and employees as well as
those of our subsidiaries. We will provide to any person, without charge, a copy of our code of ethics. Requests for copies of our
code of ethics should be sent in writing to Ladenburg Thalmann Financial Services Inc., 4400 Biscayne Blvd., 12th Floor, Miami,
FL 33137, Attn: Secretary.
Caution Concerning Forward-Looking Statements and Risk Factors
This annual report on Form 10-K includes certain “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are based on management’s current expectations or beliefs and are subject to
uncertainty and changes in circumstances. Actual results may vary materially from the views expressed in the forward-looking
statements contained in this report due to changes in economic, business, competitive, strategic and/or regulatory factors, and
other factors affecting the operation of our businesses. For more detailed information about these factors, and risk factors about our
operations, see Item 1A. “Risk Factors,” and Item 7. “Management’s Discussion and Analysis of Results of Operations and
Financial Condition — Special Note Regarding Forward-Looking Statements” below. We are not required (and expressly disclaim
any obligation) to update or alter any forward-looking statements, whether as a result of new information, subsequent events or
otherwise.
Recent Developments
Private Equity Offering
On May 28, 2010, we entered into stock purchase agreements with various investors, including investors who are our directors
and executive officers, who agreed to purchase an aggregate of 14,050,000 shares of our common stock at a price of $1.00 per
share. On September 15, 2010, we sold an aggregate of 13,325,000 shares and received gross proceeds of $13,325,000 from
investors who are not affiliated with us. Under NYSE Amex rules, our shareholders approved the sale of the remaining 725,000
shares to investors who are our directors and executive officers, or affiliates thereof, at our 2010 Annual Meeting on September 24,
2010. On October 1, 2010 we sold such 725,000 shares of common stock to our affiliates and received gross proceeds of $725,000.
The funds received from the private equity offering were used for general corporate purposes and repayment of debt.
Premier Trust Acquisition
On September 1, 2010, we acquired Premier Trust, Inc., a provider of wealth management services, including trust
administration, estate and financial planning and custody services. Founded in 2001, Premier is a Nevada-chartered trust company
headquartered in Las Vegas, Nevada, with assets under administration in excess of $540 million at December 31, 2010.
Acquisition Strategy
We continue to explore opportunities to grow our businesses, including through potential acquisitions of other securities and
investment banking firms, both domestically and internationally. These acquisitions may involve payments of material amounts
of cash, the incurrence of material amounts of debt or the issuance of significant amounts of our equity securities, which may be
dilutive to our existing shareholders and/or may increase our leverage. We cannot assure you that we will be able to complete any
such potential acquisitions on acceptable terms or at all or, if we do, that any acquired business will be profitable. Also we may not
be able to integrate successfully acquired businesses into our existing business and operations.
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Business Segments
Effective as of September 1, 2010 (the date we acquired Premier), we have three operating segments, consisting of the
investment banking, sales and trading and asset management services, and investment activities conducted by Ladenburg and
LTAM, the independent brokerage and advisory services business conducted by Investacorp and Triad and the trust services
provided by Premier. Financial and other information by segment for the years ended December 31, 2010, 2009 and 2008 is set
forth in Note 16 to our consolidated financial statements included in this report.
Ladenburg
Ladenburg is a full-service investment bank that provides investment banking, sales and trading and equity research to its
corporate and institutional clients and high net-worth individuals.
Investment Banking Activities
Ladenburg's investment banking professionals provide corporate finance and strategic and financial advisory services to
public and private companies, primarily those companies with market capitalizations below $500 million, which we refer to as
middle-market companies. Ladenburg provides these middle-market companies with capital raising and strategic advisory services
throughout their growth cycles. Ladenburg offers its clients a high level of attention from senior personnel and has designed its
organizational structure so that the investment bankers who are responsible for securing and maintaining client relationships also
actively participate in providing all related transaction execution services to those clients. Ladenburg's 18 investment banking
professionals serve clients nationwide and worldwide from its offices in New York, New York and Miami, Florida.
Corporate Finance
Ladenburg's capital markets group provides capital origination services primarily to middle-market companies. Ladenburg's
investment bankers develop financing strategies, transaction structures and financing instruments for its corporate clients.
Ladenburg offers a broad range of financing options including underwritten public offerings, registered direct offerings, at-the-
market offerings, PIPEs (private investment in public equity) and other private placements. Ladenburg's ability to effectively
structure offerings and to identify likely buyers of such offerings makes it a valuable advisor to small and middle-market
companies. Although the initial public offering market may not be consistently favorable, we expect that Ladenburg will
participate in follow-on offerings, registered direct offerings, PIPEs and other private placements to generate corporate finance
revenues. We believe there is a significant opportunity for continued growth in the registered direct and PIPEs areas given issuers’
desire to identify and pursue faster and less costly financing alternatives to traditional follow-on offerings and institutional
investors’ continuing interest in these financing transactions. Further, we believe the establishment of relationships with issuers
through our capital raising efforts will lead to additional investment banking services, including further capital raising, and other
advisory services. In 2010, we participated in 46 underwritten offerings that raised an aggregate of approximately $10.8 billion. In
2010, Ladenburg placed six registered direct and PIPE offerings, that raised an aggregate of approximately $38 million for clients
in the healthcare, biotechnology, energy and other industries.
Ladenburg seeks to capitalize on its distribution network by focusing on the financial services and energy/utilities sectors.
These sectors have yield-oriented equities which are attractive to institutional and retail investors. These yield products include
offerings by mortgage REITs, business development companies (BDCs) and master limited partnerships (MLPs). Ladenburg also
has dedicated investment bankers focused on the healthcare and biotechnology sectors.
Strategic and Financial Advisory Services
Ladenburg advises clients on a wide range of strategic and financial issues. When Ladenburg advises a company in the
potential acquisition of another company, business or assets, its services include evaluating potential acquisition targets,
providing valuation analyses, evaluating and proposing financial and strategic alternatives and rendering, if appropriate, fairness
opinions. Ladenburg also may provide advice regarding the timing, structure, financing and pricing of a proposed acquisition and
may assist in negotiating and closing the acquisition. Ladenburg's buy-side and sell-side mandates often require that it leverage its
extensive relationships and capital markets expertise. These mandates generally have a limited duration so Ladenburg seeks to
develop new engagements from existing and prior clients, as well as their legal and other advisors.
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Ladenburg has extensive expertise in providing fairness opinions that often are necessary or requested in a variety of
situations, including mergers, acquisitions, restructurings, financings and privatizations. Ladenburg provides fairness opinions
and analyses to boards of directors, independent committees of boards of directors and shareholders. The firm also provides
objective advice on the valuation of businesses and securities in connection with mergers, acquisitions, leveraged buyouts and
restructurings, going-private transactions and certain other market activities.
Sales and Trading
Ladenburg’s private client services and institutional sales departments currently serve a total of approximately 11,000
accounts nationwide. Ladenburg charges commissions to its individual and institutional clients for executing securities trading
orders.
Ladenburg’s sales and trading operation distributes our equity research product and communicates our proprietary investment
recommendations to our growing base of institutional investors. Also, our sales and trading staff executes equity trades on behalf
of our clients and sells the securities of companies for which we act as an underwriter.
We have established a broad institutional client base through a consistent focus on the investment and trading objectives of
our clients. Our sales and trading professionals work closely with our equity research staff to provide insight and differentiated
investment advice to institutional clients nationwide.
We believe that our equity research features proprietary themes and actionable ideas about industries and companies that are
not widely evaluated by many other investment banks without our middle-market emphasis. In recent years, many investment
banks have reduced equity research coverage and market making activities for companies with market capitalizations below
certain thresholds. However, we continue to commit research and sales and trading resources to smaller-capitalization companies
with the belief that institutional investors will value such specialized knowledge and service.
Our sales and trading personnel are also central to our ability to market equity offerings and provide after-market support. Our
equity capital markets group manages the syndication, marketing, execution and distribution of equity offerings. Our syndicate
activities include managing the marketing and order-taking process for underwritten transactions and conducting after-market
stabilization and initial market making. Our syndicate staff is also responsible for developing and maintaining relationships with
the syndicate departments of other investment banks.
Research Services
We believe that Ladenburg’s research department takes a fresh, critical approach to analyzing primary sources and developing
proprietary research. Many individuals, institutions, portfolio managers and hedge fund managers, on all levels, have been
neglected by brokerage firms that ignore the demand for unbiased research for small and mid-cap companies. Ladenburg provides
a branded in-depth research product. Ladenburg’s research department focuses on investigating investment opportunities by
utilizing fundamental, technical and quantitative methods to conduct in-depth analysis. Currently, our research department
provides research coverage on more than 120 companies, specializing in small- to mid-cap companies in the power and electric
utilities, exploration and production, biotechnology, personalized medicine, medical devices and healthcare industries; MLPs,
BDCs and REITs; China-based companies; and other companies on a special situations basis. Ladenburg’s research coverage may
expand to additional sectors in the future. Research is provided on a fee basis to certain institutional accounts.
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Our research department:
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reviews and analyzes general market conditions and other industry groups;
issues written reports on companies with recommendations on specific actions, with buy, sell or neutral ratings;
furnishes information to retail and institutional customers; and
responds to inquires from customers and account executives.
Asset Management
Ladenburg Thalmann Asset Management
LTAM is a registered investment advisor offering various asset management products utilized by Ladenburg clients, as well as
clients of Investacorp’s and Triad’s financial advisors.
Ladenburg Asset Management Program
The Ladenburg Asset Management Program provides centralized management of mutual fund and exchange-traded fund
portfolios based on asset allocation models. Features of the program include active rebalancing at the asset class and security
level, minimum account size, risk analysis, customized investment policy statements and comprehensive performance reporting.
Investment Consulting Services
LTAM’s Investment Consulting Services (“ICS”) provides clients with access to professional money managers usually
available only to large institutions, across the spectrum of major asset classes. Whether the client requires a complete asset
allocation strategy or an investment manager for a single asset class, each of our managers has been thoroughly examined for
inclusion in the ICS program. Once a manager has been added to the platform, it is regularly reviewed in order to ensure that it
represents a suitable solution. Through ICS, LTAM services high net worth clients and institutions, such as foundations and
hospitals.
Ladenburg Thalmann Alternative Strategies Fund
LTAM has created a closed-end interval fund, the Ladenburg Thalmann Alternative Strategies Fund, that includes alternative
investment products and allows clients to access these investments with low minimums and without being required to be
accredited investors. LTAM's new mutual fund is comprised of a portfolio of alternative investments in more than ten asset classes,
including, among others, REITs, MLPs, managed futures and equipment leasing.
Private Investment Management
The Private Investment Management program allows internal managers to provide portfolio services to clients on a
discretionary basis with specific styles of investing for an annual asset-based fee. The Private Investment Management Program
Accredited (“PIMA”) is offered for accredited investors. The internal PIMA managers manage certain accounts using various
investment strategies, including short-selling and use of leverage. In addition to an annual asset-based fee, certain customers also
are charged an incentive fee, if earned, at the end of each calendar year.
Retirement Plan Sponsor Services
LTAM provides investment consulting services to sponsors of retirement plans, such as 401(k) plans. These services include:
identifying mutual funds and ETF’s for the plan sponsor’s review and final selection based on the selection criteria stated in the
plan’s investment policy statement; assisting in the planning of, and participating in, enrollment and communication meetings;
and providing to the plan sponsor quarterly performance reports of the funds for the purpose of meeting the plan fiduciary’s
obligation to monitor plan assets. Certain plan participants also may engage LTAM to manage their plan assets on a discretionary
basis.
Alternative Investments
LTAM provides high net worth clients and institutional investors the opportunity to invest in proprietary and third party
alternative investments. These include, but are not limited to, hedge funds, funds of funds, private equity, venture capital and real
estate.
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Ladenburg Architect Program
LTAM provides its customers the Ladenburg Architect Program as a non-discretionary, fee-based, advisory account that allows
customers to maintain control over the management of the account and choose from a diverse group of securities. The program
features quarterly performance monitoring, check writing, a debit card and online account access.
Third Party Advisory Services
Together with its affiliates, LTAM may also provide advisory services, ranging from proprietary investment solutions to access
to professional money managers for the clients of Triad and Investacorp Advisory Services, Inc. (“IAS”), Investacorp’s registered
investment advisor.
Investment Activities
Ladenburg may from time to time seek to realize investment gains by purchasing, selling and holding securities for its own
account. Ladenburg may also from time to time engage for its own account in the arbitrage of securities. We are required to
commit the capital necessary for use in these investment activities. The amount of capital committed at any particular time will
vary according to market, economic and financial factors, including the other aspects of our business. Also, Ladenburg regularly
receives shares or warrants that entitle it to purchase securities of the corporate issuers for which it raises capital or provides
advisory services.
Independent Brokerage and Advisory Services
Overview
Investacorp and Triad are independent broker-dealers and registered investment advisors, whose non-employee financial
advisors offer securities brokerage and advisory services to their clients, which may include packaged products such as mutual
funds, variable annuities and advisor managed accounts.
We believe that the financial services industry is experiencing an increase in the number of financial advisors at independent
broker-dealers and registered investment advisors as financial advisors are leaving large national firms. These new independent
financial advisors require client and back office support services and access to technology and typically become affiliated with an
independent broker-dealer. We expect this trend to continue and possibly accelerate in the future.
A financial advisor who becomes affiliated with Investacorp or Triad generally establishes his or her own office and is solely
responsible for the payment of all expenses associated with the operation of the branch office (including rent, utilities, furniture,
equipment, quotation systems, and general office supplies); although all of that branch’s revenues from securities brokerage
transactions and from advisory services conducted through Investacorp or Triad accrue to Investacorp or Triad. Because an
independent financial advisor bears the responsibility for these expenses, the financial advisor receives a significant percentage of
the commissions or advisory fees he or she generates, typically at least 80%. This compares with a payout rate of approximately
25% to 50% to financial advisors working in a traditional brokerage setting where the brokerage firm bears substantially all of
sales force costs, including providing employee benefits, office space, sales assistants, telephone service and supplies. The
independent brokerage model permits Investacorp and Triad to expand their respective base of revenue and retail distribution
network of investment products and services without the capital expenditures that would be required to open company-owned
offices and the additional administrative and other costs of hiring financial advisors as in-house employees.
Investacorp’s and Triad’s financial advisors must possess a sufficient level of business experience to enable the individual to
independently operate his or her own office. Insurance agents, financial planners, accountants and other financial professionals,
who already provide financial services to their clients, often affiliate with independent broker-dealers. These professionals then
offer financial products and services to their clients through Investacorp and Triad and earn commissions and fees for these
transactions and services. Investacorp’s and Triad’s financial advisors have the ability to structure their own practices and to focus
in different areas of the investment business, subject to Investacorp’s and Triad’s supervisory procedures as well as compliance
with all applicable regulatory requirements.
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Many of Investacorp’s and Triad’s financial advisors provide financial planning services to their clients, wherein the financial
advisor evaluates a client’s financial needs and objectives, develops a detailed plan, and then implements the plan with the
client’s approval. When the implementation of such objectives involves the purchase or sale of securities (including the
placement of assets within a managed account) such transactions may be effected through Investacorp or Triad, for which
Investacorp or Triad earns either a commission or a fee. Representatives may be permitted to conduct other approved businesses
unrelated to their Investacorp or Triad activities, such as offering fixed insurance products and accounting, estate planning and tax
services, among others.
Each financial advisor is required to obtain and maintain in good standing each license required by the SEC and FINRA to
conduct the type of securities or advisory business in which he or she engages, and to register in the various states in which he or
she has customers. Each of Investacorp and Triad is ultimately responsible for supervising all of its financial advisors wherever
they are located. We can incur substantial liability from improper actions of any of Investacorp’s or Triad’s financial advisors.
Many of Investacorp’s and Triad’s financial advisors are also authorized agents of insurance companies. Investacorp and Triad
process insurance business through subsidiaries or sister companies which are licensed insurance brokers, as well as through other
licensed insurance brokers. We do not act as an insurance company and therefore retain no insurance risk related to insurance and
annuity products.
Investacorp’s and Triad’s financial advisors also may provide consultation and financial planning services including: estate
planning, retirement and financial goal planning, educational funding, asset allocation and insurance needs analysis, as well as
general analysis and planning. These financial advisors may prepare a written financial plan based upon the client’s stated goals,
needs and investment profile.
Strategy for our Independent Brokerage and Advisory Services Business
Investacorp and Triad are focused on increasing their networks of financial advisors, revenues and client assets as described
below.
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Recruit experienced financial professionals. Each of Investacorp and Triad actively recruits experienced financial
professionals. These efforts are supported by advertising, targeted direct mail and inbound and outbound telemarketing.
Although Investacorp and Triad will continue to attempt to recruit those financial advisors who sell primarily mutual
funds, annuities and insurance, it also intends to pursue financial advisors who focus on the sale of equities, fixed income
and alternative investment products.
Provide technological solutions to home-office employees and independent financial advisors. We believe that it is
imperative that Investacorp and Triad continue to possess state-of-the-art technology so that their employees and
independent financial advisors can effectively transact, facilitate, measure and record business activity in a timely,
accurate and efficient manner. By continuing our commitment to provide a highly capable technology platform to process
business, we believe that Investacorp and Triad can achieve economies of scale and potentially reduce the need to hire
additional personnel.
Build recurring revenue. We have recognized the trend toward increased investment advisory business and each of
Investacorp and Triad is focused on building its fee based investment advisory business, which may be better suited for
certain clients. While these fees generate substantially lower first year revenue than most commission products, the
recurring nature of these fees provides a platform for accelerating future revenue growth.
Assist financial advisors to increase their sales. Investacorp and Triad are aligned with their financial advisors in seeking
to increase their sales and improve productivity. Investacorp and Triad undertake initiatives to assist their financial
advisors with client recruitment, training, compliance and product support. Investacorp and Triad also focus on improving
back-office support to allow financial advisors more time to focus on serving their clients, rather than attending to
administrative matters.
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Acquire other independent brokerage firms. We may also pursue the acquisition of other
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independent brokerage firms. The ability to realize growth through acquisitions, however, will depend on the availability
of suitable broker-dealer candidates and our ability to successfully negotiate favorable terms. There can be no assurance
that we will be able to consummate any such acquisitions. Further, there are costs associated with the integration of new
businesses and personnel, which may be more than anticipated.
Investacorp
Investacorp supports its independent contractor financial advisors in providing products and services to their clients in
approximately 295 branch offices located in 42 states. The number of financial advisors in these offices ranges from one to 15.
Approximately 25% of the financial advisors are located in Florida with a significant number located in New York. Revenues
generated from Investacorp’s business represented 31% of our total revenues for 2010.
Triad
Triad supports its independent contractor financial advisors in providing products and services to their clients in
approximately 278 branch offices located in 38 states. The number of financial advisors in these offices ranges from one to seven.
Approximately 14% of the financial advisors are located in Georgia with a significant number located in Florida. Revenues
generated from the business of Triad represented 47% of our total revenues for 2010.
Investacorp’s and Triad’s Brokerage Business
Each of Investacorp and Triad provides full support services to each of its financial advisors, including: access to stock and
options execution; products such as insurance, mutual funds, unit trusts and investment advisory programs; and research,
compliance, supervision, accounting and related services.
While an increasing number of clients are electing asset-based advisory fee platforms rather than the traditional commission
schedule, in most cases Investacorp and Triad charge commissions on variable annuity, mutual fund, equity and fixed income
transactions. Investacorp and Triad primarily derive revenue from commissions from the sale of variable annuity and mutual fund
products by their independent financial advisors. Investacorp and Triad continue to focus on growing asset-based advisory fee
platforms.
Investacorp’s Asset Management Business
Advisor Managed Accounts
IAS offers five account structures for advisor managed accounts, based on technologies from National Financial Services LLC,
which we refer to as NFS, allowing its financial advisors and their clients to determine the best structure for their needs. These
accounts consist of fee based and “wrap fee” accounts.
Third Party Programs
For financial advisors who prefer not to act as portfolio managers, IAS offers third party management options. These options
employ managers who select diversified, fee-based asset management investment portfolios based on a client’s needs. The types of
portfolios may include separately managed portfolios, multi-managed accounts, and mutual fund model portfolios. These
portfolios may also include portfolio analytics, performance reporting and position-specific reporting.
Triad’s Asset Management Business
Advisor Managed Accounts
Triad offers four account structures for advisor managed accounts allowing its financial advisors and their clients to determine
the best structure for their needs. These accounts consist of fee-based and “wrap fee” accounts.
Third Party Managed Accounts
For financial advisors who prefer not to act as portfolio managers, Triad offers third party management options. These options
employ managers who select diversified, fee-based asset management investment portfolios based on a client’s needs. The types of
portfolios may include separately managed portfolios, multi-managed accounts, and mutual fund model portfolios. These
portfolios may also include portfolio analytics, performance reporting and position-specific reporting.
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Investalink®
Investalink® is our proprietary and customized back-office and financial advisor workstation. We believe this proprietary
technology provides a key competitive advantage in recruitment and retention of financial advisors in our independent brokerage
and advisory services segment. Investalink® allows for online account opening, consolidated statements for multiple clearing
firms and fund families, compliance monitoring, commissions tracking, comprehensive client management and other features.
Also, Investalink's financial advisor desktop combines transactional and trend analysis, links to real-time market data, quick
logins for inter-application connectivity and integration of third-party applications. Investacorp's financial advisors currently use
Investalink®. During 2010, Triad has made the Investalink® technology platform available to its financial advisors under the
name I-link.
Premier
Founded in 2001, Premier is a Nevada-chartered trust company headquartered in Las Vegas, Nevada, with assets under
administration of in excess of $540 million at December 31, 2010. Premier Trust provides trust administration of personal and
retirement accounts, estate and financial planning, wealth management and custody services.Working in combination with a
client’s legal and other professional advisors, Premier professionals assist with every aspect of planning, including retirement,
income and estate taxes, succession of the family business, transferring assets to future generations and asset protection.
Administration, Operations, Securities Transactions Processing and Customer Accounts
Our broker-dealer subsidiaries do not hold funds or securities for their customers. Instead, each of Ladenburg, Triad and
Investacorp use the services of NFS, a Fidelity Investments® company, as its clearing agent on a fully disclosed basis. The
clearing agent processes all securities transactions and maintains customer accounts on a fee basis. SIPC coverage protects client
accounts up to $500,000 per customer, including up to $100,000 for cash. NFS also maintains “Excess SIPC” insurance coverage,
providing additional protection. Clearing agent services include billing, credit control, and receipt, custody and delivery of
securities. The clearing agent provides operational support necessary to process, record and maintain securities transactions for
Ladenburg’s, Investacorp’s and Triad’s brokerage activities. The clearing agent also lends funds to Ladenburg’s, Investacorp’s and
Triad’s customers through the use of margin credit. These loans are made to customers on a secured basis, with the clearing agent
maintaining collateral in the form of saleable securities, cash or cash equivalents. We have agreed to indemnify the clearing agent
for losses it may incur on these credit arrangements. During the first quarter of 2010, Investacorp consolidated from three clearing
agents to one firm, NFS.
Seasonality and Cyclical Factors
Seasonality generally does not impact our results. Our revenues may be adversely affected by cyclical factors, such as the
current financial market downturn as well as problems or recessions in the U.S. or global economies. These downturns may cause
investor concern, which results in fewer investment banking transactions and less investing by institutional and retail investors,
thereby reducing our revenues and potential profits. Such conditions might also expose us to the risk of being unable to raise
additional capital to offset related significant reductions in revenues.
Competition
We encounter intense competition in all aspects of our business and compete directly with many other providers of financial
services for clients as well as financial advisors. We compete directly with many national and regional full service financial
services firms, discount brokers, investment advisors, broker-dealer subsidiaries of major commercial bank holding companies,
insurance companies and other companies offering financial services in the U.S., globally, and through the Internet. Many of our
competitors have significantly greater financial, technical, marketing and other resources than we do. Also, many firms offer
discount brokerage services and generally effect transactions at substantially lower commission rates on an “execution only”
basis, without offering other services such as investment recommendations and research. Moreover, there is substantial
commission discounting by full-service broker-dealers competing for institutional and retail brokerage business.
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A growing number of brokerage firms offer online trading which has further intensified the competition for brokerage
customers. Ladenburg, Investacorp and Triad currently do not offer any online trading services to their customers, although they
offer on-line account access so their customers can review their account balances and activity. Competition also is increasing from
other financial institutions, notably banking institutions, insurance companies and other organizations, which offer customers
some of the same services and products presently provided by securities firms. We seek to compete through the quality of our
financial advisors and investment bankers, our level of service, the products and services we offer and our expertise in certain
areas.
There is significant competition for qualified personnel in the financial services industry. Our ability to compete effectively
depends on attracting, retaining and motivating qualified financial advisors, investment bankers, trading professionals, portfolio
managers and other revenue-producing or specialized personnel.
Government Regulation
The securities industry, including our business, is subject to extensive regulation by the SEC, state securities regulators and
other governmental regulatory authorities. We are also regulated by industry self-regulatory organizations, including FINRA and
the MSRB. The principal purpose of these regulations is the protection of customers and the securities markets. The SEC is the
federal agency charged with the administration of the federal securities laws. Much of the regulation of broker-dealers, however,
has been delegated to self-regulatory organizations, principally FINRA. These self-regulatory organizations adopt rules, subject to
approval by the SEC, which govern their members and conduct periodic examinations of member firms’ operations.
Securities firms are also subject to regulation by state securities commissions in the states in which they are registered.
Ladenburg is a registered broker-dealer with the SEC and a member firm of the NYSE. Each of Investacorp and Triad is a registered
broker-dealer with the SEC. Each of Ladenburg, Investacorp and Triad is licensed to conduct activities as a broker-dealer in all 50
states.
The regulations to which broker-dealers are subject cover all aspects of the securities industry, including:
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sales methods and supervision;
trading practices among broker-dealers;
use and safekeeping of customers’ funds and securities;
capital structure of securities firms;
record-keeping;
conduct of directors, officers and employees; and
advertising, including regulations related to telephone solicitation.
As registered investment advisors under the Investment Advisers Act of 1940, as amended, Triad, LTAM and IAS are subject to
the regulations under both the Investment Advisers Act and certain state securities laws and regulations. Such requirements relate
to, among other things:
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limitations on the ability of investment advisors to charge performance-based or non-refundable fees to clients;
record-keeping and reporting requirements;
disclosure requirements;
limitations on principal transactions between an advisor or its affiliates and advisory clients; and
general anti-fraud prohibitions.
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Additional legislation, changes in rules promulgated by the SEC and by self-regulatory bodies and changes in the
interpretation or enforcement of existing laws and rules often directly affect the method of operation and profitability of broker-
dealers. The SEC and the self-regulatory bodies may conduct administrative proceedings which can result in censure, fine,
suspension or expulsion of a broker-dealer, its officers, employees or financial advisors. Premier is subject to regulation by the
Nevada Department of Business and Industry.
Net Capital Requirements
Our registered broker-dealer subsidiaries are subject to the SEC’s net capital rule, which is designed to measure the general
financial integrity and liquidity of a broker-dealer. Net capital is defined as the net worth of a broker-dealer subject to certain
adjustments. In computing net capital, various adjustments are made to net worth which exclude assets not readily convertible
into cash. Also, the regulations require that certain assets, such as a broker-dealer’s position in securities, be valued in a
conservative manner to avoid over-inflation of the broker-dealer’s net capital.
Ladenburg is subject to the SEC’s Uniform Net Capital Rule 15c3-1 and the Commodity Futures Trading Commission’s
Regulation 1.17. Ladenburg has elected to compute its net capital under the alternative method allowed by these rules. At
December 31, 2010, Ladenburg had net capital, as defined by such rules, of $5,002,927, which exceeded its minimum capital
requirement of $250,000 by $4,752,927.
Investacorp is subject to SEC Rule 15c3-1, which requires the maintenance of minimum net capital and requires that the ratio
of aggregate indebtedness to net capital, both as defined by such rule, shall not exceed 15 to 1. At December 31, 2010, Investacorp
had net capital of $1,597,896 which was $1,340,699 in excess of its required net capital of $257,197. At December 31, 2010,
Investacorp’s net capital ratio was 2.41 to 1.
Triad is also subject to SEC Rule 15c3-1. At December 31, 2010, Triad had net capital, as defined by such rule of $2,290,050,
which was $1,761,395 in excess of its required net capital of $528,655. At December 31, 2010, Triad’s net capital ratio was 3.46 to
1.
Each of Ladenburg, Investacorp and Triad claims an exemption from the provisions of the SEC’s Rule 15c3-3 pursuant to
paragraph (k)(2)(ii) as it clears its customer transactions through its correspondent broker on a fully disclosed basis.
Also, funds invested as equity capital may not be withdrawn, nor may any unsecured advances or loans be made to any
stockholder of a registered broker-dealer, if, after giving effect to the withdrawal, advance or loan and to any other withdrawal,
advance or loan as well as to any scheduled payments of subordinated debt which are scheduled to occur within six months, the
net capital of the broker-dealer would fall below 120% of the minimum dollar amount of net capital required or the ratio of
aggregate indebtedness to net capital would exceed 10 to 1. Further, any funds invested in the form of subordinated debt generally
must be invested for a minimum term of one year and repayment of such debt may be suspended if the broker-dealer fails to
maintain certain minimum net capital levels. For example, scheduled payments of subordinated debt are suspended in the event
that the ratio of aggregate indebtedness to net capital of the broker-dealer would exceed 12 to 1 or its net capital would be less
than 120% of the minimum dollar amount of net capital required. The net capital rule also prohibits payments of dividends,
redemption of stock and the prepayment, or payment in respect of principal or subordinated indebtedness if net capital, after
giving effect to the payment, redemption or repayment, would be less than the specified percentage (120%) of the minimum net
capital requirement.
Failure to maintain the required net capital may subject a firm to fines, suspension or expulsion by FINRA, the SEC and other
regulatory bodies and ultimately may require its liquidation. During the fourth quarter of 2009, one of our broker-dealer
subsidiaries had a short-term net-capital deficiency and could face disciplinary action including a fine, a suspension of its
operations and/or rescission of revenues relating to the period of non-compliance. Compliance with the net capital rule could limit
Ladenburg’s operations that require the intensive use of capital, such as underwriting and trading activities, and also could restrict
our ability to withdraw capital from our subsidiaries, which could limit our ability to pay dividends and repay debt. In the past,
Ladenburg has entered into, and from time to time in the future may enter into, temporary
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subordinated loan arrangements to borrow funds on a short-term basis from our shareholders or clearing broker to supplement the
capital of our broker-dealers to facilitate underwriting transactions.
Premier, chartered by the state of Nevada, is subject to regulation by the Nevada Department of Business and Industry
Financial Institutions Division. Under Nevada law, Premier must maintain minimum stockholders’ equity of at least $1 million. At
December 31, 2010, Premier had stockholders’ equity of $2.1 million.
Geographic Area
We are domiciled in the United States and substantially all of our revenue is attributed to activities in the United States. All of
our long-lived assets are located in the United States.
Personnel
At December 31, 2010, Ladenburg had a total of 152 employees, of whom 89 are producers and 63 are other full time
employees; Investacorp had approximately 440 non-employee financial advisors and 65 full time employees; Triad had
approximately 602 non-employee financial advisors and 42 full time employees; and Premier had 19 full time employees. No
employees are covered by a collective bargaining agreement. We consider our relationship with our employees and independent
contractors to be good.
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ITEM 1A. RISK FACTORS.
You should carefully consider all of the risks described below regarding our company. Our business, financial condition or
results of operation could be materially adversely affected by any of these risks. Additional risks and uncertainties not currently
known to us or that we currently deem immaterial also may materially and adversely affect our business operations.
Risk Factors Relating to Our Business
Changing conditions in financial markets and the economy could adversely affect our financial condition and results of
operation.
Our financial results for 2010, 2009 and 2008 were adversely affected by the turmoil in the financial markets and the economy
in general. As a securities and investment banking firm, changes in the financial markets or economic conditions in the United
States and elsewhere in the world could materially adversely affect our business in many ways, including the following:
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a market downturn could lead to a decline in the volume of transactions executed for customers and, therefore, to a decline
in the revenues we receive from commissions and spreads;
unfavorable financial or economic conditions could reduce the number and size of transactions in which we provide
underwriting, financial advisory and other services. Our investment banking revenues, in the form of financial advisory
and underwriting or placement fees, are directly related to the number and size of the transactions in which we participate
and could therefore be adversely affected by unfavorable financial or economic conditions;
adverse changes in the market could lead to losses from principal transactions. To the extent that we own assets, i.e., have
long positions, a downturn in the market could result in losses from a decline in the value of those long positions.
Conversely, to the extent that we have sold assets that we do not own, i.e., have short positions, an upturn in the market
could expose us to potentially unlimited losses as we attempt to cover our short positions by acquiring assets in a rising
market;
adverse changes in the market could also lead to a reduction in revenues from asset management fees. Even in the absence
of a market downturn, below-market investment performance by portfolio managers could reduce asset management
revenues and assets under management and result in reputational damage that might make it more difficult to attract new
investors;
increases in credit spreads, as well as limitations on the availability of credit, can affect our ability to borrow on a secured
or unsecured basis, which may adversely affect our liquidity and results of operations;
new or increased taxes on compensation payments such as bonuses or securities transactions may adversely affect our
financial results; and
low market interest rates adversely impact interest sharing revenues received from our clearing firm.
We have incurred, and may continue to incur, significant operating losses.
We incurred significant losses from operations for each of the years in the three-year period ended December 31, 2010 and
during each of the years in the four-year period ended December 31, 2005. We cannot assure you that we will be able to achieve
revenue growth, profitability or positive cash flow on either a quarterly or annual basis. Although we believe that we have
adequate cash and regulatory capital to fund our current level of operating activities through December 31, 2011, if we are unable
to sustain profitability, we may not be financially viable in the future and may have to curtail, suspend or cease operations.
A large portion of our revenue for any period may result from a limited number of underwriting transactions.
A large part of our revenue for any period may be derived from a limited number of underwritings in which Ladenburg serves
as either the lead or co-manager. If Ladenburg does not serve as lead or co-manager of underwritings in any given period, then our
revenues, liquidity and results of operations may be materially adversely affected.
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Our quarterly operating results may fluctuate substantially due to the nature of our business and therefore we may fail to
meet profitability expectations.
Our revenue and operating results may fluctuate from quarter to quarter and from year to year due to a combination of factors,
including the level of underwriting and advisory transactions completed by us and the level of fees we receive from those
transactions. Accordingly, our results of operations may fluctuate significantly due to an increased or decreased number of
transactions in any particular quarter or year.
Our financial leverage impairs our ability to obtain financing and limits cash flow available for operations.
Our indebtedness:
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limits our ability to obtain additional financing for working capital, regulatory capital requirements, acquisitions or
general corporate purposes;
requires us to dedicate a substantial portion of cash flows from operations to the payment of debt service on our
indebtedness, resulting in less cash available for operations and other purposes; and
increases our vulnerability to downturns in our business or in general economic conditions.
Our ability to satisfy our obligations and to reduce our total debt which, as of December 31, 2010 was approximately $27.9
million, depends on our future operating performance and prospects. Our future operating performance is subject to many factors,
including economic, financial and competitive factors, which may be beyond our control. As a result, we may not be able to
generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these
obligations which would have a material adverse effect on our business, profitability and results of operations.
Our business depends on commissions and fees generated from the distribution of financial products, and adverse changes in
the structure or amount of fees paid by the sponsors of these products could materially adversely affect our cash flows,
revenues and results of operations.
An important portion of our revenues is generated from commissions and fees related to the distribution of financial products
such as mutual funds and variable annuities by the Investacorp and Triad financial advisors, and to a lesser extent, Ladenburg’s
financial advisors. Changes in the structure or amount of the fees paid by the sponsors of these products could materially
adversely affect our cash flows, revenues and results of operation.
Also, regulatory agencies and other industry participants have suggested that Rule 12b-1 distribution fees in the mutual fund
industry should be reconsidered and, potentially, reduced or eliminated. Any reduction or restructuring of Rule 12b-1 distribution
fees could have a material adverse effect on our results of operations.
Misconduct by our employees and independent financial advisors is difficult to detect and deter and could harm our business,
results of operations or financial condition.
Misconduct by our employees and independent financial advisors could result in violations of law by us, regulatory sanctions
and/or serious reputational or financial harm.
Misconduct could include:
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binding us to transactions that exceed authorized limits;
hiding unauthorized or unsuccessful activities resulting in unknown and unmanaged risks or losses;
improperly using or disclosing confidential information;
recommending transactions that are not suitable or in the client’s best interests;
engaging in fraudulent or otherwise improper activity;
engaging in unauthorized or excessive trading to the detriment of customers; or
otherwise not complying with laws or our control procedures.
We cannot always deter misconduct by our employees and independent financial advisors, and the precautions we take to
prevent and detect this activity may not be effective in all cases. Prevention and
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detection among our independent financial advisors, who are not employees of our company and tend to be located in small,
decentralized offices, present additional challenges. Misconduct by our employees and independent financial advisors may have a
material adverse effect on our business and results of operations.
We may be prohibited from underwriting securities due to capital limits.
From time to time, our underwriting activities may require that we temporarily receive an infusion of capital for regulatory
purposes. This is predicated on the amount of commitment Ladenburg makes for each underwriting. In the past, we entered into
temporary subordinated loan arrangements with our shareholders or clearing firm. Should we no longer be able to receive such
funding from these sources, and if there are no other viable sources available, it would have an adverse impact on our ability to
underwrite offerings, generate profits, recruit financial consultants and retain existing customers.
Our capital markets and strategic advisory engagements are singular in nature and do not generally provide for subsequent
engagements.
Ladenburg’s investment banking clients generally retain Ladenburg on a short-term, engagement-by-engagement basis in
connection with specific capital markets or mergers and acquisitions transactions, rather than on a recurring basis under long-term
contracts. As these transactions are typically singular in nature and our engagements with these clients may not recur, Ladenburg
must seek out new engagements when its current engagements are successfully completed or are terminated. As a result, high
activity levels in any period are not necessarily indicative of continued high levels of activity in any subsequent period. If we are
unable to generate a substantial number of new engagements that generate fees from new or existing clients, our business and
results of operations would likely be adversely affected.
We depend on our senior employees and the loss of their services could harm our business.
Our success is dependent in large part upon the services of several of our senior executives and employees, including those of
our broker-dealer subsidiaries. We do not maintain and do not intend to obtain key man insurance on the life of any executive or
employee. If our senior executives or employees terminate their employment with us and we are unable to find suitable
replacements in relatively short periods of time, our business and results of operations may be materially and adversely affected.
We face significant competition for professional employees.
From time to time, individuals we employ may choose to leave our company to pursue other opportunities. We have
experienced losses of financial advisors, trading and investment banking professionals in the past, and the level of competition for
key personnel remains intense. We cannot assure you that the loss of key personnel will not occur again in the future. In addition,
we expend significant resources in recruiting, training and retaining our financial advisors. The loss of a financial advisor or a
trading or investment banking professional, particularly a senior professional with a broad range of contacts in an industry, or the
failure to recruit productive financial advisors could materially and adversely affect our results of operations.
Poor performance of the investment products and services recommended or sold to asset management clients may have a
material adverse effect on our business.
Our investment advisory clients generally may terminate their contracts at anytime. These clients can terminate their
relationship, reduce the aggregate amount of assets under management or shift their funds to other types of accounts with different
rate structures for any number of reasons, including investment performance, changes in prevailing interest rates, financial market
performance and personal client liquidity needs. Poor performance of the investment products and services recommended or sold
to such clients relative to the performance of other products available in the market or the performance of other investment
management firms tends to result in the loss of accounts. The decrease in revenue that could result from such an event could have
a material adverse effect on our results of operations.
Systems failures could significantly disrupt our business.
Our business depends on our and our clearing firm’s ability to process, on a daily basis, many transactions across numerous
and diverse markets and the transactions we process have become increasingly complex. We rely heavily on our communications
and financial, accounting and other data processing systems,
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including systems we maintain and systems provided by our clearing broker and service providers. We face operational risk
arising from mistakes made in the confirmation or settlement of transactions or from transactions not being properly recorded,
evaluated or accounted.
If any of these systems do not operate properly or are disabled, we could suffer financial loss, a disruption of our business,
liability to clients, regulatory intervention or reputational damage. Any failure or interruption of our systems, the systems of our
clearing broker, or third party trading systems could cause delays or other problems in our securities trading activities, which
could have a material adverse effect on our operating results. Also, our clearing broker provides our principal disaster recovery
system. We cannot assure you that we or our clearing broker will not suffer any systems failures or interruption, including ones
caused by earthquake, fire, other natural disasters, power or telecommunications failure, act of God, act of war, terrorism, or
otherwise, or that our or our clearing broker’s back-up procedures and capabilities in the event of any such failure or interruption
will be adequate. The inability of our or our clearing broker’s systems to accommodate an increasing volume of transactions could
also constrain our ability to expand our business.
A relatively small number of institutional customers generates a significant portion of our institutional trading revenue.
A relatively small number of our institutional investor customers generate a substantial portion of our institutional trading
revenue. If any key customers depart or reduce their business with us and we fail to attract new customers that are capable of
generating significant trading volumes, our business and results of operations will be adversely affected.
A default by any of Ladenburg’s subtenants may have a material adverse effect on our liquidity, cash flows, and results of
operations.
Ladenburg has subleased office space at 590 Madison Avenue, New York, New York to three unrelated subtenants, some of
whom are engaged in the financial services industry. The subleases provide for sublease payments to Ladenburg of approximately
$21 million through June 2015. Should any of the sub-tenants not pay their sublease payments to Ladenburg or otherwise default
under a sublease for an extended period of time, it may have a material adverse effect on our liquidity, cash flows and results of
operations. For additional information regarding these subleases, see Note 11 to our consolidated financial statements included in
Part II, Item 8 of this annual report on Form 10-K.
Our risk management policies and procedures may leave us exposed to unidentified risks or an unanticipated level of risk.
The policies and procedures we employ to identify, monitor and manage risks may not be fully effective. Some methods of risk
management are based on the use of observed historical market behavior. As a result, these methods may not predict future risk
exposures, which could be significantly greater than the historical measures indicate. Other risk management methods depend on
evaluation of information regarding markets, clients or other matters that are publicly available or otherwise accessible by us. This
information may not be accurate, complete, up-to-date or properly evaluated. Management of operational, legal and regulatory
risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events.
We cannot assure you that our policies and procedures will effectively and accurately record and verify this information.
We seek to monitor and control our risk exposure through a variety of separate but complementary financial, credit,
operational and legal reporting systems. Nonetheless, the effectiveness of our ability to manage risk exposure can never be
completely or accurately predicted or fully assured. For example, unexpectedly large or rapid movements or disruptions in one or
more markets or other unforeseen developments can have a material adverse effect on our results of operations and financial
condition. The consequences of these developments can include losses due to adverse changes in inventory values, decreases in
the liquidity of trading positions, higher volatility in earnings, increases in our credit risk to customers as well as to third parties
and increases in general systemic risk.
We rely on one clearing broker and the termination of the clearing agreements could disrupt our business.
Each of Ladenburg, Triad and Investacorp uses one clearing broker to process securities transactions and maintain customer
accounts on a fee basis. The clearing broker also provides billing services, extends credit
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and provides for control and receipt, custody and delivery of securities. Ladenburg, Investacorp and Triad depend on the
operational capacity and ability of their clearing broker for the orderly processing of transactions. By engaging the processing
services of a clearing firm, each of Ladenburg, Investacorp and Triad is exempt from some capital reserve requirements and other
regulatory requirements imposed by federal and state securities laws. If these clearing agreements were terminated for any reason,
we would be forced to find an alternative clearing firm. We cannot assure you that we would be able to find an alternative clearing
firm on acceptable terms to us or at all. Also, the loss of the clearing firm could hamper Investacorp’s and Triad's ability to recruit
and retain their respective independent financial advisors.
Our clearing broker extends credit to our clients and we are liable if the clients do not pay.
Each of Ladenburg, Investacorp and Triad permits its clients to purchase securities on a margin basis or sell securities short,
which means that the clearing firm extends credit to the client secured by cash and securities in the client’s account. During
periods of volatile markets, the value of the collateral held by the clearing broker could fall below the amount borrowed by the
client. If margin requirements are not sufficient to cover losses, the clearing broker sells or buys securities at prevailing market
prices, and may incur losses to satisfy client obligations. Each of Ladenburg, Investacorp and Triad has agreed to indemnify the
clearing broker for losses it may incur while extending credit to its clients.
Risk Factors Relating to Our Industry
Credit risk exposes us to losses caused by third parties’ financial or other problems.
We are exposed to the risk that third parties that owe us money, securities or other assets will not perform their obligations.
These parties include:
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trading counterparties;
customers;
clearing agents;
other broker-dealers;
exchanges;
clearing houses; and
other financial intermediaries as well as issuers whose securities we hold.
These parties may default on their obligations owed to us due to bankruptcy, lack of liquidity, operational failure or other
reasons. This risk may arise, for example, from:
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holding securities of third parties;
executing securities trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure
by clearing agents, exchanges, clearing houses or other financial intermediaries; and
extending credit to clients through bridge or margin loans or other arrangements.
Significant failures by third parties to perform their obligations owed to us could adversely affect our revenues, results of
operations and perhaps our ability to borrow in the credit markets.
Intense competition from existing and new entities may adversely affect our revenues and results of operations.
The securities industry is rapidly evolving, intensely competitive and has few barriers to entry. We expect competition to
continue and intensify in the future. Many of our competitors have significantly greater financial, technical, marketing and other
resources than we do. Some of our competitors also offer a wider range of services and financial products than we do and have
greater name recognition and a larger client base. These competitors may be able to respond more quickly to new or changing
opportunities, technologies and client requirements. They may also be able to undertake more extensive promotional activities,
offer more
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attractive terms to clients, and adopt more aggressive pricing policies. We may not be able to compete effectively with current or
future competitors and competitive pressures faced by us may harm our business and may adversely affect our revenues and results
of operations.
Errors and omissions claims may negatively affect our business and results of operations.
Our subsidiaries are subject to claims and litigation in the ordinary course of business resulting from alleged and actual errors
and omissions in placing insurance, effecting securities transactions and rendering investment advice. These activities involve
substantial amounts of money. Since errors and omissions claims against our subsidiaries or their financial advisors may allege
liability for all or part of the amounts in question, claimants may seek large damage awards. These claims can involve significant
defense costs. Errors and omissions could include, for example, failure, whether negligently or intentionally, to effect securities
transactions on behalf of clients, to choose suitable investments for any particular client, to supervise a financial advisor or to
provide insurance carriers with complete and accurate information. It is not always possible to prevent or detect errors and
omissions, and the precautions our subsidiaries take may not be effective in all cases. Moreover, our Ladenburg subsidiary and its
financial advisors do not carry errors and omissions insurance coverage. Our liability for significant and successful errors and
omissions claims may materially and negatively affect our results of operations.
We are subject to various risks associated with the securities industry, any of which could have a materially adverse effect on
our business, cash flows and results of operations.
We are subject to uncertainties that are common in the securities industry. These uncertainties include:
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the volatility of domestic and international financial, bond and stock markets;
extensive governmental regulation;
litigation;
intense competition;
substantial fluctuations in the volume and price level of securities; and
dependence on the solvency of various third parties.
As a result, revenues and earnings may vary significantly from quarter to quarter and from year to year. In periods of low
volume and investment banking activity, profitability is impaired because certain expenses remain relatively fixed. We are much
smaller and have much less capital than many competitors in the securities industry. In the event of a market downturn, our
business could be adversely affected in many ways. Our revenues are likely to decline in such circumstances and, if we are unable
to reduce expenses at the same pace, our profit margins would erode.
Legal liability may harm our business.
Many aspects of our business involve substantial risks of liability. An underwriter, such as Ladenburg, is exposed to
substantial liability under federal and state securities laws, other federal and state laws, and court decisions, including decisions
about underwriters’ liability and limitations on indemnification of underwriters by issuers. For example, a firm that acts as an
underwriter may be held liable for material misstatements or omissions of fact in a prospectus used in connection with the
securities being offered or for statements made by its securities analysts or other personnel. In recent years, there has been an
increasing incidence of litigation involving the securities industry, including class actions that seek substantial damages. Our
underwriting activities often involve offerings of the securities of smaller companies, which may involve a higher degree of risk
and are more volatile than the securities of more established companies. In comparison with more established companies, smaller
companies are also more likely to be the subject of securities class actions, to carry directors and officers liability insurance
policies with lower limits or not at all, and to become insolvent. Each of these factors increases the likelihood that an underwriter
of a smaller company’s securities will be required to contribute to an adverse judgment or settlement of a securities lawsuit.
In the normal course of business, our operating subsidiaries have been and continue to be the subject of numerous civil actions
and arbitrations arising out of customer complaints relating to our activities as a
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broker-dealer, as an employer or as a result of other business activities. In general, the cases involve various allegations that our
employees or financial advisors had mishandled customer accounts. We believe that, based on our historical experience and the
reserves established by us, the resolution of the claims presently pending will not have a material adverse effect on our financial
condition. However, although we typically reserve an amount we believe will be sufficient to cover any damages assessed against
us, we have in the past been assessed damages that exceeded our reserves. If we misjudge the amount of damages that may be
assessed against us from pending or threatened claims, or if we are unable to adequately estimate the amount of damages that will
be assessed against us from claims that arise in the future and reserve accordingly, our financial condition and results of operations
may be materially adversely affected.
Risk Factors Relating to the Regulatory Environment
We are subject to extensive securities regulation and the failure to comply with these regulations could subject us to penalties
or sanctions.
The securities industry and our business is subject to extensive regulation by the SEC, state securities regulators and other
governmental regulatory authorities. We are also regulated by industry self-regulatory organizations, including FINRA and the
MSRB. The regulatory environment is also subject to change and we may be adversely affected as a result of new or revised
legislation or regulations imposed by the SEC, other federal or state governmental regulatory authorities, or self-regulatory
organizations. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by
these governmental authorities and self-regulatory organizations.
Each of Ladenburg, Investacorp and Triad is a registered broker-dealer with the SEC and FINRA. Premier is subject to
regulation by the Nevada Department of Business and Industry Financial Institutions Division. Broker-dealers are subject to
regulations which cover all aspects of the securities business, including:
•
•
•
•
•
•
sales methods and supervision;
trading practices among broker-dealers;
use and safekeeping of customers’ funds and securities;
capital structure of securities firms;
record keeping; and
conduct of directors, officers and employees.
Compliance with many of these regulations involves a number of risks, particularly in areas where applicable regulations may
be subject to varying interpretation. The requirements imposed by these regulators are designed to ensure the integrity of the
financial markets and to protect customers and other third parties who deal with us. Consequently, these regulations often serve to
limit our activities, including through net capital, customer protection and market conduct requirements. Much of the regulation
of broker-dealers has been delegated to self-regulatory organizations, principally FINRA. FINRA adopts rules, subject to SEC
approval, that govern broker-dealers and conducts periodic examinations of firms’ operations.
If we are found to have violated any applicable regulation, formal administrative or judicial proceedings may be initiated
against us that may result in:
•
•
•
•
•
•
•
censure;
fine;
civil penalties, including treble damages in the case of insider trading violations;
the issuance of cease-and-desist orders;
the deregistration or suspension of our broker-dealer activities;
the suspension or disqualification of our officers or employees; or
other adverse consequences.
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The imposition of any of these or other penalties could have a material adverse effect on our operating results and financial
condition.
Legislative, judicial or regulatory changes to the classification of independent contractors could increase our operating
expenses.
From time to time, various legislative or regulatory proposals are introduced at the federal or state levels to change the status
of independent contractors’ classification to employees for either employment tax purposes (withholding, social security,
Medicare and unemployment taxes) or other benefits available to employees. Currently, most individuals are classified as
employees or independent contractors for employment tax purposes based on 20 “common law” factors, rather than any definition
found in the Internal Revenue Code or Internal Revenue Service (“IRS”) regulations. Each of Investacorp and Triad classifies its
financial advisors as independent contractors for all purposes, including employment tax and employee benefit purposes. We
cannot assure you that legislative, judicial, or regulatory (including tax) authorities will not introduce proposals or assert
interpretations of existing rules and regulations that would change the employee/independent contractor classification of
Investacorp’s and Triad’s financial advisors. The costs associated with potential changes, if any, to these independent contractor
classifications could have a material adverse effect on us, including our results of operations and financial condition.
Failure to comply with capital requirements could subject us to suspension, revocation or fines by the SEC, FINRA or other
regulators.
Our broker-dealer subsidiaries are subject to the SEC’s net capital rule, which requires the maintenance of minimum net
capital. Also, Triad is subject to the net capital requirements of CFTC Regulation 1.17. Under Nevada law, Premier must maintain
minimum stockholders’ equity of at least $1,000,000. At December 31, 2010, each of our broker-dealer subsidiaries exceeded its
minimum net capital requirement and Premier exceeded its minimum stockholder's equity requirement. The net capital rule is
designed to measure the general financial integrity and liquidity of a broker-dealer. In computing net capital, various adjustments
are made to net worth which exclude assets not readily convertible into cash. The regulations also require that certain assets, such
as a broker-dealer’s position in securities, be valued in a conservative manner to avoid over-inflation of the broker-dealer’s net
capital. The net capital rule requires a broker-dealer to maintain a minimum level of net capital. The particular levels vary
depending upon the nature of the activity undertaken by a firm. Compliance with the net capital rule limits those operations of
broker-dealers which require the intensive use of their capital, such as underwriting commitments and principal trading activities.
The rule also limits the ability of securities firms to pay dividends or make payments on certain indebtedness such as subordinated
debt as it matures. A significant operating loss or any charge against net capital could adversely affect the ability of a broker-
dealer to expand or, depending on the magnitude of the loss or charge, maintain its then present level of business. FINRA may
enter the offices of a broker-dealer at any time, without notice, and calculate the firm’s net capital. If the calculation reveals a net
capital deficiency, FINRA may immediately restrict or suspend some or all of the broker-dealer’s activities, including its ability to
make markets. Our broker-dealer subsidiaries may not be able to maintain adequate net capital, or their net capital may fall below
requirements established by the SEC or the CFTC, as applicable, and subject us to disciplinary action in the form of fines, censure,
suspension, expulsion or the termination of business altogether. During the fourth quarter of 2009, one of our broker-dealer
subsidiaries had a short-term net-capital deficiency and could face disciplinary action including a fine, a suspension of its
operations and/or rescission of revenues relating to the period of non-compliance.
A change in the tax treatment of insurance products or a determination that these products are not insurance contracts for
federal tax purposes could reduce the demand for these products, which may reduce our revenue.
The market for many insurance products sold by Investacorp’s and Triad’s financial advisors depends on the favorable tax
treatment, including the tax-free build up of cash values and the tax-free nature of death benefits that these products receive
relative to other investment alternatives. A change in the tax treatment of insurance products or a determination by the IRS that
certain of these products are not insurance contracts for federal tax purposes could remove many of the tax advantages
policyholders seek in these policies. Also, the IRS periodically releases guidance on the tax treatment of products. If the
provisions of the tax code were changed or new federal tax regulations and IRS rulings and releases were issued in a manner that
would make
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it more difficult for holders of these insurance contracts to qualify for favorable tax treatment or subject holders to special tax
reporting requirements, the demand for the insurance contracts could decrease, which may reduce our revenue and negatively
affect our business.
Risk Factors Relating to Strategic Acquisitions and the Integration of Acquired Operations
We may be unable to successfully integrate acquired businesses into our existing business and operations, which may
adversely affect our cash flows, liquidity and results of operations.
We have completed six acquisitions since 2006. We continue to explore opportunities to grow our business, including
through potential acquisitions of other securities firms, both domestically and internationally. These acquisitions may involve
payments of material amounts of cash, incurrence of a material amount of debt or the issuance of significant amounts of our equity
securities, which may increase our leverage and/or be dilutive to our existing shareholders. We may experience difficulty
integrating the operations of these entities or any other entities acquired in the future into our existing business and operations.
Furthermore, we may not be able to retain all of the employees we acquire as a result of these transactions. If we are unable to
effectively address these risks, we may be required to restructure the acquired business or write-off the value of some or all of the
assets of the acquired business. If we are unable to successfully integrate acquired businesses into our existing business and
operations in the future, it could have a material adverse effect on our liquidity, cash flows and results of operations.
We may be adversely affected if the firms we acquire do not perform as expected.
Even if we successfully complete acquisitions, we may be adversely affected if the acquired firms do not perform as expected.
The firms we acquire may perform below expectations after the acquisition for various reasons, including legislative or regulatory
changes that affect the products in which a firm specializes, the loss of key clients, employees and/or financial advisors after the
acquisition closing, general economic factors and the cultural incompatibility of an acquired firm’s management team with us.
The failure of firms to perform as expected at the time of acquisition may have an adverse effect on our earnings and revenue
growth rates, and may result in impairment charges and/or generate losses or charges to earnings.
We face numerous risks and uncertainties as we expand our business.
We expect the growth of our business to come primarily from internal expansion and through acquisitions. As we expand our
business, there can be no assurance that our financial controls, the level and knowledge of our personnel, our operational abilities,
our legal and compliance controls and our other corporate support systems will be adequate to manage our business and our
growth. The ineffectiveness of any of these controls or systems could adversely affect our business and prospects. In addition, as
we acquire new businesses, we face numerous risks and uncertainties integrating their controls and systems into ours, including
financial controls, accounting and data processing systems, management controls and other operations. A failure to integrate these
systems and controls, and even an inefficient integration of these systems and controls, could adversely affect our business, cash
flows and results of operations.
Risk Factors Relating to Owning Our Stock
The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell the shares of our
common stock at prices you find attractive.
The trading price of our common stock has ranged between $0.80 and $1.74 per share for the 52 week period ended March 1,
2011. We expect that the market price of our common stock may continue to fluctuate significantly.
The market price of our common stock may fluctuate in response to numerous factors, many of which are beyond our control.
These factors include:
•
•
•
variations in quarterly operating results;
general economic and business conditions, including conditions in the securities brokerage and investment banking
markets;
our announcements of significant contracts, milestones or acquisitions;
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•
•
•
•
•
•
•
our relationships with other companies;
our ability to obtain needed capital commitments;
additions or departures of key personnel;
the initiation or outcome of litigation or arbitration proceedings;
sales of common stock, conversion of securities convertible into common stock, exercise of options and warrants to
purchase common stock or termination of stock transfer restrictions;
changes in financial estimates by securities analysts; and
fluctuation in stock market price and volume.
Any one of these factors could have an adverse effect on the market price of our common stock.
Also, the stock market in recent years has experienced significant price and volume fluctuations that have materially affected
the market prices of equity securities of many companies and that often have been unrelated to such companies’ operating
performance. These market fluctuations have adversely impacted the price of our common stock in the past and may do so in the
future. Also, shareholders may initiate securities class action lawsuits if the market price of our stock drops significantly, which
may cause us to incur substantial costs and divert our management’s time and attention. These factors, among others, could
significantly depress the price of our common stock.
Our principal shareholders including our directors and officers control a large percentage of our shares of common stock
and can significantly influence our corporate actions.
At March 1, 2011, our executive officers, directors and companies with which these individuals are affiliated with beneficially
owned approximately 38% of our common stock. Accordingly, these individuals and entities can significantly influence most, if
not all, of our corporate actions, including the election of directors and the appointment of officers. Also, this ownership of our
common stock may make it difficult for a third party to acquire control of us, therefore possibly discouraging third parties from
seeking to acquire us. A third party would have to negotiate any possible transactions with these principal shareholders, and their
interests may be different from the interests of our other shareholders. This may depress the price of our common stock.
Possible additional issuances will cause dilution.
At December 31, 2010, we had outstanding 183,496,492 shares of common stock and options and warrants to purchase a total
of 30,012,740 shares of common stock. We are authorized to issue up to 400,000,000 shares of common stock and are therefore
able to issue additional shares without being required under corporate law to obtain shareholder approval. If we issue additional
shares, or if our existing shareholders exercise their outstanding options and warrants, our other shareholders may find their
holdings drastically diluted, which if it occurs, means that they would own a smaller percentage of our company.
We may issue preferred stock with preferential rights that may adversely affect your rights.
The rights of our shareholders will be subject to and may be adversely affected by the rights of holders of any preferred stock
that we may issue in the future. Our articles of incorporation authorize our board of directors to issue up to 2,000,000 shares of
“blank check” preferred stock and to fix the rights, preferences, privilege and restrictions, including voting rights, of these shares
without further shareholder approval.
We do not expect to pay any cash dividends.
We intend to retain any future earnings to fund the development and growth of our business. We do not anticipate paying cash
dividends in the foreseeable future. Accordingly, you must rely on sales of your common stock after price appreciation, which may
never occur, as the only way to realize any positive return on your investment in our common stock. Net capital requirements
imposed on our subsidiaries may also restrict our ability to pay dividends.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
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ITEM 2. PROPERTIES.
Our principal executive offices are located at 4400 Biscayne Boulevard, 12th Floor, Miami, Florida 33137, where we lease
approximately 15,800 square feet of office space. The lessor is Frost Real Estate Holdings, LLC, an entity affiliated with Dr.
Phillip Frost, our Chairman of the Board and principal shareholder. Our lease expires in January 2012.
Ladenburg’s principal executive offices are located at 520 Madison Avenue, 9th Floor, New York, New York 10022, where it
subleases approximately 15,400 square feet of office space under a lease that expires in September 2014.
Ladenburg previously leased office space at 590 Madison Avenue, New York, New York and has subleased all of this space to
three unrelated parties on various terms providing for sublease payments to Ladenburg of approximately $21 million. The lease,
under which Ladenburg is still obligated as the main lessor, expires in June 2015. See Item 1A. “Risk Factors — A default by any
of Ladenburg's subtenants may have a material adverse effect on our liquidity, cash flows, and results of operations” above.
Ladenburg also operates branch offices in leased office space located in Miami and Boca Raton, Florida, Princeton, New Jersey
and Melville and New York, New York.
Investacorp’s principal executive offices are located at 4400 Biscayne Boulevard, 11th Floor, Miami, Florida 33137, where it
leases from Frost Real Estate Holdings, LLC approximately 11,475 square feet of office space under a lease that expires in
September 2015. Investacorp’s independent financial advisors are responsible for the office space they occupy, whether by lease
or otherwise.
Triad’s principal executive offices are located at 5185 Peachtree Parkway, Suite 280, Norcross, Georgia, 30092, where it leases
approximately 11,300 square feet of office space under a lease that expires in June 2012. Triad’s independent financial advisors
are responsible for the office space they occupy, whether by lease or otherwise.
Premier’s principal executive offices are located at 4465 S. Jones Boulevard, Las Vegas, NV 89103 where it leases
approximately 8,200 square feet of office space under a lease that expires in February 2016.
ITEM 3. LEGAL PROCEEDINGS.
The information under the heading “Litigation and Regulatory Matters” contained in Note 11 to our consolidated financial
statements included in Part II, Item 8 of this annual report on Form 10-K is incorporated by reference in this Item 3.
ITEM 4. (REMOVED AND RESERVED).
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
Our common stock trades on the NYSE Amex under the symbol “LTS.” The following table sets forth the high and low sales
prices of our common stock for the periods specified:
Period
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
2010
$
High
Low
High
$
1.24
1.74
1.36
1.37
$
.60
.87
.80
1.00
.98
.89
.85
.82
2009
$
Low
.36
.45
.45
.57
At March 1, 2011, there were approximately 3,851 record holders of our common stock.
Dividends
We have never paid or declared any dividends on our common stock. The payment of future dividends, if any, will be at our
board of director’s discretion after taking into account our financial condition, operating results, anticipated cash needs and any
other factors that our board of directors may deem relevant. The net capital requirements imposed on our subsidiaries also restrict
our ability to pay dividends.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below is derived from our audited consolidated financial statements. You should read this
selected financial data together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations“ and the consolidated financial statements and the notes thereto included elsewhere in this annual report on Form 10-
K:
2010
Year Ended December 31,
2008
(In thousands, except share and per share amounts)
2009
2007
2006
Operating Results:
Total revenues
Total expenses
(Loss) income before income taxes
Net (loss) income
Per common and equivalent share:
Basic and diluted:
(Loss) income per common share
Basic weighted average common shares
Diluted weighted average common shares
Balance Sheet Data:
Total assets
Total liabilities
Shareholders’ equity
Other Data:
Book value per share
$
194,526(a) $
204,616
(10,090)
(10,951)
150,675 $
168,279
(17,604)
(18,673)
120,970(b) $
140,214
(19,244)
(20,263)
95,826(c) $
85,922
9,904(d)
9,391(d)
46,858
42,010
4,848(e)
4,659(e)
$
(0.06)
175,698,489
175,698,489
(0.11) $
$
(0.12)
168,623,375 165,812,495
168,623,375 165,812,495
$
0.06
157,355,540
168,484,469
$
0.03
148,693,521
153,087,961
$
$
$
101,825
54,906
46,919
94,637 $
56,843
37,794
$
101,668
50,378
51,290
$
114,132
60,029
54,103
47,343
19,009
28,334
0.26
$
0.22 $
0.30
$
0.33
$
0.18
(a) Includes $970 of revenue from Premier (acquired September 1, 2010).
(b) Includes $21,190 of revenue from Triad (acquired August 13, 2008).
(c) Includes $12,191 of revenue from Investacorp (acquired October 19, 2007).
(d) Includes losses on extinguishment of debt of $1,833.
(e) Includes $4,983 net gain on sale of Ladenburg’s NYSE and CBOE memberships.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(Dollars in thousands, except share and per share amounts)
Overview
We are engaged in investment banking, equity research, institutional sales and trading, independent brokerage and advisory
services, asset management services and trust services through our principal subsidiaries, Ladenburg, Investacorp, Triad, LTAM
and Premier. We are committed to establishing a significant presence in the financial services industry by meeting the varying
investment needs of our corporate, institutional and retail clients.
We have three operating segments, consisting of the investment banking, sales and trading and asset management services and
investment activities conducted by Ladenburg and LTAM, the independent brokerage and advisory services business conducted
by Investacorp and Triad, and the trust services provided by Premier.
Acquisition Strategy
We continue to explore opportunities to grow our businesses, including through potential acquisitions of other securities and
investment banking firms, both domestically and internationally. These acquisitions may involve payments of material amounts
of cash, the incurrence or material amounts of debt or the issuance of significant amounts of our equity securities, which may be
dilutive to our existing shareholders and/or may increase our leverage. We cannot assure you that we will be able to complete any
such potential acquisitions on terms acceptable to us or, if we do, that any acquired business will be profitable. There is also a risk
that we will not be able to successfully integrate acquired businesses into our existing business and operations. See Item 1A, “Risk
Factors — Risk Factors Relating to Strategic Acquisitions and the Integration of Acquired Operations.”
Recent Developments
Private Equity Offering
On May 28, 2010, we entered into stock purchase agreements with various investors, including investors who are our directors
and executive officers, who agreed to purchase an aggregate of 14,050,000 shares of our common stock at a price of $1.00 per
share. On September 15, 2010, we sold an aggregate of 13,325,000 shares and received gross proceeds of $13,325 from investors
who are not affiliated with us. Under NYSE Amex rules, our shareholders approved the sale of the remaining 725,000 shares to
investors who are our directors and executive officers, or affiliates thereof, at our 2010 Annual Meeting on September 24, 2010.
On October 1, 2010 we sold such 725,000 shares of common stock to our affiliates and received gross proceeds of $725. The funds
received from the private equity offering were used for general corporate purposes and repayment of debt.
Premier Trust Acquisition
On September 1, 2010, we acquired Premier Trust, Inc., a provider of wealth management services, including trust
administration, estate and financial planning and custody services. Founded in 2001, Premier is a Nevada-chartered trust company
headquartered in Las Vegas, Nevada, with assets under administration in excess of $540 million at December 31, 2010.
NFS Forgivable Loan
On August 25, 2009, NFS provided us with a seven-year, $10,000 forgivable loan. NFS serves as the clearing broker for our
three principal broker-dealer subsidiaries. If our broker-dealer subsidiaries meet aggregate annual clearing revenue targets set forth
in the loan agreement, the principal balance of the loan is forgiven in seven equal annual installments of $1,429, in August of
each year. Interest payments due for each such year are also forgiven if the annual clearing revenue targets are met. Any principal
amounts not forgiven will be due in August 2016, and any interest payments not forgiven are due annually. If any principal
amount is not forgiven, we may have such principal forgiven in future years if our broker-dealer subsidiaries exceed subsequent
annual clearing revenue targets. We have expensed, and will continue to expense, interest under
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the loan agreement until such interest is forgiven. The first annual clearing revenue target was met in August 2010. Accordingly,
in the third quarter of 2010, we recognized income of $1,429 and $525 from the forgiveness of principal and interest, respectively,
and the outstanding balance under the loan was reduced to $8,571.
Critical Accounting Policies
General. The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America, referred to as GAAP, requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
Clearing Arrangements. Our broker-dealer subsidiaries do not carry accounts for customers or perform custodial functions
related to customers’ securities. Each of Ladenburg, Investacorp and Triad introduces all of its customer transactions, which are
not reflected in these financial statements, to its clearing broker, which maintains the customers’ accounts and clears such
transactions. Also, the clearing broker provides the clearing and depository operations for Ladenburg’s, Investacorp’s and Triad’s
proprietary securities transactions. These activities may expose us to off-balance-sheet risk in the event that customers do not
fulfill their obligations with the clearing broker, as we have agreed to indemnify our clearing broker for any resulting losses. We
continually assess risk associated with each customer who is on margin credit and record an estimated loss when we believe
collection from the customer is unlikely. We incurred losses from these arrangements, prior to any recoupment from our financial
advisors, of $4, $101 and $74 for the years ended December 31, 2010, 2009 and 2008, respectively.
Customer Claims, Litigation and Regulatory Matters. In the ordinary course of business, our operating subsidiaries have been
and are the subject of numerous civil actions and arbitrations arising out of customer complaints relating to their activities as a
broker-dealer, as an employer or supervisor and as a result of other business activities. In general, the cases involve various
allegations that our employees or independent financial advisors had mishandled customer accounts. Due to the uncertain nature
of litigation in general, we are unable to estimate a range of possible loss related to lawsuits filed against us, but based on our
historical experience and consultation with counsel, we typically reserve an amount we believe will be sufficient to cover any
damages assessed against us. We had accruals of $286 at December 31, 2010 and $453 at December 31, 2009 for potential losses.
However, in the past we have been assessed damages that exceeded our reserves. If we misjudge the amount of damages that may
be assessed against us from pending or threatened claims, or if we are unable to adequately estimate the amount of damages that
will be assessed against us from claims that arise in the future and reserve accordingly, our operating income and liquidity would
be reduced. Such costs may have a material adverse effect on our future financial position, results of operations and liquidity.
Fair Value. “Trading securities owned” and “Securities sold, but not yet purchased” on our consolidated statements of
financial condition are recorded at fair value, with related unrealized gains and losses recognized in our results of operations. The
determination of fair value is fundamental to our financial condition and results of operations and, in certain circumstances, it
requires management to make complex judgments.
Fair values are based on listed market prices, where possible. If listed market prices are not available or if the liquidation of our
positions would reasonably be expected to impact market prices, fair value is determined based on other relevant factors,
including dealer price quotations. Fair values for certain derivative contracts are derived from pricing models that consider market
and contractual prices for the underlying financial instruments or commodities, as well as time value and yield curve or volatility
factors underlying the positions.
Pricing models and their underlying assumptions impact the amount and timing of unrealized gains and losses recognized, and
the use of different pricing models or assumptions could produce different financial results. Changes in the fixed income and
equity markets will impact our estimates of fair value in the future, potentially affecting principal trading revenues. The illiquid
nature of certain securities or debt instruments also requires a high degree of judgment in determining fair value due to the lack of
listed market prices and the potential impact of the liquidation of our position on market prices, among other factors.
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The Financial Accounting Standards Board, which we refer to as the FASB, has issued authoritative accounting guidance that
defines fair value, establishes a framework for measuring fair value and establishes a fair value hierarchy which prioritizes the
inputs to valuation techniques. The guidance clarifies that fair value should be based on assumptions that market participants
would use when pricing an asset or liability and became effective for us on January 1, 2008. The adoption of this standard did not
have a material impact on our consolidated financial statements.
Valuation of Deferred Tax Assets. We account for income taxes under the asset and liability method, which requires the
recognition of tax benefits or expense on the temporary differences between the tax basis and book basis of our assets and
liabilities as well as tax loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax
amounts as of December 31, 2010, which consist principally of the tax benefit of net operating loss carryforwards and
compensation charges related to equity instruments, amount to $41,170. After consideration of all the evidence, both positive and
negative, especially the fact that we sustained a cumulative pre-tax loss for the periods 2006 through 2010, we have determined
that a valuation allowance at December 31, 2010 was necessary to fully offset the deferred tax assets based on the likelihood of
future realization. At December 31, 2010, we had net operating loss carryforwards of approximately $77,000, expiring in various
years from 2015 through 2029.
Stock-Based Compensation. Our stock based compensation uses a fair value-based method to recognize non-cash
compensation expense for share-based transactions. The accounting guidance requires an entity to measure the cost of employee,
officer and director services received in exchange for an award of equity instruments, including stock options, based on the grant-
date fair value of the award. The cost is recognized as compensation expense over the service period, which would normally be the
vesting period of the options.
Intangible Assets. We amortize intangible assets over their estimated useful lives generally on a straight-line basis. Intangible
assets subject to amortization are tested for recoverability whenever events or changes in circumstances indicate that the carrying
amount may be not recoverable. We assess the recoverability of our intangible assets by determining whether the unamortized
balance can be recovered over the assets’ remaining life through undiscounted forecasted cash flows. If undiscounted forecasted
cash flows indicate that the unamortized amounts will not be recovered, an adjustment will be made to reduce such amounts to an
amount consistent with forecasted future cash flows discounted at a rate commensurate with the risk associated with achieving
future discounted cash flows. Future cash flows are based on trends of historical performance and our estimate of future
performances, giving consideration to existing and anticipated competitive and economic conditions.
Goodwill. Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or
changes in circumstances indicate that the asset may be impaired. The impairment test consists of a comparison of the fair value of
the reporting unit with its carrying amount. Fair value is typically based upon future cash flows discounted at a rate commensurate
with the risk involved or market based comparables. If the carrying amount of the reporting unit exceeds its fair value then an
analysis will be performed to compare the implied fair value of goodwill with the carrying amount of goodwill. An impairment
loss will be recognized in an amount equal to excess of the carrying amount over the implied fair value. After an impairment loss
is recognized, the adjusted carrying amount of goodwill is its new accounting basis. We did not identify any impairment of
goodwill for the year ended December 31, 2010. During 2010, the carrying amount of goodwill was reduced by $35, representing
the tax benefit realized for the excess of tax-deductible goodwill over goodwill recognized for financial reporting purposes.
Results of Operations
The following discussion provides an assessment of our consolidated results of operations, capital resources and liquidity and
should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this
report. Our consolidated financial statements include our accounts and the accounts of Ladenburg, Investacorp, Triad (since
August 13, 2008), Premier (since September 1, 2010) and our other wholly-owned subsidiaries.
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The following table presents a reconciliation of EBITDA, as adjusted, to net loss as reported:
Year Ended December 31,
Total revenues
Total expenses
Pre-tax loss
Net loss
EBITDA, as adjusted
Add:
Interest income
Sale of exchange memberships
Less:
Interest expense
Income tax expense
Depreciation and amortization
Non-cash compensation
Clearing conversion expense
Net loss
2010
2009
$194,526(1) $ 150,675
204,616
168,279
(10,090)
(10,951)
2,701
$
(17,604)
(18,673)
(1,849) $
$
2008
$ 120,970(2)
140,214
(19,244)
(20,263)
(5,745)
(14)
—
70
—
219
519
(3,241)
(861)
(3,978)
(5,439)
(119)
$ (10,951)
(3,977)
(1,069)
(4,143)
(7,534)
(171)
(4,534)
(1,019)
(3,438)
(6,265)
—
$ (18,673) $ (20,263)
(1) Includes $970 of revenue from Premier (acquired September 1, 2010).
(2) Includes $21,190 of revenue from Triad (acquired August 13, 2008).
Earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted for gains or losses on sales of assets, non-
cash compensation expense, and clearing conversion expense is a key metric we use in evaluating our financial performance.
EBITDA is considered a non-GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities
Act of 1933, as amended. We consider EBITDA, as adjusted, important in evaluating our financial performance on a consistent
basis across various periods. Due to the significance of non-cash and non-recurring items, EBITDA, as adjusted, enables the
Company’s Board of Directors and management to monitor and evaluate the business on a consistent basis. We use EBITDA, as
adjusted, as a primary measure, among others, to analyze and evaluate financial and strategic planning decisions regarding future
operating investments and potential acquisitions. We believe that EBITDA, as adjusted, eliminates items that are not indicative of
our core operating performance, such as expenses related to Investacorp’s conversion to a single clearing firm as part of a new
seven-year clearing agreement, or do not involve a cash outlay, such as stock-related compensation. EBITDA, as adjusted, should
be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities.
Our EBITDA, as adjusted, increased $4,550 in 2010 compared to 2009 primarily as a result of a smaller net loss in 2010 as
compared to 2009. EBITDA, as adjusted, increased $3,896 in 2009 as compared to 2008 primarily as a result of a smaller net loss
in 2009 as compared to 2008.
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As a result of the Premier acquisition on September 1, 2010, we have three operating segments. The Ladenburg segment
includes the investment banking, sales and trading and asset management services and investment activities conducted by
Ladenburg and LTAM. The independent brokerage and advisory services segment includes the broker-dealer and investment
advisory services provided by Investacorp and Triad to their independent contractor financial advisors. The Premier segment
includes the trust services provided by Premier.
Revenues:
Ladenburg
Independent Brokerage and Advisory Services(1)
Premier(2)
Corporate
Total revenues
Pre-tax (loss) income:
Ladenburg
Independent Brokerage and Advisory Services(1)
Premier(2)
Corporate(3)
Total pre-tax loss
Year Ended December 31,
2010
2009
2008
$ 41,194
150,409
970
1,953
$ 194,526
$ 38,671
111,931
—
73
$ 150,675
$
41,997
79,190
—
(217)
$ 120,970
$
(4,364) $
1,061
25
(6,812)
(8,006) $
802
—
(10,400)
$ (10,090) $ (17,604) $
(8,140)
203
—
(11,307)
(19,244)
(1) Includes Triad since its August 13, 2008 acquisition.
(2) Includes Premier since its September 1, 2010 acquisition.
(3) Includes interest, compensation, professional fees and other general and administrative expenses.
Year ended December 31, 2010 compared to year ended December 31, 2009
For the fiscal year ended December 31, 2010, we had a net loss of $10,951 compared to a net loss of $18,673 for the fiscal year
ended December 31, 2009, primarily due to Ladenburg’s improved performance. Net loss for 2010 benefited from a $1,429 gain
from forgiven principal under the NFS loan and included $5,439 of non-cash compensation expense as compared to non-cash
compensation expense of $7,534 in 2009.
Our total revenues for 2010 increased $43,851 (29%) from 2009, primarily as a result of increased commissions of $15,673,
increased advisory fees of $20,532, increased investment banking of $5,785, and increased other income of $4,424, partially offset
by decreased interest and dividends revenue of $1,848 and decreased principal transactions of $715.
Our total expenses increased in 2010 by $36,337 (22%) from 2009 primarily as a result of an increase in commissions and fees
of $34,955, an increase in compensation and benefits of $3,077, and an increase in other expense of $1,627, partially offset by a
decrease in non-cash compensation expense of $2,095 and a decrease in interest expense of $736.
The $15,673 (17%) increase in commissions revenue in 2010 as compared to 2009 was primarily attributable to the
recruitment of higher-producing financial advisors in our independent brokerage and advisory services segment which had
increased commissions revenue of $19,579 offset by a decrease in Ladenburg commissions revenue of $3,906. The decrease at
Ladenburg is primarily attributable to lower agency commissions and Ladenburg’s closing of two offices during the second
quarter of 2010, which resulted in a $2,007 decrease in commissions in 2010 as compared to 2009.
The $20,532 (62%) increase in advisory fee revenue in 2010 as compared to 2009 was due to the higher average assets under
management at LTAM, Triad and Investacorp resulting from the addition of new accounts and appreciation in total assets. Total
assets under management increased 30% at December 31, 2010 as compared to December 31, 2009. We currently expect asset
management revenue to increase in 2011 due to recent improvement in market conditions and newly-added advisory assets.
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The $5,785 (38%) increase in 2010 investment banking revenue was primarily due to an increase in capital raising fees of
$6,419 resulting from increased investment banking activity. Our investment banking revenue is derived from Ladenburg’s
capital raising activities, including underwritten public offerings and private placements, and strategic advisory services. Revenue
from underwritten public offerings was $15,712 in 2010, including $183 in warrants received as investment banking fees, and
$7,608 in 2009. Private placement revenue was $2,621 in 2010, including $641 in warrants received as investment banking fees,
and $3,729 in 2009, including $544 in warrants received as investment banking fees. Investment banking revenue includes $405
in 2010 and $5,939 in 2009, of deferred fees from special purpose acquisition companies (SPAC) offerings. Typically, a
significant portion of the underwriting fees for a SPAC transaction are deferred fees and are recognized only upon a SPAC's
successful completion of a business combination transaction.As of the date of this report, Ladenburg does not have a material
backlog of deferred SPAC transaction fees.
The $715 (85%) decrease in principal transactions in 2010 as compared to 2009 was primarily attributable to decreases in the
fair value of securities received as underwriting consideration.
The $1,848 (78%) decrease in interest and dividends in 2010 as compared to 2009 was primarily attributable to lower interest
rates and a decrease in margin account balances. We expect continued lower interest and dividends revenue in 2011 due to the
current low interest rate environment and lower interest sharing from our clearing broker.
The $4,424 (68%) increase in other income in 2010 as compared to 2009 was primarily attributable to $1,429 of forgiven
principal and $525 of forgiven interest under our NFS loan agreement, which is reflected in our corporate segment. If our broker-
dealer subsidiaries meet aggregate annual clearing revenue targets, principal and interest under the NFS loan may be forgiven.
Other income also increased in our independent brokerage and advisory services segment, which had a $623 increase in direct
investment marketing allowances received from product sponsor programs, conference revenue of $192, transaction-related fees of
$362 and miscellaneous trading services revenue of $608. Other income also included $270 for customer charges and $135
received in the settlement of a claim at Ladenburg.
The $34,955 (40%) increase in commissions and fees expense in 2010 as compared to 2009 was directly correlated to the
increase in commissions and advisory fees revenue in our independent brokerage and advisory services segment. Commissions
and fees expense comprises compensation payments earned by the registered representatives who serve as independent contractors
in our independent brokerage and advisory services segment. These payments to the independent contractor registered
representatives are calculated based on a percentage of revenues and vary by product. Accordingly, when the independent
contractor registered representatives increase their business, both our revenues and expenses increase since they earn additional
compensation based on the revenue produced.
The $3,077 (8%) increase in compensation and benefits expense in 2010 as compared to 2009 was primarily due to a $2,770
increase in producers’ compensation, which is directly correlated to revenue production by such persons, and a $505 increase from
the addition of Premier, partially offset by a $198 decrease in salaries, bonuses and benefits resulting from staff reductions.
The $2,095 (28%) decrease in non-cash compensation expense in 2010 as compared to 2009 was primarily attributable to a
number of large stock option grants in 2005 and 2006 which fully vested in 2009 and 2010. The resulting decrease in expense
related to these grants was $1,611.
The $204 (3%) decrease in brokerage, communication and clearance fees expense for 2010 as compared to 2009 was primarily
attributable to a decrease in Ladenburg and Investacorp expense of $301 and $13, respectively, resulting from cost reduction
measures in 2010, partially offset by an increase in Triad expense of $103. While brokerage, communication and clearance fee
expense is directly correlated with brokerage activity, we have benefitted and expect to continue to benefit from reduced clearing
and execution expenses under our new clearing agreements.
The $242 (8%) increase in rent and occupancy, net of sublease revenue in 2010 as compared to 2009 was primarily
attributable to an increase in Investacorp expense of $163 due to the relocation of its headquarters and $34 from the addition of
Premier.
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The $364 (6%) decrease in professional services expense for 2010 was primarily due to a decrease of $413 in legal, audit, tax
and consulting expense at Investacorp, Ladenburg and Triad, partially offset by the additional expense from Premier of $49. We
currently expect similar levels of professional services expense in the near term.
The $736 (19%) decrease in interest expense in 2010 as compared to 2009 was a result of reduced average borrowings under
our $30,000 revolving credit facility with Frost Gamma Investments Trust (“Frost Gamma”), an affiliate of Dr. Phillip Frost, our
chairman of the board and principal shareholder, and repayments of promissory notes issued in connection with the Investacorp
and Triad acquisitions. An approximate $31,000 average debt balance was outstanding for 2010, as compared with an average
debt balance outstanding of approximately $33,000 for 2009. As discussed above, in August, 2009, we entered into a seven-year,
$10,000 forgivable loan with NFS. We used the NFS loan proceeds, which bear interest at a lower rate than our revolving credit
agreement, to repay amounts outstanding under our revolving credit facility, which is primarily the reason the average interest rate
decreased 174 basis points.
The $165 (4%) decrease in depreciation and amortization expense for 2010 as compared to 2009 was primarily due to the
decrease in intangible assets related to Ladenburg and Triad of $217, partially offset by the additional Premier expense of $51, of
which $42 was attributed to the amortization of intangible assets acquired in the Premier acquisition.
The $1,627 (17%) increase in other expense in 2010 as compared to 2009 is primarily attributable to an increase in
miscellaneous trading services and conversion costs of $814, an increase in travel, meals and entertainment of $324, an increase in
advertising of $324, an increase in registration fees of $294, an increase in insurance of $259, and the addition of Premier expense
of $138, partially offset by a decrease in bad debt and settlement expense of $494.
We incurred income tax expense of $861 in 2010 as compared to $1,069 in 2009. After consideration of all the evidence, both
positive and negative, management has determined that a valuation allowance at December 31, 2010 was necessary to fully offset
the deferred tax assets based on the likelihood of future realization. Our current deferred income tax liabilities increased by
approximately $692 during 2010 due to goodwill amortization for tax purposes. The income tax rates for the 2010 and 2009
periods did not bear a customary relationship to effective tax rates primarily as a result of the increase in the valuation allowance
in the 2010 and 2009 periods.
Year ended December 31, 2009 compared to year ended December 31, 2008
For the fiscal year ended December 31, 2009, we had a net loss of $18,673 compared to a net loss of $20,263 for the fiscal year
ended December 31, 2008. Net loss for 2009 included $7,534 of non-cash compensation expense. Net loss for 2008 included
$6,265 of non-cash compensation expense and was reduced by a $519 gain on the sale of exchange memberships.
Our total revenues for 2009 increased $29,705 (25%) from 2008, primarily as a result of increased commissions of $8,791,
increased advisory fees of $17,034, increased principal transactions of $3,582, increased other income of $1,784 partially offset by
decreased interest and dividends revenue of $1,927. 2008 revenues include $21,190 of revenues from Triad from the date of its
acquisition (August 13, 2008). 2009 revenue includes $60,449 from Triad for the full year.
Our total expenses increased in 2009 by $28,065 (20%) from 2008, primarily as a result of an increase in commissions and fees
of $26,375, an increase in other expense of $2,119, an increase in non-cash compensation expense of $1,269 and an increase in
brokerage, communication and clearance fees of $826, partially offset by a decrease in compensation and benefits of $2,412. The
2008 expenses include $20,858 of expenses attributable to Triad’s operations commencing August 13, 2008. 2009 expenses
include $59,990 from Triad for the full year.
The $8,791 (11%) increase in commissions revenue in 2009 as compared to 2008 was attributable to an increase of $20,180
from the inclusion of Triad for the full 2009 year, partially offset by decreases at Ladenburg and Investacorp of $3,808 and $7,581,
respectively. The decreases at Ladenburg and Investacorp were primarily due to unfavorable market conditions.
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The $17,034 (106%) increase in advisory fee revenue in 2009 as compared to 2008 was attributable to an increase of $17,118
from the inclusion of Triad for the full 2009 year.
The $441 (3%) increase in 2009 investment banking revenue was primarily due to an increase in advisory fees of $437.
Revenue from underwritten public offerings was $7,608 in 2009 and $9,159 in 2008. Private placement revenue was $3,729 in
2009, including $544 in warrants received as investment banking fees, and $2,174 in 2008, including $368 in warrants received
as investment banking fees. Investment banking revenue included deferred fees from special purpose acquisition companies
(SPAC) offerings which amounted to $5,939 in 2009 and $5,289 in 2008.
The $3,582 (131%) increase in principal transactions in 2009 as compared to 2008 was primarily attributable to gains in the
fair value of securities received as underwriting consideration.
The $1,927 (45%) decrease in interest and dividends in 2009 as compared to 2008 was primarily attributable to lower interest
rates and a decrease in margin account balances.
The $1,784 (38%) increase in other income in 2009 as compared to 2008 was primarily attributable to the inclusion of Triad
for the full 2009 year. Triad contributed $3,201 and $1,437 of other income in 2009 and 2008, respectively.
The $26,375 (43%) increase in commissions and fees expense in 2009 as compared to 2008 was primarily due to the inclusion
of Triad for the full 2009 year. Triad’s commission and fees expense was $48,511 and $16,170 for the years ended December 31,
2009 and 2008, respectively. Our increase in commissions and fees expense for the 2009 period as compared to the 2008 period
was partially offset by a decrease of $5,966 in such expense at Investacorp. The decrease at Investacorp is directly correlated to the
reduction in commissions and fees revenue at Investacorp.
The $2,412 (6%) decrease in compensation and benefits expense in 2009 as compared to 2008 was primarily due to a $2,957
decrease in producers’ compensation which is directly correlated to revenue production by such persons, a $2,036 decrease in
salaries, bonuses and benefits at Ladenburg and Investacorp which is a result of staff reductions, partially offset by the addition of
Triad, which had a $2,580 increase in expense.
The $1,269 (20%) increase in non-cash compensation expense in 2009 as compared to 2008 was primarily attributable to new
stock option grants and a reduction in the forfeiture rate for our stock options.
The $826 (14%) increase in brokerage, communication and clearance fees expense for 2009 as compared to 2008 was
primarily attributable to the inclusion of Triad for the full 2009 year. Triad and Investacorp had an increase of $1,275 and $56 in
2009, respectively, partially offset by a decrease in Ladenburg expense of $543 resulting from cost reduction measures in 2009.
The $251 (4%) decrease in professional services expense for 2009 was primarily due to a decrease of $599 in legal, audit, tax
and consulting expense at Investacorp and Ladenburg, partially offset by additional expense from Triad of $348.
The $557 (12%) decrease in interest expense in 2009 as compared to 2008 was a result of reduced average borrowings under
our $30,000 revolving credit facility with Frost Gamma and repayments of promissory notes issued in connection with the
Investacorp and Triad acquisitions. An approximate $33,000 average debt balance was outstanding for 2009, as compared with an
average debt balance outstanding of approximately $35,000 for 2008. As discussed above, in August, 2009, we entered into a
seven-year, $10,000 forgivable loan with NFS. We used the NFS loan proceeds, which bear interest at a lower rate than our
revolving credit agreement, to repay amounts outstanding under our revolving credit facility.
The $705 (21%) increase in depreciation and amortization expense for 2009 as compared to 2008 was primarily due to
additional Triad expense of $713, of which $666 is attributed to the amortization of intangible assets acquired in the acquisition.
The $2,119 (28%) increase in other expense in 2009 as compared to 2008 was primarily attributable to the addition of Triad
expense of $1,666, increased bad debt and settlement expense of $429 and a $112 increase in miscellaneous trading services.
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We incurred income tax expense of $1,069 in 2009 as compared to $1,019 in 2008. After consideration of all the evidence,
both positive and negative, management has determined that a valuation allowance at December 31, 2009 was necessary to fully
offset the deferred tax assets based on the likelihood of future realization. Our current deferred income tax liabilities increased by
approximately $946 during 2009 due to goodwill amortization for tax purposes. The income tax rates for the 2009 and 2008
periods do not bear a customary relationship to effective tax rates primarily as a result of the increase in the valuation allowance in
the 2008 and 2009 periods.
Liquidity and Capital Resources
Approximately 29% of our total assets at December 31, 2010 consisted of cash and cash equivalents, securities owned and
receivables from clearing brokers and other broker-dealers, all of which fluctuate, depending upon the levels of customer business
and trading activity. Receivables from broker-dealers, which are primarily from clearing brokers, turn over rapidly. As a securities
dealer, our broker-dealer subsidiaries may carry significant levels of securities inventories to meet customer needs. A relatively
small percentage of our total assets are fixed. The total assets or the individual components of total assets may vary significantly
from period to period because of changes relating to economic and market conditions, and proprietary trading strategies.
Each of Ladenburg, Investacorp and Triad is subject to the SEC’s net capital rules. Triad is also subject to the CFTC’s net
capital rules. Therefore, they are subject to certain restrictions on the use of capital and their related liquidity. At December 31,
2010, Ladenburg’s regulatory net capital, as defined, of $5,003 exceeded minimum capital requirements of $250, by $4,753. At
December 31, 2010, Investacorp’s regulatory net capital, as defined, of $1,598, exceeded minimum capital requirements of $257,
by $1,341. At December 31, 2010, Triad’s regulatory net capital, as defined, of $2,290 exceeded minimum net capital
requirements of $529 by $1,761. Failure to maintain the required net capital may subject Ladenburg, Investacorp and Triad to
suspension or expulsion by FINRA, the SEC and other regulatory bodies and ultimately may require their liquidation. The net
capital rule also prohibits the payment of dividends, redemption of stock and prepayment or payment of principal of subordinated
indebtedness if net capital, after giving effect to the payment, redemption or prepayment, would be less than specified percentages
of the minimum net capital requirement. Compliance with the net capital rule could limit Ladenburg’s operations that require the
intensive use of capital, such as underwriting and trading activities, and also could restrict our ability to withdraw capital from our
subsidiaries, which in turn, could limit our ability to pay dividends and repay debt. See Item 1A. “Risk Factors — Failure to
comply with capital requirements could subject us to suspension, revocation or fines by the SEC, FINRA or other regulators”
above.
Premier, chartered by the state of Nevada, is subject to regulation by the Nevada Department of Business and Industry
Financial Institutions Division. Under Nevada law, Premier must maintain stockholders’ equity of at least $1,000. At December 31,
2010, Premier had stockholders’ equity of $2,098.
Our primary sources of liquidity include cash flows from operations and borrowings under our $30,000 revolving credit
agreement with Frost Gamma. Borrowings under the $30,000 revolving credit agreement bear interest at a rate of 11% per annum,
payable quarterly. At December 31, 2010, $16,950 was outstanding under the revolving credit agreement. During 2010, we repaid
a net amount of $1,500 under the revolving credit agreement. We used the proceeds of the $10,000 NFS forgivable loan to repay a
portion of the amount outstanding under our revolving credit facility. We may repay or re-borrow outstanding amounts under our
revolving credit facility at any time prior to the amended maturity date of August 25, 2016, without penalty. We believe our
existing assets and funds available under our $30,000 revolving credit facility provide adequate funds for continuing operations
at current activity levels. We are currently in compliance with all debt covenants in our debt agreements.
Cash used in operating activities for 2010 was $5,212, which primarily consisted of our net loss of $10,951 adjusted for non-
cash expenses, increases in receivables from clearing brokers, and other receivables, net, partially offset by increases in accrued
compensation, commissions and fees payable and accounts payable and accrued liabilities. In 2009, cash used in operating
activities was $2,297, primarily due to our net loss adjusted for non-cash expenses, an increase in other receivables, net,
receivables from other broker-dealers and
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other assets, and a decrease in securities sold, but not yet purchased, partially offset by a decrease in securities owned at fair value,
and receivables from clearing brokers and an increase in accrued compensation and commissions and fees payable.
Investing activities used $620 for 2010, primarily due to the purchase of furniture, equipment and leasehold improvements
and payment for the Premier acquisition, partially offset by a decrease in restricted assets related to returned deposits from prior
clearing broker arrangements. In 2009, investing activities used $48, primarily due to the purchase of furniture, equipment and
leasehold improvements, partially offset by a decrease in restricted assets related to the termination of a letter of credit securing
obligations under one of Ladenburg’s office leases.
Financing activities provided $7,057 for 2010, primarily due to $13,928 of net proceeds from a private equity offering of our
common stock and the issuance of common stock upon option exercises and under the employee stock purchase plan, partially
offset by repayments of notes payable and common stock repurchases. In 2009, financing activities provided $1,426 primarily due
to the $10,000 NFS forgivable loan agreement, loan re-borrowings under our revolving credit facility, and the issuance of common
stock upon option exercises and under the employee stock purchase plan, partially offset by repayments of notes payable and
common stock repurchases.
At December 31, 2010, we were obligated under several non-cancelable lease agreements for office space, which provide for
future minimum lease payments aggregating approximately $28,203 through 2016, exclusive of escalation charges. We have
subleased vacant space under subleases which entitle us to receive rents aggregating approximately $21,226 through such date.
See Item 1A. “Risk Factors — A default by any of Ladenburg’s subtenants may have a material adverse effect on our liquidity,
cash flows, and results of operations” above.
On August 25, 2009, NFS provided us with a seven-year, $10,000 forgivable loan. NFS serves as the clearing broker for our
three principal broker-dealer subsidiaries. If these subsidiaries meet aggregate annual clearing revenue targets set forth in the loan
agreement, the principal balance of the loan is forgiven in seven equal annual installments of $1,429 in August of each year.
Interest payments due for each such year are also forgiven if the annual clearing revenue targets are met. Any principal amounts
not forgiven will be due in August 2016, and any interest payments not forgiven are due annually. If any principal amount is not
forgiven, we may have such principal forgiven in future years if our broker-dealer subsidiaries exceed subsequent annual clearing
revenue targets. We have expensed, and will continue to expense, interest under the loan agreement until such interest is forgiven.
The first annual clearing revenue target was met in August 2010. Accordingly, in the third quarter of 2010, we recognized income
of $1,429 and $525 from the forgiveness of principal and interest, respectively, and the outstanding balance under the loan was
reduced to $8,571.
In connection with the Investacorp acquisition, we issued a $15,000 promissory note to Investacorp’s former principal
shareholder. The $15,000 promissory note was paid in full on October 19, 2010.
In connection with the Triad acquisition, we issued a $5,000 promissory note to Triad’s former shareholders. The note bears
interest at a rate of 2.51% per annum and is payable quarterly and matures in August 2011. The outstanding balance of this note at
December 31, 2010 was $1,285.
In connection with the Premier acquisition, we issued a $1,161 promissory note to a subsidiary of Premier’s former shareholder.
The note bears interest at 6.5% per annum and is payable quarterly and matures in September 2015. The outstanding balance of
this note at December 31, 2010 was $1,111.
In March 2007, our board of directors authorized the repurchase of up to 2,500,000 shares of our common stock from time to
time on the open market or in privately negotiated transactions depending on market conditions. The repurchase program is being
funded using approximately 15% of our EBITDA, as adjusted. As of December 31, 2010, 1,013,194 shares had been repurchased
for $1,753 under the program, including 65,370 shares in 2010.
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In April 2009, we repurchased 4,500,000 shares of common stock at a price of $0.60 per share (an aggregate of $2,700) in a
privately-negotiated transaction. This purchase was not made under our share repurchase program described above.
Off-Balance Sheet Arrangements
Each of Ladenburg, Investacorp and Triad, as guarantor of its customer accounts to its clearing broker, is exposed to off-
balance-sheet risks in the event that its customers do not fulfill their obligations with the clearing broker. Also, if Ladenburg,
Investacorp or Triad maintains a short position in certain securities, it is exposed to future off-balance-sheet market risk, since its
ultimate obligation may exceed the amount recognized in the financial statements.
Please see Note 12 to our consolidated financial statements included elsewhere in this annual report on Form 10-K.
Contractual Obligations
The table below summarizes information about our contractual obligations as of December 31, 2010 and the effect these
obligations are expected to have on our liquidity and cash flow in the future years.
Total
Less than
1 year
Payments Due By Period
1-3 years
4-5 years
After
5 years
Note payable to former Triad
$
1,302 $
1,302 $
— $
— $
—
shareholders(1)
Revolving credit agreement with
27,492
1,864
3,734
3,729
18,165
affiliate of our principal
shareholder(2)
Notes payable to clearing firm
under forgivable loan(3)
Note payable to a subsidiary of
Premier’s former shareholder(4)
Operating leases(5)
Total
8,571
1,429
2,857
2,857
1,428
1,301
274
548
479
—
28,203
66,869 $
7,086
11,955 $
12,565
19,704 $
8,533
15,598 $
19
19,612
$
(1) Note bears interest at 2.51% per annum and is payable in 12 equal quarterly installments. See Note 10 to our consolidated
financial statements.
(2) Revolving credit agreement has an August 25, 2016 maturity date and bears interest at a rate of 11.0% per annum, payable
quarterly. Assumes no payments of principal prior to maturity. See Note 10 to our consolidated financial statements.
(3) Note bears interest at prime plus 2% per annum and is payable in 7 annual installments. See Note 10 to our consolidated
financial statements.
(4) Note bears interest at 6.5% per annum and is payable in 20 quarterly installments. See Note 10 to our consolidated financial
statements.
(5) Excludes sublease revenues of $21,226. See Note 11 to our consolidated financial statements.
We have subleased office space to subtenants, some of whom are engaged in the financial services industry. Should any of the
sub-tenants not pay their sublease payments or otherwise default under a sublease, it may have a material adverse effect on our
liquidity, cash flows and results of operations.
Market Risk
Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument
as a result of fluctuations in interest and currency exchange rates, equity and commodity prices, changes in the implied volatility
of interest rates, foreign exchange rates, equity and commodity prices and also changes in the credit ratings of either the issuer or
its related country of origin. Market risk is
36
TABLE OF CONTENTS
inherent to both derivative and non-derivative financial instruments, and accordingly, the scope of our market risk management
procedures extends beyond derivatives to include all market risk sensitive financial instruments.
Current and proposed underwriting, corporate finance, merchant banking and other commitments are subject to due diligence
reviews by our senior management, as well as professionals in the appropriate business and support units involved. Credit risk
related to various financing activities is reduced by the industry practice of obtaining and maintaining collateral. We monitor our
exposure to counterparty risk through the use of credit exposure information, the monitoring of collateral values and the
establishment of credit limits.
Special Note Regarding Forward-Looking Statements
We and our representatives may from time to time make oral or written “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995, including any statements that may be contained in the foregoing discussion in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in this report and in other filings with
the Securities and Exchange Commission and in our reports to shareholders, which reflect our expectations or beliefs with respect
to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties and, in
connection with the “safe-harbor” provisions of the Private Securities Litigation Reform Act, we have identified under “Risk
Factors” in Item 1A above, important factors that could cause actual results to differ materially from those contained in any
forward-looking statement made by or on behalf of us.
Results actually achieved may differ materially from expected results included in these forward-looking statements as a result
of these or other factors. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-
looking statements, which speak only as of the date on which such statements are made. We do not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information in Item 7 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Market Risk” is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements and Notes thereto, together with the report thereon of EisnerAmper LLP dated
March 10, 2011 beginning on page F-1 of this report which are incorporated by reference in this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) are our controls and other
procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to
our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions
regarding disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by
this report, and, based on that evaluation, our principal executive officer and principal financial officer have concluded that these
controls and procedures were effective as of such date.
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Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our internal control over financial
reporting is designed to provide reasonable assurance to management and to our Board of Directors regarding the reliability of
financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with
generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures
that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.
In connection with this annual report on Form 10-K, our chief executive officer and chief financial officer evaluated, with the
participation of our management, the effectiveness of our internal control over financial reporting as of the end of the period
covered by this report. Based on management’s evaluation, our chief executive officer and chief financial officer each concluded
that our internal control over financial reporting was effective as of December 31, 2010.
EisnerAmper LLP, an independent registered public accounting firm, has audited our consolidated financial statements and
the effectiveness of internal controls over financial reporting as of December 31, 2010 as stated in its report which is included
herein.
Report Of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Ladenburg Thalmann Financial Services Inc.
We have audited the internal control over financial reporting of Ladenburg Thalmann Financial Services, Inc. (the
“Company”) as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO“). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company;
38
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(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control Integrated Framework issued by COSO.
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of the Company as of December 31, 2010 and 2009 and the related consolidated statements of
operations, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2010
and our report dated March 10, 2011 expressed an unqualified opinion on those financial statements.
/s/ EisnerAmper LLP
New York, New York
March 10, 2011
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2010 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
This information will be contained in our definitive proxy statement for our 2011 Annual Meeting of Shareholders, to be filed
with the SEC not later than 120 days after the end of our fiscal year covered by this report, and incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
This information will be contained in our definitive proxy statement for our 2011 Annual Meeting of Shareholders, to be filed
with the SEC not later than 120 days after the end of our fiscal year covered by this report, and incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
This information will be contained in our definitive proxy statement for our 2011 Annual Meeting of Shareholders, to be filed
with the SEC not later than 120 days after the end of our fiscal year covered by this report, and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
This information will be contained in our definitive proxy statement for our 2011 Annual Meeting of Shareholders, to be filed
with the SEC not later than 120 days after the end of our fiscal year covered by this report, and incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
This information will be contained in our definitive proxy statement for our 2011 Annual Meeting of Shareholders, to be filed
with the SEC not later than 120 days after the end of our fiscal year covered by this report, and incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1): Index to 2010 Consolidated Financial Statements
PART IV
The consolidated financial statements and the notes thereto, together with the report thereon of EisnerAmper LLP dated March
10, 2011, appear beginning on page F-1 of this report.
(a)(2): Financial Statement Schedules
Financial statement schedules not included in this report have been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes thereto.
(a)(3): Exhibits Filed
The following exhibits are filed as part of this annual report on Form 10-K.
40
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Exhibit No.
Description
EXHIBIT INDEX
3.1
3.2
3.3
3.4
4.1
4.2
4.3
Articles of Incorporation
Articles of Amendment to the Articles of Incorporation, dated August
24, 1999
Articles of Amendment to the Articles of Incorporation, dated April 3,
2006
Amended and Restated Bylaws
Form of common stock certificate
Credit Agreement, dated as of October 19, 2007, by and between the
Company and Frost Gamma Investments Trust, including the form of
note thereto
Amendment No. 1 to Credit Agreement by and between the Company
and Frost Nevada Investments Trust, as assignee, dated as of August
25, 2009
4.4
Forgivable Loan Agreement, dated as of August 25, 2009, between
the Company and National Financial Services LLC. Certain portions
of this agreement have been omitted under a request for confidential
treatment pursuant to Rule 24b-2 of the Securities Exchange Act of
1934 and filed separately with the United States Securities and
Exchange Commission.
Incorporated
By Reference
from
Document
A
B
C
D
A
E
V
V
4.5
Non-Negotiable Promissory Note, dated as of August 13, 2008, made
U
by the Company in favor of Mark C. Mettelman and Robert W.
Bruderman as representatives of the shareholders of Triad Advisors,
Inc.
4.6
Pledge Agreement, dated as of August 13, 2008, by and between the
Company and Mark C. Mettelman and Robert W. Bruderman as
representatives of the shareholders of Triad Advisors, Inc.
10.1
10.2
10.3
Amended and Restated 1999 Performance Equity Plan*
2009 Incentive Compensation Plan.*
Form of Stock Option Agreement, dated as of May 7, 2001, between
the Company and certain directors*
10.4
Schedule of Stock Option Agreements in the form of Exhibit 10.3,
including material detail in which such documents differ from
Exhibit 10.3*
10.5
Stock Option Agreement, dated as of January 10, 2002, between the
Company and Richard J. Lampen*
10.6
Form of Stock Option Agreement, dated January 10, 2002, between
the Company and each of Richard J. Rosenstock and Mark
Zeitchick*
U
F
W
G
G
H
H
No. in
Document
3.1
3.2
3.1
3.2
4.1
4.1
4.2
4.1
4.1
4.2
4.1
Exhibit A
10.3
10.3.1
10.2
10.3
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Exhibit No.
Description
10.7
Schedule of Stock Option Agreements in the form of Exhibit 10.6,
including material detail in which such documents differ from
Exhibit 10.6*
10.8
Ladenburg Thalmann Financial Services Inc. Qualified Employee
Stock Purchase Plan*
10.9
Form of Stock Option Agreement, dated November 15, 2002,
between the Company and each of Bennett S. LeBow, Howard M.
Lorber, Henry C. Beinstein, Robert J. Eide and Richard J. Lampen*
Schedule of Stock Option Agreements in the form of Exhibit 10.9,
10.10
including material detail in which such documents differ from
Exhibit 10.9*
10.11
Form of Stock Option Agreement, dated September 17, 2003,
between the Company and each of Howard M. Lorber, Henry C.
Beinstein and Richard J. Lampen*
10.12
Schedule of Stock Option Agreements in the form of Exhibit 10.11,
including material detail in which such documents differ from
Exhibit 10.11*
10.13
Office Lease dated March 30, 2007 between the Company and Frost
Real Estate Holdings, LLC
10.14
Stock Option Agreement, dated July 13, 2006, issued to Dr. Phillip
Frost*
10.15
10.16
10.17
Warrant issued to BroadWall Capital LLC
Form of Stock Option Agreement issued to employees of BroadWall
Letter Agreement, dated September 14, 2006, between Ladenburg
Thalmann Financial Services Inc. and Vector Group Ltd. (“Vector
Agreement”)
10.18
First Amendment to Vector Agreement dated as of December 20,
2007
10.19
Form of Warrant issued to the stockholders of Telluride Holdings,
Inc.
10.20
Amendment to Employment Agreement between the Company,
Ladenburg Thalmann & Co. Inc. and Mark Zeitchick.*
10.21
Letter Agreement, dated as of January 19, 2011, between the
Company and Mark Zeitchick.*
10.22
Non-Plan Option Agreement, dated as of October 19, 2007, by and
between the Company and Bruce A. Zwigard
10.23
Warrant, dated as of October 19, 2007, issued to Frost Gamma
Investments Trust pursuant to Credit Agreement
42
Incorporated
By Reference
from
Document
H
No. in
Document
10.3.1
I
J
J
K
K
L
M
N
N
O
P
Q
R
Y
E
E
Exhibit A
10.48
10.48.1
10.1
10.1.1
10.1
10.2
10.1
10.2
10.1
10.1
10.2
10.3
10.1
10.2
10.3
TABLE OF CONTENTS
Exhibit No.
Description
10.24
Employment Letter dated as of February 8, 2008 between the
Company and Brett Kaufman*
10.25
Agreement and Plan of Merger dated as of July 9, 2008 by and
among the Company, Triple Acquisition Inc., Triad Advisors, Inc.
and the shareholders of Triad Advisors, Inc.
10.26
Lease, dated as of August 13, 2010, between Investacorp Group, Inc.
21
23.1
24
31.1
31.2
and Frost Real Estate Holdings, LLC.
List of Subsidiaries
Consent of EisnerAmper LLP
Power of Attorney
Certification of Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32.1
Certification of Chief Executive Officer, Pursuant to 18 U.S.C.
32.2
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Incorporated
By Reference
from
Document
S
T
X
**
**
***
**
**
**
**
No. in
Document
10.1
2.1
10.1
—
—
—
—
—
—
—
* Management Compensation Contract
** Filed herewith
***Contained on the signature page hereto
A. Registration statement on Form SB-2 (File No. 333-31001).
B. Annual report on Form 10-K for the year ended August 24, 1999.
C. Quarterly report on Form 10-Q for the quarter ended June 30, 2006.
D. Current report on Form 8-K, dated September 20, 2007 and filed with the SEC on September 21, 2007.
E. Current report on Form 8-K, dated October 19, 2007 and filed with the SEC on October 22, 2007.
F. Registration statement on Form S-8 (File No. 333-139254).
G. Quarterly report on Form 10-Q for the quarter ended June 30, 2001.
H. Registration statement on Form S-3 (File No. 333-81964).
I. Definitive proxy statement filed with the SEC on October 3, 2002 relating to the annual meeting of shareholders held on
November 6, 2002.
J. Annual report on Form 10-K for the year ended December 31, 2002.
K. Quarterly report on Form 10-Q for the quarter ended September 30, 2003.
L. Current report on Form 8-K, dated March 30, 2007 and filed with the SEC on April 2, 2007.
M. Current report on Form 8-K, dated July 10, 2006 and filed with the SEC on August 3, 2006.
N. Current report on Form 8-K, dated September 11, 2006 and filed with the SEC on September 12, 2006.
O. Current report on Form 8-K, dated September 21, 2006 and filed with the SEC on September 27, 2006.
43
TABLE OF CONTENTS
P. Current report on Form 8-K, dated December 20, 2007 and filed with the SEC on December 20, 2007.
Q. Current report on Form 8-K, dated September 6, 2006 and filed with the SEC on September 7, 2006.
R. Current report on Form 8-K/A dated September 6, 2006 and filed with the SEC on October 24, 2006.
S. Current report on Form 8-K, dated March 27, 2008 and filed with the SEC on March 28, 2008.
T. Current report on Form 8-K, dated July 9, 2008 and filed with the SEC on July 10, 2008.
U. Current report on Form 8-K, dated August 13, 2008 and filed with the SEC on August 14, 2008.
V. Quarterly report on Form 10-Q for the quarter ended September 30, 2009.
W. Definitive proxy statement filed with the SEC on July 20, 2009 relating to the annual meeting of shareholders held on August
27, 2009.
X. Current report on Form 8-K, dated August 10, 2010 and filed with the SEC on August 13, 2010.
Y. Current report on Form 8-K, dated January 19, 2011 and filed with the SEC on January 25, 2011.
44
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LADENBURG THALMANN FINANCIAL SERVICES INC.
(Registrant)
Dated: March 10, 2011
By:/s/ Brett H. Kaufman
Name: Brett H. Kaufman
Title: Senior Vice President and Chief Financial Officer
POWER OF ATTORNEY
The undersigned directors and officers of Ladenburg Thalmann Financial Services Inc. hereby constitute and appoint Brett H.
Kaufman, Richard J. Lampen and Mark Zeitchick, and each of them, with full power to act without the other and with full power of
substitution and resubstitution, our true and lawful attorneys-in-fact with full power to execute in our name and behalf in the
capacities indicated below, this annual report on Form 10-K and any and all amendments thereto and to file the same, with all
exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby ratify
and confirm all that such attorneys-in-fact, or any of them, or their substitutes shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on March 10, 2011.
Signatures
/s/ Richard J. Lampen
Richard J. Lampen
/s/ Brett H. Kaufman
Brett H. Kaufman
/s/ Henry C. Beinstein
Henry C. Beinstein
/s/ Robert J. Eide
Robert J. Eide
/s/ Phillip Frost, M.D.
Phillip Frost, M.D.
/s/ Brian S. Genson
Brian S. Genson
/s/ Saul Gilinski
Saul Gilinski
/s/ Dr. Richard M. Krasno
Dr. Richard M. Krasno
/s/ Howard M. Lorber
Howard M. Lorber
/s/ Jeffrey S. Podell
Jeffrey S. Podell
/s/ Richard J. Rosenstock
Richard J. Rosenstock
/s/ Mark Zeitchick
Mark Zeitchick
Title
President and Chief Executive Officer
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
45
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LADENBURG THALMANN FINANCIAL SERVICES INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2009
ITEMS 8 and 15(a) (1) AND (2)
INDEX TO FINANCIAL STATEMENTS
Financial Statements of the Registrant and its subsidiaries required to be included in Items 8 and 15(a) (1) and (2) are listed
below:
FINANCIAL STATEMENTS:
Ladenburg Thalmann Financial Services Inc. Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition as of December 31, 2010 and 2009
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2010,
2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
Notes to the Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-8
F-1
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Ladenburg Thalmann Financial Services Inc.
We have audited the accompanying consolidated balance sheets of Ladenburg Thalmann Financial Services, Inc., (the
“Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders’
equity and cash flows for each of the years in the three-year period ended December 31, 2010. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Ladenburg Thalmann Financial Services, Inc., as of December 31, 2010 and 2009, and the consolidated results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with
accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated March 10, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ EisnerAmper LLP
New York, New York
March 10, 2011
F-2
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LADENBURG THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and per share amounts)
ASSETS
Cash and cash equivalents
Securities owned, at fair value
Receivables from clearing brokers
Receivables from other broker-dealers
Other receivables, net
Furniture, equipment and leasehold improvements, net
Restricted assets
Intangible assets, net
Goodwill
Unamortized debt issue cost
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Securities sold, but not yet purchased, at fair value
Accrued compensation
Commissions and fees payable
Accounts payable and accrued liabilities
Deferred rent
Deferred income taxes
Accrued interest
Notes payable
Total liabilities
Commitments and contingencies (Notes 3 and 11)
Shareholders’ equity:
December 31,
2010
2009
$
$
$
$
6,927
2,662
18,073
1,364
9,162
2,805
200
26,431
29,719
1,597
2,885
$ 101,825
$
10
5,328
9,264
6,751
2,928
2,418
328
27,879
54,906
5,702
2,209
13,406
329
6,203
3,154
350
28,509
29,739
1,879
3,157
94,637
9
4,299
5,957
5,671
3,378
1,726
365
35,438
56,843
Preferred stock, $.0001 par value; 2,000,000 shares authorized; none issued
Common stock, $.0001 par value; 400,000,000 shares authorized; shares issued
—
18
—
17
and outstanding, 183,496,492 in 2010 and 167,907,038 in 2009
Additional paid-in capital
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
191,424
(144,523)
46,919
$ 101,825
$
171,349
(133,572)
37,794
94,637
See accompanying notes to consolidated financial statements
F-3
TABLE OF CONTENTS
Revenues:
Commissions
Advisory fees
Investment banking
Principal transactions
Interest and dividends
Other income
Total revenues
Expenses:
LADENBURG THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
Year Ended December 31,
2010
2009
2008
$
$
$
$
108,401
53,627
20,940
131
524
10,903
194,526
122,120
43,309
5,439
6,632
3,309
5,361
3,241
3,978
11,227
204,616
(10,090)
861
(10,951) $
$
92,728
33,095
15,155
846
2,372
6,479
150,675
87,165
40,232
7,534
6,836
3,067
5,725
3,977
4,143
9,600
168,279
(17,604)
1,069
(18,673) $
(0.06) $
(0.11) $
83,937
16,061
14,714
(2,736)
4,299
4,695
120,970
60,790
42,644
6,265
6,010
3,076
5,976
4,534
3,438
7,481
140,214
(19,244)
1,019
(20,263)
(0.12)
175,698,489
168,623,375
165,812,495
175,698,489
168,623,375
165,812,495
Commissions and fees
Compensation and benefits
Non-cash compensation
Brokerage, communication and clearance fees
Rent and occupancy, net of sublease revenue
Professional services
Interest
Depreciation and amortization
Other
Total expenses
Loss before income taxes
Income tax expense
Net loss
Net loss per common share (basic and diluted)
Weighted average common shares used in computation
of per share data:
Basic
Diluted
See accompanying notes to consolidated financial statements
F-4
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
(Dollars in thousands, except share amounts)
Common Stock
Shares
Amount
Balance, December 31, 2007
Issuance of common stock under employee
161,698,071
196,305
$
stock purchase plan
Exercise of stock options, net of 128,657
shares tendered in payment of exercise
price and 255,183 options used in cashless
exercise
Stock options granted to members of former
Advisory Board and consultants
2,018,029
—
Stock-based compensation to employees
Repurchase and retirement of common stock
Common stock issued in Punk Ziegel
143,617
(583,895)
250,000
acquisition
16
—
—
—
—
—
—
Additional
Paid-in
Capital
$148,723
285
Accumulated
Deficit
Total
$ (94,636) $ 54,103
285
—
527
—
527
267
5,998
(1,060)
435
—
—
—
—
267
5,998
(1,060)
435
Common stock issued in Triad acquisition
Warrants issued for acquisition of customer
7,993,387
—
1
—
10,426
571
—
—
10,427
571
accounts
Net loss
Balance, December 31, 2008
Issuance of common stock under employee
—
171,715,514
210,048
stock purchase plan
Exercise of stock options
Stock options granted to members of former
Advisory Board and consultants...
Stock-based compensation to employees
Repurchase and retirement of common stock
Net loss
Balance, December 31, 2009
Issuance of common stock in private equity
512,875
—
1
(4,531,400)
—
167,907,038
14,050,000
offering, net of expenses of $122
Issuance of common stock under employee
stock purchase plan
Exercise of stock options
Stock options granted to members of former
Advisory Board and consultants
Stock-based compensation to employees
Issuance of restricted stock grants, (net of
2,500 shares forfeited)
62,274
1,345,050
—
—
197,500
(65,370)
Repurchase and retirement of common stock
Net loss
Balance, December 31, 2010
—
183,496,492
$
—
17
—
—
—
—
—
17
1
—
—
—
—
—
—
—
18
—
166,172
118
(20,263) (20,263)
(114,899) 51,290
118
—
242
550
—
—
242
550
—
—
6,984
(2,717)
—
171,349
13,927
6,984
(2,717)
(18,673) (18,673)
(133,572) 37,794
13,928
—
63
710
49
5,390
—
—
—
—
—
—
63
710
49
5,390
—
(64)
—
$191,424
(64)
(10,951) (10,951)
$(144,523) $ 46,919
—
See accompanying notes to consolidated financial statements
F-5
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization
Write-off of furniture, fixtures and leasehold improvements, net
Adjustment to deferred rent
Amortization of debt discount
Amortization of debt issue cost
Amortization of intangible assets
Deferred income taxes
Benefit attributable to reduction of goodwill
Non-cash interest expense on forgivable loan
Gain on forgiveness of accrued interest under forgivable loan
Gain on forgiveness of principal under forgivable loan
Non-cash compensation expense
(Increase) decrease in operating assets, net of effects of acquisitions:
Securities owned
Receivables from clearing brokers
Receivables from other broker-dealers
Other receivables, net
Other assets
Increase (decrease) in operating liabilities, net of effects of acquisitions:
Securities sold, but not yet purchased
Accrued compensation
Accrued interest
Commissions and fees payable
Accounts payable and accrued liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Adjustment to intangible assets
Payment for Premier Trust acquisition, net of cash received
Payment for Triad acquisition, net of cash received
Payment for Punk Ziegel acquisition, net of cash received
Payment for Investacorp acquisition, net of cash received
Purchases of furniture, equipment and leasehold improvements
Proceeds from sales of exchange memberships
Decrease in restricted assets
Other
Net cash used in investing activities
Cash flows from financing activities:
Issuance of common stock in private equity offering, net of offering expenses of $122
Issuance of common stock other than private equity offerings
Repurchases of common stock
Issuance of other notes payable
Principal borrowings (payments) under revolving credit facility, net
Principal payments on other notes payable
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
See accompanying notes to consolidated financial statements
F-6
Year Ended December 31,
2010
2009
2008
$(10,951) $(18,673) $ (20,263)
1,037
24
(450)
289
282
2,941
693
35
337
(525)
(1,429)
5,439
1,027
—
(485)
721
521
3,116
946
—
—
—
—
7,534
684
—
(244)
845
668
2,754
780
—
—
—
—
6,265
136
(4,667)
(1,036)
(2,959)
229
2,619
(31)
1,152 24,562
(329) 15,511
(2,116)
1,311
(1,780)
(166)
1
964
150
3,307
941
(5,212)
(82)
638
172
754
18
(865)
(3,876)
192
(645)
(1,767)
(2,297) 23,765
—
(162)
—
—
—
(608)
—
150
—
(620)
—
—
—
—
—
(399)
—
351
—
(48)
212
—
(5,843)
(2,461)
(55)
(546)
120
318
(4)
(8,259)
—
13,928
360
773
(64)
(2,717)
— 10,000
—
812
(1,060)
—
450 (12,000)
(6,667)
(5,232)
1,426 (17,480)
(1,974)
(919)
8,595
6,621
6,621
$ 6,927 $ 5,702 $
(1,500)
(6,080)
7,057
1,225
5,702
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued)
(Dollars in thousands)
Year Ended December 31,
2010
2009
2008
Supplemental cash flow information:
Interest paid
Taxes paid
Non-cash investing and financing transactions:
Warrants issued for acquisition of customer accounts
Leasehold improvements financed by landlord in connection with
relocation of premises and included in deferred rent
Acquisition of Punk Ziegel:
Assets acquired
Liabilities assumed
Net assets acquired
Stock issued in acquisition
Cash paid in acquisition
Cash acquired in acquisition
Net cash paid in acquisition
Acquisition of Triad Advisors:
Assets acquired
Liabilities assumed
Net assets acquired
Note issued in acquisition
Stock issued in acquisition
Cash paid in acquisition
Cash acquired in acquisition
Net cash paid in acquisition
Acquisition of Premier Trust:
Assets acquired
Liabilities assumed
Net assets acquired
Note issued in acquisition
Cash paid in acquisition
Cash acquired in acquisition
Net cash paid in acquisition
$
$
2,162
87
$
2,524
60
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
2,565
(205)
2,360
(1,161)
1,199
(1,037)
162
$
—
—
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,440
390
571
2,500
4,174
(1,039)
3,135
(435)
2,700
(239)
2,461
23,939
(2,172)
21,767
(4,384)
(10,427)
6,956
(1,113)
5,843
—
—
—
—
—
—
—
See accompanying notes to consolidated financial statements
F-7
TABLE OF CONTENTS
1. Description of Business
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
Ladenburg Thalmann Financial Services Inc. (“LTS” or the “Company”) is a holding company. Its wholly-owned principal
operating subsidiaries are Ladenburg Thalmann & Co. Inc. (“Ladenburg”), Investacorp, Inc. (collectively with related
companies, “Investacorp”), Triad Advisors, Inc. (“Triad”), Ladenburg Thalmann Asset Management Inc. (“LTAM”) and
Premier Trust, Inc. (“Premier”).
Ladenburg is a full service registered broker-dealer that has been a member of the New York Stock Exchange since 1879.
Broker-dealer activities include sales and trading and investment banking. Ladenburg provides its services principally for
middle market and emerging growth companies and high net worth individuals through a coordinated effort among corporate
finance, capital markets, brokerage and trading professionals.
Investacorp and Triad are registered broker-dealers and investment advisors that have been serving the independent financial
advisor community since 1978 and 1998, respectively. Investacorp’s and Triad’s independent financial advisors primarily
serve retail clients. Investacorp and Triad derive revenue from advisory fees and commissions, primarily from the sale of
mutual funds, variable annuity products and other financial products and services.
LTAM is a registered investment advisor. It offers various asset management products utilized by Ladenburg and Premier’s
clients, as well as clients of Investacorp’s and Triad’s financial advisors.
Premier, acquired on September 1, 2010, is a Nevada trust company formed in 2001. Premier provides wealth management
services, including trust administration of personal and retirement accounts, estate and financial planning and custody
services.
Ladenburg, Investacorp and Triad customer transactions are cleared through a single clearing broker on a fully-disclosed basis.
Each of Ladenburg, Investacorp and Triad is subject to regulation by, among others, the Securities and Exchange Commission
(“SEC”), the Financial Industry Regulatory Authority and the Municipal Securities Rulemaking Board. Triad is also subject to
regulation by the Commodities Futures Trading Commission and the National Futures Association. Premier is subject to
regulation by the Nevada Department of Business and Industry Financial Institutions Division.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all
significant intercompany balances and transactions.
Use of Estimates
The preparation of these financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior year financial statements were reclassified to conform with the current year financial statement
classifications.
F-8
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies – (continued)
Cash Equivalents
The Company considers all highly liquid financial instruments with an original maturity of three months or less to be cash
equivalents.
Revenue Recognition
Commissions revenue results from transactions in equity securities, mutual funds, variable annuities, and other financial
products and services. Revenue from such transactions, executed as agent or principal, and related expenses are recorded on a
trade-date basis. The Company also earns revenue in the form of 12b-1 fees which are recognized on an accrual basis.
Advisory fee revenue represent fees charged by registered investment advisors to their clients based upon the value of advisory
assets. Advisory fees are recorded as earned. Since advisory fees are based on assets under management, significant changes in
the fair value of these assets will have an impact on the fees earned in future periods. The Company also earns incentive fees
that are based upon the performance of investment funds and accounts.
Investment banking revenue consists of underwriting revenue, strategic advisory revenue and private placement fees.
Underwriting revenues arise from securities offerings in which Ladenburg acts as an underwriter and include management fees,
selling concessions and underwriting fees, net of related syndicate expenses. Underwriting revenues are recorded at the time
the underwriting is completed and the income is reasonably determined. Underwriting revenues include revenues earned from
offerings by Specified Purpose Acquisition Companies (“SPAC”). Ladenburg receives a portion of its revenue from the SPAC
transaction upon the completion of a SPAC’s initial public offering and receives the remaining portion of the revenue
(“Deferred Fees”) only if the SPAC completes a business combination transaction. The Company records the portion of the
revenue payable upon completion of a SPAC offering at the time the offering is completed and recognizes the deferred fees
only if, and when, the SPAC completes the business combination. Generally, these Deferred Fees are received within 24
months from the date of the offering, or not received at all if no business combination transaction is completed during such
time period. Upon recognition of Deferred Fees, related compensation expense and finder’s fees are also recognized. For the
years ended December 31, 2010, 2009 and 2008, Ladenburg received and recognized Deferred Fees of approximately $405,
$5,900 and $5,300, respectively (included in investment banking revenues) and incurred commissions and related expenses of
approximately $136, $2,200 and $2,100, respectively. Strategic advisory revenue primarily consists of success fees on
completed mergers and acquisitions transactions, and retainer and periodic fees earned by advising buyers’ and sellers in
transactions. Fees are also earned for related strategic advisory work and other services such as providing fairness opinions and
valuation analyses. Strategic advisory revenues are recorded when the transactions or the services (or, if applicable, separate
components thereof) to be performed are substantially complete, the fees are determinable and collection is reasonably
assured. Private placement fees, net of expenses are recorded on the closing date of the transaction.
Principal transactions revenue includes realized and unrealized net gains and losses resulting from Ladenburg’s and
Investacorp’s investments in equity securities for their accounts and equity-linked warrants received from certain investment
banking assignments. Principal transactions for 2008 also includes realized and unrealized gains and losses related to sales of
Ladenburg’s stock exchange memberships.
Interest is recorded on an accrual basis and dividends are recorded on an ex-dividend date basis.
F-9
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies – (continued)
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are carried at cost net of accumulated depreciation and amortization.
Depreciation is provided by the straight-line method over the estimated useful lives of the related assets. Leasehold
improvements are amortized on a straight-line basis over the lease term, or their estimated useful lives, whichever is shorter.
Share-Based Compensation
The Company measures the cost of employee, officer and director services received in exchange for an award of equity
instruments, including stock options, based on the grant-date fair value of the award. The cost is recognized as compensation
expense over the service period, which would normally be the vesting period of the equity instruments.
Intangible Assets
Intangible assets are amortized over their estimated useful lives, generally on a straight-line basis. Intangible assets subject to
amortization are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. The Company assesses the recoverability of its intangible assets by determining whether the unamortized
balance can be recovered over the assets’ remaining life through undiscounted forecasted cash flows. If undiscounted
forecasted cash flows indicate that the unamortized amounts will not be recovered, an adjustment will be made to reduce such
amounts to fair value determined based on forecasted future cash flows discounted at a rate commensurate with the risk
associated with achieving such cash flows. Future cash flows are based on trends of historical performance and the Company’s
estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions.
Goodwill
Goodwill, which was recorded in connection with the acquisitions of Investacorp, Triad, Premier and Punk, Ziegel &
Company, L.P. (“Punk Ziegel“) (see Notes 3 and 8), is not subject to amortization and is tested for impairment annually, or
more frequently if events or changes in circumstances indicate that the asset may be impaired. The impairment test consists of
a comparison of the fair value of the reporting unit with its carrying amount. Fair value is typically based upon future cash
flows discounted at a rate commensurate with the risk involved or market based comparables. If the carrying amount of the
reporting unit exceeds its fair value then an analysis will be performed to compare the implied fair value of goodwill with the
carrying amount of goodwill. An impairment loss will be recognized in an amount equal to the excess of the carrying amount
over the implied fair value. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new
accounting basis. For 2010, the carrying amount of goodwill was reduced by $35, representing the tax benefit realized for the
excess of tax-deductible goodwill over goodwill recognized for financial reporting purposes. See Note 8.
Recently Issued Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB“) issued new accounting guidance which amends the
disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and
Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of
the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of
the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance also
clarifies the existing disclosure requirements regarding: i) the level of
F-10
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies – (continued)
disaggregation of fair value measurements; and ii) the disclosures regarding inputs and valuation techniques. The guidance
became effective for the Company with the reporting period beginning January 1, 2010, except for the disclosure on the roll
forward activities for Level 3 fair value measurements, which will become effective for the Company with the reporting period
beginning January 1, 2011, with early adoption permitted. Comparative disclosure for earlier reporting periods that ended
before initial adoption is encouraged but not required. The adoption of this new guidance did not have any impact on the
Company’s consolidated financial statements. (See Note 4 – Securities owned and securities sold, but not yet purchased.)
3. Acquisitions
Premier
On September 1, 2010, the Company acquired all the outstanding shares of Premier, a Nevada trust company, which provides
trust administration and wealth management services. The acquisition was made due to the complementary nature of Premier’s
operations to those of the Company’s independent broker-dealer subsidiaries. The consideration for the transaction was
$2,360, consisting of cash of $1,199 and a note in the aggregate principal amount of $1,161. Results of operations of Premier
are included in the accompanying consolidated statements of operations from the date of acquisition and were not material.
Pro forma results of operations as if Premier was acquired as of January 1, 2009 are not presented because they were not
material.
Triad
On August 13, 2008, to increase its presence in the independent broker-dealer business, the Company acquired Triad through a
merger for an aggregate of $6,826 in cash (net of a post-closing adjustment of $674), 7,993,387 shares of the Company’s
common stock, valued at $10,427 and a $5,000 promissory note valued at $4,384. The Company’s common stock was valued
at $1.60 per share based on the average closing market price for a reasonable period before and after July 10, 2008, the date the
acquisition was announced, and discounted for certain transfer restrictions. The promissory note, which was valued based on
an imputed interest rate of 11%, is collateralized by a pledge of Triad’s stock held by the Company. In the event that Triad
meets certain cumulative profit targets during the three-year period following completion of the merger, the Company also will
pay to Triad’s former shareholders up to $7,500 in cash and issue to such shareholders up to 4,134,511 shares of the
Company’s common stock. Any such payments will be accounted for as additional purchase price and allocated to goodwill.
The total consideration paid by the Company, including $130 of merger-related costs, was allocated to the identifiable assets
acquired and liabilities assumed based on their estimated fair values with the amount exceeding the fair values being recorded
as goodwill. The Company obtained third party valuations in determining fair value for acquired intangible assets.
F-11
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
3. Acquisitions – (continued)
The allocation of the purchase price was as follows:
Cash
Receivables from clearing broker
Other receivables
Intangible assets(a)
Goodwill(b)
Securities owned
Fixed assets
Other assets
Total assets acquired
Commissions and fees payable
Accrued expenses and other liabilities
Accrued compensation
Total liabilities assumed
Total purchase price
$
$
1,113
2,074
397
13,022
5,837
500
296
700
23,939
1,207
853
112
2,172
21,767
(a) Intangible assets relate principally to relationships with financial advisors ($9,786), vendor relationships ($1,731) and non-
compete covenants ($1,364), have a weighted average useful life of 16 years and are expected to be deductible for tax
purposes over 15 years (see Note 7).
(b) Goodwill is expected to be deductible for tax purposes over a 15-year period (see Note 8).
Punk Ziegel
On May 2, 2008, Punk Ziegel, a specialty investment bank based in New York City, was merged into Ladenburg. The
Company paid the sellers $2,700, representing Punk Ziegel’s retained earnings plus paid-in-capital, plus 250,000 shares of the
Company’s common stock valued at $435.
Pro Forma Information
The accompanying consolidated financial statements include the results of operations of the acquired entities from their
respective dates of acquisition. The following unaudited pro forma information represents the Company’s consolidated results
of operations as if the acquisition of Triad had occurred at the beginning of 2008. Pro forma data does not include the Punk
Ziegel and Premier acquisitions because their impact was immaterial. The pro forma net loss reflects amortization of the
amounts ascribed to intangible assets acquired in the Triad acquisition and interest expense on debt used to finance such
acquisition.
Total revenue
Net loss
Basic and diluted loss per share
Weighted average common shares outstanding – basic and diluted
Year Ended
December 31,
2008
161,414
$
(19,664)
$
$
(0.12)
165,950,312
The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s consolidated
results of operations that would have been reported had the acquisition been completed as of the beginning of 2008, nor
should it be taken as indicative of the Company’s future consolidated results of operations.
F-12
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
4. Securities Owned and Securities Sold, But Not Yet Purchased
The components of securities owned and securities sold, but not yet purchased as of December 31, 2010 and 2009 were as
follows:
December 31, 2010
Common stock and warrants
Restricted common stock and warrants
December 31, 2009
Certificates of deposit
Common stock and warrants
Restricted common stock and warrants
Securities
Owned
Securities
Sold,
But Not Yet
Purchased
$
$
$
$
577
2,085
2,662
$
$
100
517
1,592
2,209
$
$
10
—
10
—
—
9
9
As of December 31, 2010 and 2009, approximately $666 and $687, respectively, of securities owned were deposited with the
Company’s subsidiaries’ clearing brokers. Under the clearing agreements with such clearing brokers, the securities may be sold
or hypothecated by the clearing brokers.
Securities sold, but not yet purchased, at fair value represents obligations of the Company’s subsidiaries to purchase the
specified financial instrument at the then current market price. Accordingly, these transactions result in off-balance-sheet risk
as the Company’s subsidiaries’ ultimate obligation to repurchase such securities may exceed the amount recognized in the
consolidated statements of financial condition.
Authoritative accounting guidance defines fair value, establishes a framework for measuring fair value, and establishes a fair
value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value
measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or
liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with
the market, income or cost approach are used to measure fair value.
The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and
liabilities carried at fair value are classified and disclosed in one of the following three categories:
•
•
•
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than quoted prices in active markets, that are directly or indirectly observable for the asset or
liability.
Level 3 — Unobservable inputs for the asset or liability where there is little or no market data, which requires the
reporting entity to develop its own assumptions.
F-13
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
4. Securities Owned and Securities Sold, But Not Yet Purchased – (continued)
Securities are recorded at fair value and classified as follows:
Securities owned, at fair value
Common stock and warrants
Total
Level 1
577
$
577
$
December 31, 2010
Level 2
Level 3
$ 2,085 $ —
$ 2,085 $ —
Securities sold, but not yet purchased, at fair value
Common stock and warrants
Total
Level 1
$ —
$ —
Level 2
10
$
10
$
Level 3
$ —
$ —
Securities owned, at fair value
Certificates of deposit
Common stock and warrants
Total
Level 1
$ —
517
517
$
December 31, 2009
Level 3
Level 2
$
100 $ —
1,592 —
$ 1,692 $ —
Securities sold, but not yet purchased, at fair value
Common stock and warrants
Total
Level 1
$ —
$ —
Level 2
9
$
9
$
Level 3
$ —
$ —
Total
2,662
2,662
Total
10
10
Total
100
2,109
2,209
Total
9
9
$
$
$
$
$
$
$
$
Warrants are carried at a discount to fair value as determined by using the Black-Scholes option pricing model due to
illiquidity. This model takes into account the underlying securities current market value, the underlying securities market
volatility, the term of the warrants, exercise price, and risk free return rate. As of December 31, 2010 and 2009, the fair value of
the warrants are $1,907 and $1,351, respectively, and are included in common stock and warrants (level 2) above.
5. Net Capital Requirements
As a registered broker-dealer, Ladenburg is subject to the SEC’s Uniform Net Capital Rule 15c3-1, which requires the
maintenance of minimum net capital. Ladenburg has elected to compute its net capital under the alternative method allowed
by this rule. At December 31, 2010, Ladenburg had net capital, as defined, of $5,003, which exceeded its minimum capital
requirement, as defined, of $250, by $4,753.
Investacorp and Triad are also subject to the SEC’s Uniform Net Capital Rule 15c3-1, which for Investacorp and Triad requires
the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined,
shall not exceed 15 to 1. At December 31, 2010, Investacorp had net capital of $1,598, which was $1,341 in excess of its
required net capital of $257. Investacorp’s net capital ratio was 2.41 to 1. At December 31, 2010, Triad had net capital of
$2,290, which was $1,761 in excess of its required net capital of $529. Triad’s net capital ratio was 3.46 to 1.
Ladenburg, Investacorp and Triad claim exemptions from the provisions of the SEC’s Rule 15c3-3 pursuant to paragraph
(k)(2)(ii) as they clear their customer transactions through correspondent brokers on a fully disclosed basis. Premier, chartered
by the state of Nevada, is subject to regulation by the Nevada Department of Business and Industry Financial Institutions
Division. Under Nevada law, Premier must maintain minimum stockholders’ equity of at least $1,000. At December 31, 2010,
Premier had stockholders’ equity of $2,098.
F-14
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LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
6. Furniture, Equipment and Leasehold Improvements
Components of furniture, equipment and leasehold improvements, net included in the consolidated statements of financial
condition were as follows:
Cost:
Leasehold improvements
Computer equipment
Furniture and fixtures
Other
Less: accumulated depreciation and amortization
Total
December 31,
2010
2009
$
$
3,050
2,308
1,079
1,485
7,922
(5,117)
2,805
$
$
2,944
2,115
819
1,483
7,361
(4,207)
3,154
7. Intangible Assets
At December 31, 2010 and 2009, intangible assets subject to amortization consisted of the following:
Estimated
Useful
Life (years)
December 31, 2010
December 31, 2009
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Technology
Relationships with financial
advisors
1 $
20
426 $
24,707
$
426
3,555
426 $
24,707
Vendor relationships
Covenants not to compete
Customer accounts
Relationships with investment
7
5
10 & 6.9
4
3,613
1,717
2,029
2,586
banking clients
Leases
Referral agreement
Other
Total
6
6.6
6
$
1,004
122
90
36,294 $
1,450
875
518
2,586
417
6
30
9,863
3,613
1,717
1,311
2,586
1,004
—
67
35,431 $
$
426
2,320
934
531
337
2,094
261
—
19
6,922
Aggregate amortization expense amounted to $2,941, $3,116 and $2,754 for the years ended December 31, 2010, 2009 and
2008, respectively. The weighted-average amortization period for total amortizable intangibles at December 31, 2010 is 14.61
years. Estimated amortization expense for each of the five succeeding years and thereafter is as follows:
2011
2012
2013
2014
2015
2016 – 2027
$
$
2,533
2,518
2,360
2,087
1,660
15,273
26,431
F-15
TABLE OF CONTENTS
8. Goodwill
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
There were no changes to the Company’s amount of goodwill during the year ended December 31, 2009. Changes during the
year ended December 31, 2010 are as follows:
Ladenburg
Independent
Brokerage
and Advisory
Services
Premier
Total
Balance as of January 1, 2010
Acquisition of Premier
Benefit applied to reduce goodwill
Balance as of December 31, 2010
$
$
301
—
—
301
$
$
29,438
—
(35)
29,403
$ —
15
—
15
$
$ 29,739
15
(35)
$ 29,719
The annual impairment tests performed at December 31, 2010 and 2009 did not indicate that the carrying value of goodwill
had been impaired. However, changes in circumstances or business conditions could result in an impairment of goodwill. As
required, the Company will continue to perform impairment testing on an annual basis or when an event occurs or
circumstances change that would more likely than not reduce the fair value of the Company’s reporting units below the
carrying amount of their net assets. For 2010, the carrying amount of goodwill was reduced by $35, representing the state tax
benefit realized for the excess of tax-deductible goodwill over goodwill recognized for financial reporting purposes.
9. Income Taxes
The Company files a consolidated federal income tax return and certain combined state and local income tax returns with its
subsidiaries. The Company is on a tax year ending September 30th.
Income taxes consist of the following:
2010:
Current
Deferred
Benefit applied to reduce goodwill
2009:
Current
Deferred
2008:
Current
Deferred
Federal
State and
Local
Total
208
76
35
319
123
165
288
239
54
293
$
$
$
$
$
$
133
693
35
861
123
946
1,069
239
780
1,019
$
$
$
$
$
$
(75)
617
—
542
—
781
781
—
726
726
$
$
$
$
$
$
F-16
TABLE OF CONTENTS
9. Income Taxes – (continued)
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory
federal income tax rate (34%) to pre-tax loss as a result of the following differences:
2008
(19,244)
(6,543)
$ (10,090) $ (17,604) $
(5,985)
(3,431)
2009
2010
Loss before income taxes
Benefit under statutory U.S. tax rates
Increase (decrease) in taxes resulting from:
Increase in valuation reserve
Other nondeductible items
State taxes
Other, net
Income tax provision
$
3,615
319
137
221
861
$
6,659
569
81
(255)
$
1,069
6,652
369
193
348
1,019
The Company accounts for income taxes under the asset and liability method, which requires the recognition of tax benefits or
expense on the temporary differences between the tax basis and book basis of its assets and liabilities as well as tax loss
carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income
in the years in which those differences are expected to be recovered or settled.
Deferred tax amounts are comprised of the following at December 31:
2010
Deferred tax assets (liabilities):
Net operating loss carryforwards
AMT credit carryforward
Accrued expenses
Compensation and benefits
Depreciation and amortization
Other
Unrealized gain
Intangibles
Goodwill
Valuation allowance
Net deferred taxes
$
$ 31,290
250
984
9,429
431
84
261
859
(2,418)
41,170
(43,588)
(2,418) $
$
2009
28,961
250
1,136
7,985
384
115
569
573
(1,726)
38,247
(39,973)
(1,726)
Realization of deferred tax assets is dependent on the existence of sufficient taxable income within the carryforward period,
including future reversals of taxable temporary differences. The taxable temporary difference related to goodwill, which is
amortized for tax purposes, will reverse when goodwill is disposed of or impaired. Because such period is not determinable
and, based on available evidence, management was unable to determine that realization of the deferred tax assets was more
likely than not, management has provided a valuation allowance at December 31, 2010 and 2009 to fully offset the deferred
tax assets.
At December 31, 2010, the Company had an aggregate net operating loss carryforward of approximately $77,000 for federal
income tax purposes expiring in various years from 2015 through 2030. Goodwill for tax purposes recognized in connection
with the acquisition of Triad by the Company, all of which is tax deductible, exceeded the amount of goodwill recognized in
the financial statements. Authoritative
F-17
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
9. Income Taxes – (continued)
accounting guidance in effect when the acquisition was consummated requires the tax benefit for the excess goodwill to be
recognized when realized and applied first to reduce goodwill and thereafter reduce non-current intangible assets with the
remaining benefit recognized as a reduction of income tax expense. The federal net operating loss carryforward at December
31, 2010 includes $757 applicable to amortization of excess tax goodwill. Upon utilization of the carryforward the related tax
benefit will be applied to reduce goodwill. The Company applied the “more-likely-than-not” recognition threshold to all tax
positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of December 31,
2010.
The Company’s tax years 2006 through 2010 remain open to examination by most taxing authorities.
The Company has elected to classify interest and penalties that would accrue according to the provisions of relevant tax law as
interest and other expense, respectively.
10. Notes Payable
Notes payable consisted of the following:
December 31,
2010
2009
Note payable to former Investacorp shareholder, net of $124 of
$
— $
4,230
unamortized discount
Note payable to affiliate of principal shareholder of LTS
Note payable to former Triad shareholders, net of $39 and
$204 of unamortized discount at December 31, 2010 and
2009, respectively
16,950
1,247
18,450
2,758
Notes payable to clearing firm under forgivable loan
Note payable to a subsidiary of Premier’s former shareholder
Total
8,571
1,111
27,879 $
10,000
—
35,438
$
The Company estimates that the fair value of notes payable approximated $28,625 at December 31, 2010 and $30,076 at
December 31, 2009 based on anticipated current rates at which similar amounts of debt could then be borrowed. As of
December 31, 2010, the Company is in compliance with all debt covenants in its debt agreements.
Investacorp Note
On October 19, 2007, as part of the purchase price for the Investacorp acquisition, the Company issued a three-year, non-
negotiable promissory note in the aggregate principal amount of $15,000 to Investacorp’s then principal shareholder. The
note, which bore interest at 4.11% per annum, was paid in 36 equal monthly installments and was satisfied on October 19,
2010. The note was initially recorded at $13,550 based on an imputed interest rate of 11%.
Frost Gamma Credit Agreement
On October 19, 2007, in connection with the Investacorp acquisition, the Company entered into a $30,000 revolving credit
agreement with Frost Gamma Investments Trust (“Frost Gamma”), an affiliate of the Company’s chairman of the board and
principal shareholder, and borrowed $30,000. Borrowings under the Frost Gamma credit agreement bear interest at a rate of
11% per annum, payable quarterly. Frost Gamma received a one-time funding fee of $150. On August 25, 2009, the revolving
credit agreement was amended to extend the maturity date to August 25, 2016.
F-18
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
10. Notes Payable – (continued)
The note issued under the credit agreement contains customary events of default, which, if uncured, entitle the holder to
accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, such note. Under the
revolving credit agreement, Frost Gamma received a warrant to purchase 2,000,000 shares of LTS common stock. The warrant
is exercisable at any time during its ten-year term at an exercise price of $1.91 per share, the closing price of the Company’s
common stock on the acquisition date. The warrant, which is classified as debt issue cost, was valued at $3,200 based on the
Black-Scholes option pricing model, and is being amortized under the straight-line method over the remaining term of the
revolving credit agreement.
The Company may repay outstanding amounts at any time prior to the maturity date of August 25, 2016, without penalty, and
may re-borrow up to the full amount of the agreement.
Triad Note
On August 13, 2008, as part of the consideration paid for Triad, the Company issued a three–year, non-negotiable promissory
note in the aggregate principal amount of $5,000 to Triad’s then shareholders. The note bears interest at 2.51% per annum and
is payable in 12 equal quarterly installments. The note was recorded at $4,384, based on an imputed interest rate of 11%. The
Company has pledged the stock of Triad as security for the payment of the note. The note contains customary events of
default, which, if uncured, entitle the holder to accelerate the due date of the unpaid principal amount of, and all accrued and
unpaid interest on, the note.
NFS Forgivable Loan
On August 25, 2009, National Financial Services LLC (“NFS”), a Fidelity Investments company, provided the Company with a
seven-year, $10,000 forgivable loan. NFS serves as the primary clearing broker for the Company’s three principal broker-dealer
subsidiaries. During the third quarter of 2009, the three firms amended their clearing agreements with NFS to, among other
things, extend the term for a seven-year period. Subsequently, NFS became the exclusive clearing broker for the three firms.
Interest on the loan agreement accrues at the prime rate plus 2%. If the Company’s broker-dealer subsidiaries meet certain
aggregate annual clearing revenue targets set forth in the loan agreement, the principal balance of the loan will be forgiven in
seven equal annual installments of $1,429, in August of each year. Interest payments due for each such year will also be
forgiven if the annual clearing revenue targets are met. Any principal amounts not forgiven will be due in August 2016, and
any interest payments not forgiven are due annually. If any principal amount is not forgiven, the Company may have such
principal forgiven in future years if its broker-dealer subsidiaries exceed subsequent annual clearing revenue targets. The
Company has expensed, and will continue to expense, interest under the loan agreement until such time as such interest is
forgiven. The first annual clearing revenue target was met in August 2010. Accordingly, in the third quarter of 2010, the
Company recognized income of $1,429 and $525 from the forgiveness of principal and interest (included in other income),
respectively, and the outstanding balance under the loan was reduced to $8,571.
The loan agreement contains other covenants including limitations on the incurrence of additional indebtedness, maintaining
minimum adjusted shareholders’ equity levels and a prohibition on the termination of the Company’s revolving credit
agreement. Upon the occurrence of an event of default, the outstanding principal and interest under the loan agreement may be
accelerated and become immediately due and payable. If the clearing agreements are terminated prior to the loan maturity
date, all amounts then outstanding must be repaid on demand. The loan agreement is collateralized by the Company’s (but not
the Company’s broker-dealer subsidiaries’) deposits and accounts held at NFS or its affiliates, which amounted to $175 at
December 31, 2010.
F-19
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LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
10. Notes Payable – (continued)
Premier Note
On September 1, 2010, as part of the consideration paid for Premier, the Company issued a four-year, non-negotiable
promissory note in the aggregate principal amount of $1,161 to a subsidiary of Premier’s former shareholder. The note bears
interest at 6.5% per annum and is payable in 16 equal quarterly installments.
11. Commitments and Contingencies
Operating Leases
The Company and certain of its subsidiaries are obligated under several non-cancelable lease agreements for office space,
expiring in various years through February 2016. Certain leases have provisions for escalation based on specified increases in
costs incurred by the landlord. The Company is a sublessor to third parties for a portion of its office space as described below.
The subleases expire at various dates through February 2016. Minimum lease payments (net of lease abatement and exclusive
of escalation charges) and sublease rentals are as follows:
Year Ending
December 31,
2011
2012
2013
2014
2015
2016
Total
Lease
Commitments
7,086
6,339
6,226
5,911
2,622
19
28,203
Sublease
Rentals
Net
$
$
4,733 $
4,778
4,839
4,839
2,033
4
21,226 $
2,353
1,561
1,387
1,072
589
15
6,977
$
$
Deferred rent of $2,928 and $3,378 at December 31, 2010 and 2009, respectively, represents lease incentives related to the
value of landlord financed improvements together with the difference between rent payable calculated over the life of the
leases on a straight-line basis (net of lease incentives), and rent payable on a cash basis.
Litigation and Regulatory Matters
In May 2003, a suit was filed in the U.S. District Court for the Southern District of New York by Sedona Corporation against
Ladenburg, former employees of Ladenburg and a number of other firms and individuals. The plaintiff alleged, among other
things, that certain defendants (not Ladenburg) purchased convertible securities from plaintiff and then allegedly manipulated
the market to obtain an increased number of shares from the conversion of those securities. Ladenburg acted as placement
agent and not as principal in those transactions. Plaintiff’s original complaint alleged that Ladenburg and the other defendants
violated federal securities laws and various state laws. In August 2005, Ladenburg’s motion to dismiss was granted in part and
denied in part. On May 27, 2009, the Court granted in part and denied in part motions to dismiss the Second Amended
Complaint, and granted plaintiff leave to replead. On July 9, 2009, plaintiff filed its Third Amended Complaint, which
contains no claims under the federal securities laws, leaving only common law claims; the plaintiff seeks compensatory
damages from the defendants of at least $660,000 and punitive damages of $400,000. Ladenburg’s motion to dismiss the Third
Amended Complaint is currently pending. The Company believes the plaintiff’s claims are without merit and intends to
vigorously defend against them.
In July 2004, a suit was filed in the U.S. District Court for the Eastern District of Arkansas by Pet Quarters, Inc. against
Ladenburg, a former employee of Ladenburg and a number of other firms and
F-20
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
11. Commitments and Contingencies – (continued)
individuals. The plaintiff alleged, among other things, that certain defendants (not Ladenburg) purchased convertible
securities from the plaintiff and then allegedly manipulated the market to obtain an increased number of shares from the
conversion of those securities. Ladenburg acted as placement agent and not as principal in those transactions. Plaintiff has
alleged that Ladenburg and the other defendants violated federal securities laws and various state laws. The plaintiff seeks
compensatory damages from the defendants of at least $400,000. In April 2006, Ladenburg’s motion to dismiss was granted in
part and denied in part. On July 23, 2010, the plaintiff dismissed its claims against all defendants other than Ladenburg and
the former Ladenburg employee. Ladenburg's motion for reconsideration of the motion to dismiss as to the remaining claims is
currently pending. The Company believes that the plaintiff’s claims are without merit and intends to vigorously defend
against them.
In July 2008, a suit was filed in the Circuit Court for the 17th Judicial Circuit, Broward County, Florida, by BankAtlantic and
BankAtlantic Bancorp, Inc. against Ladenburg and a former Ladenburg research analyst. The plaintiffs alleged, among other
things, that research reports issued by defendants were false and defamatory, and that defendants were liable for defamation per
se and negligence; the amount of the alleged damages was unspecified. In February 2010, the plaintiffs entered into a
settlement agreement resolving all claims against Ladenburg. On July 1, 2010, the plaintiffs and the former research analyst
voluntarily dismissed the remaining claims with prejudice. The former research analyst has commenced an arbitration claim
against Ladenburg, the Company, and two Company directors for, among other things, indemnification and breach of contract,
seeking reimbursement of expenses and other purported damages incurred in defending the suit. The Company believes the
claims are without merit and intends to vigorously defend against them.
In February 2010, an arbitration case was commenced by a former employee against Ladenburg and the Company. The claim
asserted breach of an employment agreement and sought compensatory damages of $750. In April 2010, Ladenburg and the
Company entered into an agreement with the former employee resolving all claims, which had no material effect on the
Company’s 2010 financial statements.
In January 2011, two former clients of Triad filed an arbitration claim concerning their IRC Section 1031 like-kind exchange
investments made in 2006. The customers have asserted claims for breach of contract, constructive fraud, breach of fiduciary
duty, unsuitability, and failure to supervise, and are seeking approximately $1,800 in compensatory damages. The Company
believes the plaintiff’s claims are without merit and intends to vigorously defend against them.
In January 2011, two former clients of Triad filed an arbitration claim concerning variable annuities purchased in 2008. The
customers have asserted claims for breach of contract, fraud, negligence, misrepresentation, breach of fiduciary duty,
unsuitability, negligent supervision, and violations of state securities statutes, are seeking approximately $442 in
compensatory damages. The Company believes the plaintiff’s claims are without merit and intends to vigorously defend
against them.
Eight arbitration claims have been filed against Triad in 2010 and 2011 by customers asserting that a former registered
representative of Triad sold them, not through Triad, guaranteed investments that were fraudulent. The customers have
asserted, among other claims, claims for fraud, negligence, theft, conversion, §10(b) violations, failure to supervise, respondeat
superior, breach of fiduciary and other duties, and are seeking a total of $660 in compensatory damages. The Company
believes the plaintiff’s claims are without merit and intends to vigorously defend against them.
During the fourth quarter of 2009, one of our broker-dealer subsidiaries had a short-term net-capital deficiency, discovered
during a routine regulatory review that was not disclosed properly on a monthly FOCUS report. The Company has taken
corrective actions, including reporting the deficiency to governmental and self-regulatory organizations, filing amended
FOCUS reports for historical periods, reviewing net capital compliance for historical periods, implementing new procedures to
monitor net
F-21
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
11. Commitments and Contingencies – (continued)
capital compliance, and terminating the employees who had primary responsibility for monitoring and reporting its net
capital. The Company is unable to determine whether and to what extent any governmental and/or self-regulatory
organizations may seek to discipline the subsidiary concerning this matter. Such disciplinary actions could include fines, a
suspension of such subsidiary's operations and/or rescission of revenues relating to the period of non-compliance, any of
which could have a material adverse effect on the subsidiary's results of operations and financial condition.
In the ordinary course of business, the Company’s subsidiaries are defendants in litigation and arbitration proceedings and
may be subject to unasserted claims or arbitrations primarily in connection with their activities as securities broker-dealers or
as a result of services provided in connection with securities offerings. Such litigation and claims may involve substantial or
indeterminate amounts and are in varying stages of legal proceedings. When the Company believes that it is probable that a
liability has been incurred and the amount of loss can be reasonably estimated, the Company includes an estimation of such
amount in accounts payable and accrued liabilities.
Upon final resolution, amounts payable may differ materially from amounts accrued. The Company had accrued liabilities in
the amount of approximately $286 at December 31, 2010 and $453 at December 31, 2009 for these matters. For other pending
matters, the Company is unable to estimate a range of possible loss; however, in the opinion of management, after consultation
with counsel, the ultimate resolution of these matters should not have a material adverse effect on the Company’s consolidated
financial position, results of operations or liquidity.
12. Off-Balance-Sheet Risk and Concentrations of Credit Risk
Ladenburg, Investacorp and Triad do not carry accounts for customers or perform custodial functions related to customers’
securities. They introduce all of their customer transactions, which are not reflected in these financial statements, to their
clearing brokers, which maintain the customers’ accounts and clear such transactions. Also, the clearing brokers provide the
clearing and depository operations for proprietary securities transactions. These activities may expose the Company to off-
balance-sheet risk in the event that customers do not fulfill their obligations to the clearing brokers, as each of Ladenburg,
Investacorp and Triad has agreed to indemnify their respective clearing brokers for any resulting losses. Each of Ladenburg,
Investacorp and Triad continually assesses risk associated with each customer who is on margin credit and records an
estimated loss when management believes collection from the customer is unlikely.
The clearing operations for the Ladenburg, Investacorp and Triad securities transactions are provided by one clearing broker, a
large financial institution. At December 31, 2010 and 2009, a significant percentage of securities owned and the amounts due
from clearing brokers reflected in the consolidated statements of financial condition are positions held at, and amounts due
from, this one clearing broker. The Company is subject to credit risk should this clearing broker be unable to fulfill its
obligations.
In the normal course of its business, Ladenburg, Investacorp and Triad may enter into transactions in financial instruments
with off-balance sheet risk. These financial instruments consist of financial futures contracts, written equity index option
contracts and securities sold, but not yet purchased. As of December 31, 2010 and 2009, Ladenburg, Investacorp and Triad
were not contractually obligated for any equity index or financial futures contracts; however, Ladenburg and Triad sold
securities that they do not own and will therefore be obligated to purchase such securities at a future date. These obligations
have been recorded in the statements of financial condition at market values of the related securities and Ladenburg and Triad
will incur a loss if the market value of the securities increases subsequent to December 31, 2010.
F-22
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
12. Off-Balance-Sheet Risk and Concentrations of Credit Risk – (continued)
The Company and its subsidiaries maintain cash in bank deposit accounts, which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit
risk on cash.
13. Shareholders’ Equity
Repurchase Program
In March 2007, the Company’s board of directors authorized the repurchase of up to 2,500,000 shares of the Company’s
common stock from time to time on the open market or in privately negotiated transactions depending on market conditions.
The repurchase program is being funded using approximately 15% of the Company’s EBITDA, as adjusted. As of December
31, 2010, 1,013,194 shares had been repurchased for $1,753 under the program.
In April 2009, the Company repurchased 4,500,000 shares of common stock at a price of $0.60 per share (an aggregate of
$2,700) in a privately-negotiated transaction. This purchase was not made under the Company’s share repurchase program,
which remains in effect.
Warrants
As of December 31, 2010, outstanding warrants to acquire the Company’s common stock were as follows:
Expiration Date
2013
2016
2016
2016
2017
Exercise
Price
Number of
Shares
$
.95
.94
.96
.68
1.91
500,000
1,500,000
600,000
2,300,000
2,000,000
6,900,000
In April 2010, the Company entered into an agreement with a former employee to reduce the exercise price of warrants to
purchase 2,300,000 shares of common stock to $0.68 from $0.96 per share. This modification resulted in a charge to non-cash
compensation of $243, based on the excess of the fair value of the modified warrant over the fair value of the original warrant
immediately before the modification.
14. Earnings Per Share
Basic net loss per share is computed using the weighted-average number of common shares outstanding. The dilutive effect of
common shares potentially issuable under outstanding options and warrants is included in diluted earnings per share. The
computations of basic and diluted per share data for December 31, 2010, 2009 and 2008 were as follows. During 2010, 2009
and 2008, restricted stock, options and warrants to purchase 30,012,740, 27,921,290, and 28,862,415 common shares,
respectively, were not included in the computation of diluted loss per share as the effect would have been anti-dilutive.
15. Stock Compensation Plans
Employee Stock Purchase Plan
Under the Company’s Qualified Employee Stock Purchase Plan, a total of 10,000,000 shares of common stock are available for
issuance. As currently administered by the Company’s compensation committee, all full-time employees may use a portion of
their salary to acquire shares of LTS common stock under this purchase plan at a 5% discount from the market price of LTS’
common stock at the end of each option period. Option periods have been set at three month periods and commence on
January 1, April 1,
F-23
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
15. Stock Compensation Plans – (continued)
July 1, and October 1 of each year and end on March 31, June 30, September 30 and December 31 of each year. The plan is
intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. During 2010,
62,274 shares of LTS common stock were issued to employees under this plan, at prices ranging from $0.89 to $1.19; during
2009, 210,048 shares of LTS common stock were issued to employees under this plan, at prices ranging from $0.50 to $0.68;
during 2008, 196,305 shares were issued at prices ranging from $0.68 to $1.78 per share; resulting in a capital contribution of
$63, $118 and $285 for 2010, 2009 and 2008, respectively.
Amended and Restated 1999 Performance Equity Plan and 2009 Incentive Compensation Plan
In 1999, the Company adopted the 1999 Performance Equity Plan (as amended and restated, the “1999 Plan”) and in 2009 the
Company adopted the 2009 Incentive Compensation Plan (the “2009 Plan”), which provide for the grant of stock options and
other awards to designated employees, officers and directors and certain other persons performing services for the Company
and its subsidiaries, as designated by the board of directors. The plans each provide for the granting of up to 25,000,000
awards with an annual limit on grants to any individual of 1,500,000. Awards under the plans include stock options, stock
appreciation rights, restricted stock, deferred stock, stock reload options and/or other stock-based awards. Dividends, if any,
are not paid on unexercised stock options. The compensation committee of the Company’s board of directors administers the
plans. Stock options granted under the 2009 Plan may be incentive stock options and non-qualified stock options. An
incentive stock option may be granted only through August 27, 2019 under the 2009 Plan and may only be exercised within
ten years of the date of grant (or five years in the case of an incentive stock option granted to an optionee who at the time of
the grant possesses more than 10% of the total combined voting power of all classes of stock of LTS (“10% Shareholder”)).
Incentive stock options may no longer be granted under the 1999 Plan. The exercise price of both incentive and non-qualified
options may not be less than 100% of the fair market value of LTS’ common stock at the date of grant, provided, that the
exercise price of an incentive stock option granted to a 10% Shareholder shall not be less than 110% of the fair market value
of LTS’ common stock at the date of grant. As of December 31, 2010, 23,755,000 and 1,525,654 shares of common stock were
available for issuance under the 2009 Plan and the 1999 Plan, respectively.
F-24
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
15. Stock Compensation Plans – (continued)
A summary of the status of the 1999 Plan at December 31, 2010 and changes during the years ended December 31, 2010, 2009
and 2008 are presented below:
Options outstanding, December 31, 2007
Granted
Exercised
Forfeited
Expired
Options outstanding, December 31, 2008
Granted
Exercised
Forfeited
Expired
Options outstanding, December 31, 2009
Granted
Exercised
Forfeited
Expired
Options outstanding, December 31, 2010
Vested or expected to vest
Options exercisable, December 31, 2010
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
13,083,416
4,068,500
$
(901,867)
(537,634)
—
15,712,415
1,105,000
(26,875)
(1,301,000)
(372,250)
15,117,290
3,200,000
(706,050)
(416,000)
—
17,195,240
17,086,458
11,387,240
$
$
$
1.44
1.75
0.58
1.87
—
1.56
0.83
0.58
1.48
3.57
1.46
0.90
0.59
1.96
—
1.38
1.38
1.41
8.01
$ 10,332
7.69
343
6.91
200
6.53
6.52
5.62
$
$
$
2,980
2,960
2,066
A summary of the status of the 2009 Plan at December 31, 2010 and changes during the years ended December 31, 2010 and
2009 are presented below:
Granted
Options outstanding, December 31, 2009
Granted
Options outstanding, December 31, 2010
Vested or expected to vest
Options exercisable, December 31, 2010
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
140,000 $
140,000
1,105,000
1,245,000 $
1,076,085 $
35,000 $
0.79
0.79
1.03
1.00
1.01
0.79
$
9.75
9.34
9.36
8.75
$
$
$
—
—
—
211
178
13
F-25
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
15. Stock Compensation Plans – (continued)
Non-Plan Options
The Company has granted stock options to newly-hired employees in conjunction with their employment agreements or in
connection with acquisitions, which are outside of the option plans. A summary of the status of these options at December 31,
2010 and changes during the years ended December 31, 2010, 2009 and 2008 are presented below:
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
Options outstanding, December 31, 2007
Exercised
Options outstanding, December 31, 2008
Exercised
Options outstanding, December 31, 2009
Exercised
Forfeited
Options outstanding, December 31, 2010
$
7,750,000
(1,500,000)
6,250,000
(486,000)
5,764,000
(639,000)
(650,000)
$
4,475,000
1.16
0.51
1.32
0.47
1.39
0.47
0.66
1.63
Vested or expected to vest
4,475,000
$
1.63
Options exercisable, December 31, 2010
4,475,000
$
1.63
8.52
$
7,434
7.83
6.97
6.44
$
6.44
$
6.44
$
334
112
177
177
177
The weighted-average grant date fair value of employee options granted during the years ended December 31, 2010, 2009 and
2008 was $0.58, $0.58 and $1.17, respectively. The fair value of each option award was estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted-average assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
Year Ended December 31,
2010
0.00%
92.23%
2.77%
6.25
2009
0.00%
96.8%
2.57%
6.2
2008
0.00%
99.9%
3.13%
6.2
During 2010, 2009 and 2008, the Company considered authoritative accounting guidance when reviewing and developing
assumptions for the 2010, 2009 and 2008 grants. The weighted average expected life for the 2010, 2009 and 2008 grants
reflects a permitted alternative simplified method, which defines the expected life as the average of the contractual term of the
options and the weighted-average vesting period for all option tranches. Expected volatility for the 2010, 2009 and 2008
option grants is based on historical volatility over the same number of years as the expected life, prior to the option grant date.
As of December 31, 2010, there was $4,358 of total unrecognized compensation cost related to non-vested share-based
compensation arrangements, including restricted shares referred to below. This cost is expected to be recognized over the
vesting periods of the options and restricted shares, which on a weighted-average basis is approximately 1.34 years.
The total intrinsic value of options exercised during the years ended December 31, 2010, 2009, and 2008 amounted to $960,
$146 and $3,492, respectively. Tax benefits related to option exercise were not deemed to be realized since net operating loss
carryforwards are available to offset taxable income
F-26
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
15. Stock Compensation Plans – (continued)
computed without giving effect to the deductions related to option exercises and the deferred tax assets related to those net
operating losses have been fully reserved.
Non-cash compensation expense relating to stock options was calculated using the Black-Scholes option pricing model,
amortizing the value calculated over the vesting period and applying a forfeiture percentage as estimated by the Company’s
management, using historical information. The Company has elected to recognize compensation cost foroption awards that
have graded vesting schedules on a straight line basis over the requisite service period for the entire award. For the years ended
December 31, 2010, 2009 and 2008, non-cash compensation expense relating to stock option agreements granted employees
amounted to $5,439, $6,984 and $5,856, respectively.
On September 1, 2005, the Company granted to certain advisors options to purchase an aggregate of 1,200,000 shares of the
Company’s common stock at an exercise price of $0.51 per share under the 1999 Plan. The options, which expire on August
31, 2015, vested 25% on each of the first four anniversaries of the grant date. The Company recorded a charge of $528 and
$221 for the fair value of the options for the years ended December 31, 2009 and 2008, respectively, based on the Black-
Scholes option pricing model.
In September 2010, the Company granted 200,000 restricted shares of the Company’s common stock to employees pursuant to
the 2009 Plan with vesting conditioned upon the employees continued employment at September 23, 2012. As of December
31, 2010, the Company has recorded an expense of $28 associated with the grants, and there was unrecognized compensation
cost of $178 included above.
16. Segment Information
The Company has three operating segments. The Ladenburg segment includes the investment banking, sales and trading and
asset management services and investment activities conducted by Ladenburg and LTAM. The independent brokerage and
advisory services segment includes the broker-dealer and investment advisory services provided by Investacorp and Triad to
their independent contractor financial advisors. The Premier segment includes the trust services provided by Premier.
Segment information for the years ended December 31, 2010, 2009 and 2008 is as follows:
Ladenburg
Independent
Brokerage and
Advisory
Services(1)
Premier(3)
Corporate
Total
$
2010
Revenues
Pre-tax (loss) income
Identifiable assets
Depreciation and amortization
Interest
Capital expenditures
Non-cash compensation
$ 41,194
(4,364)
21,484
1,620
16
110
1,464
150,409 $
1,061
75,939
2,239
26
437
1,707
970
25
2,367
51
—
61
28
$ 1,953
(6,812)(2)
2,035
68
3,199
—
2,240
$ 194,526
(10,090)
101,825
3,978
3,241
608
5,439
F-27
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
16. Segment Information – (continued)
Ladenburg
Premier(3)
Corporate
Total
Independent
Brokerage
and
Advisory
Services(1)
2009
Revenues
Pre-tax (loss) income
Identifiable assets
Depreciation and amortization
Interest
Capital expenditures
Non-cash compensation
2008
Revenues
Pre-tax (loss) income
Identifiable assets
Depreciation and amortization
Interest
Capital expenditures
Non-cash compensation
$ 38,671
(8,006)
20,940
1,764
21
338
2,270
$ 41,997
(8,140)
24,802
1,532
35
453
1,912
$
$
111,931
802
72,108
2,311
19
61
1,938
79,190
203
73,343
1,809
29
93
2,153
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
73
(10,400)(2)
1,589
68
3,937
—
3,326
$ 150,675
(17,604)
94,637
4,143
3,977
399
7,534
$
(217)
(11,307)(2)
3,523
97
4,470
—
2,200
$ 120,970
(19,244)
101,668
3,438
4,534
546
6,265
(1) Includes Triad from August 13, 2008.
(2) Includes interest, compensation, professional fees and other general and administrative expenses.
(3) Includes Premier from September 1, 2010.
17. Related Party Transactions
On August 13, 2010, Investacorp entered into a five-year office lease with Frost Real Estate Holdings, LLC (“FREH”), an
entity affiliated with Phillip Frost, M.D., the Company’s chairman of the board and principal shareholder. The lease provides
for aggregate payments during the five-year term of approximately $1,581 and commenced on October 1, 2010. Rent expense
under such lease amounted to $84 in 2010.
In 2007, the Company entered into a lease for office space with FREH, which expires in January 2012 and which provides for
minimum annual payments of $490. Rent expense under such lease amounted to $512, $490 and $464 in 2010, 2009 and
2008, respectively.
The Company is a party to an agreement with Vector Group Ltd. (“Vector”), where Vector has agreed to make available to the
Company the services of Vector’s Executive Vice President to serve as the President and Chief Executive Officer of the
Company and to provide certain other financial and accounting services, including assistance with complying with Section
404 of the Sarbanes-Oxley Act of 2002. Various executive officers and directors of Vector and its subsidiary New Valley serve
as members of the board of directors of the Company, and Vector and its subsidiaries own approximately 7.7% of the
Company’s common stock at December 31, 2010. In consideration for such services, the Company agreed to pay Vector an
annual management fee plus reimbursement of expenses and to indemnify Vector. The agreement is terminable by either party
upon 30 days’ prior written notice. The Company paid Vector $600, $600, and $500 for 2010, 2009 and 2008, respectively,
related to the agreement.
F-28
TABLE OF CONTENTS
LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
17. Related Party Transactions – (continued)
Howard Lorber, the vice-chairman of the Company’s board of directors, a firm he serves as a consultant to, and affiliates of that
firm received insurance commissions aggregating approximately $208, $14 and $51 in 2010, 2009 and 2008, respectively, on
various insurance policies issued for the Company and its subsidiaries.
In May 2008, upon the completion of the Punk Ziegel merger, the Company paid $250 to the then brother-in-law of Mark
Zeitchick, an executive vice president and director of the Company, as payment for introducing the Company to Punk Ziegel.
See Note 10 for information regarding loan transactions involving related parties.
18. Quarterly Financial Data (Unaudited)
2010:
Revenues
Expenses
Loss before income taxes
Net loss
Basic and diluted loss per
common share(b)
Basic and diluted weighted
average common shares
1st
43,971
$
48,135(a)
$
(4,164)
(4,403)
(0.03)
$
$
$
$
$
$
Quarters
2nd
3rd
47,584
$
49,625(a)
$
(2,041)
(2,229)
(0.01)
$
$
48,363
$
51,341(a)
$
(2,978)
(3,205)
(0.02)
$
$
4th
54,608
55,515(a)
(907)
(1,114)
(0.01)
167,893,655
170,744,411
181,327,242
182,605,129
(a) Includes $1,760, $1,605, $1,291 and $783 charge for non-cash compensation in the first, second, third and fourth quarters
2010, respectively.
(b) Due to rounding, the sum of the quarters’ basic and diluted loss per common share amounts does not equal the full fiscal
year amount.
2009:
Revenues
Expenses
Loss before income taxes
Net loss
Basic and diluted loss per
common share
Basic and diluted weighted
average common shares
1st
33,290
$
39,290(a)
$
(6,000)
(6,241)
(0.04)
$
$
$
$
$
$
Quarters
2nd
3rd
34,326
$
39,165(a)
$
(4,839)
(5,158)
(0.03)
$
$
39,246
$
43,066(a)
$
(3,820)
(3,728)
(0.02)
$
$
4th
43,813
46,758(a)
(2,945)
(3,546)
(0.02)
171,727,332
167,318,633
167,624,573
167,876,256
(a) Includes $1,921, $1,666, $1,685 and $2,262 charge for non-cash compensation in the first, second, third and fourth quarters
2009, respectively.
F-29
Exhibit 21
The following are direct wholly-owned subsidiaries of the registrant:
SUBSIDIARIES OF REGISTRANT
NAME
STATE OF ORGANIZATION
Ladenburg Thalmann & Co. Inc.
Ladenburg Thalmann Asset Management Inc.
Investacorp, Inc.
Investacorp Advisory Services Inc.
Triad Advisors, Inc.
Delaware
New York
Florida
Florida
Florida
Not included above are other subsidiaries which, if considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary, as such term is defined by Rule 1-02(w) of Regulation S-X.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Ladenburg Thalmann Financial Services Inc. on
Form S-8 (Nos. 333-82688, 333-101360, 333-101361, 333-124366, 333-130024, 333-139246, 333-139247, 333-139254, 333-
147386 and 333-163007) and on Form S-3 (Nos. 333-141517, 333-153373, 333-150851, 333-37934, 333-71526, 333-81964,
333-88866, 333-122240, 333-117952, 333-130026, 333-130028 and 333-139244) of our reports dated March 10, 2011, with
respect to the consolidated financial statements and effectiveness of internal control over financial reporting of Ladenburg
Thalmann Financial Services Inc. included in this Annual Report on Form 10-K for the year ended December 31, 2010.
Exhibit 23.1
/s/ EisnerAmper LLP
New York, New York
March 10, 2011
SECTION 302 CERTIFICATION PURSUANT TO
RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES ACT OF 1934, AS AMENDED
Exhibit 31.1
I, Richard J. Lampen, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ladenburg Thalmann Financial Services Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 10, 2011
By:
/s/ Richard J. Lampen
Name: Richard J. Lampen
Title: President and Chief Executive Officer
SECTION 302 CERTIFICATION PURSUANT TO
RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES ACT OF 1934, AS AMENDED
Exhibit 31.2
I, Brett H. Kaufman, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ladenburg Thalmann Financial Services Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 10, 2011
By: /s/ Brett H. Kaufman
Name: Brett H. Kaufman
Title: Senior Vice President and Chief Financial
Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Ladenburg Thalmann Financial Services Inc. (the “Company”) on Form 10-K for the
year ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
Richard J. Lampen, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operation of the Company.
Dated: March 10, 2011
By:
/s/ Richard J. Lampen
Richard J. Lampen
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Ladenburg Thalmann Financial Services Inc. (the “Company”) on Form 10-K for the
year ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brett
Kaufman, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operation of the Company.
Dated: March 10, 2011
By:
/s/ Brett H. Kaufman
Brett H. Kaufman
Senior Vice President and Chief Financial Officer